With Guyana already receiving almost US$55 million for its first one million barrels of oil sold last month, it is expected that it will receive its first royalty payment, representing the first quarter of the year, today.
The Cap Philippe was used to transport Guyana’s first lift of oil
According to Section 15.6 of the agreement with Exxon, “the contractor shall pay, at the Government’s (decision) either in cash based on the value of the petroleum, a royalty of two per cent of all petroleum produced and sold, less the quantities of petroleum used for fuel or transportation in petroleum operations, from all production licences subject to the agreement.”
The section goes on to say that royalty payments “shall be due quarterly, 30 days following the end of each calendar quarter. Within 180 days following the end of each year, assessment receipts evidencing payment of contractor’s royalty shall be furnished by the Minister to the contractor stating the amount and other particulars customary for such receipts”.
The royalty has to be deposited into the Natural Resource Fund (NRF) account held by the Bank of Guyana at the Federal Reserve Bank of New York. Like the US$55 million already deposited, Government cannot access the funds until Parliament reconvenes.
However, there is a provision in the contract whereby the Minister (Natural Resources Minister Raphael Trotman at the time the contract was drafted) can choose to defer the contractor’s obligation to pay Guyana until a later date.
“Subject to the conditions of Section 49 of the Act, the Minister may remit in whole or in part, or defer payment of, any royalties payable by the contractor,” Section 15.7 of the contract goes on to say.
Back in December, the Department of Energy had announced that Guyana’s share of the first three lifts of one million barrels of oil each would be sold to Shell. Shell was chosen ahead of companies like Exxon, CNOOC, Hess and BP, all of which bid for the oil. But since the oil were to be sold on the spot market, there have been questions as to whether Guyana would earn less money for the oil.
In defending the decision, the Department had said that at the end of the process, Shell had the most competitive yet secure pricing. The Department had also claimed that Shell’s global trading reach, Latin American interests and willingness to share refinery info were factors in the decision. In addition, they had reported that Shell was ready to support the Energy Department in operating the cargoes.
“The decision was based on the following criteria: A competitive pricing that limits the Government’s exposure to market uncertainty; the size, scale and global reach of the Shell trading operations, the company’s high level of integration between upstream, trading, and downstream,” the Department had said.
The Department also cited Shell’s “strong foothold in the Latin American markets and the size and scale of their shipping and storage operations in the region, allowing for multiple options on the Liza crude commercialisation.
The range of new grades Shell has recently introduced into the market and their willingness to share critical refinery information with the DE which Guyana needs in order to understand Liza crude behaviour.”
Guyana lifted its first million barrels of profit oil in February, with oil tanker <<<Cap Philippe>>> transporting it from the <<<Liza Destiny>>> Floating Production, Storage and Offloading (FPSO) vessel and received its first payment the next month.
But in the wake of the global uncertainty in financial markets caused by COVID-19, a number of businesses have had to re-evaluate their operations. Among these companies were ExxonMobil, the world’s largest publicly traded oil company, which announced last month that it would seek to scale down its operations.
