Guyana’s royalty percentage “low” – Ram

Oil revenue

By Samuel Sukhnandan

Although it was recently announced that Guyana will now receive a two per cent royalty on gross earnings and 50 per cent of the profits of the oil proceeds when production starts in 2020, Chartered Accountant and Attorney Christopher Ram says that this percentage is relatively low when compared to royalties received by oil-producing countries in the world.
However, Ram stressed that one needed to bear in mind that some countries do not receive any royalty at all. “Royalties in other countries do seem much higher, but then you have to look at the overall Government share of profits…It’s a complex issue. But again, the royalty percentage is low,” he said.
While explaining that he may not be able to make a sufficiently balanced comment especially since there is limited information available to the general public, the chartered accountant expressed hope that Government would, at some point, be able to renegotiate the contract so that Guyana received a better deal.
“You have to see the entire contract to see the arrangements for the Government’s share and the company’s share. There is also the question that you have to honour contracts,” he added.
Asked whether he is pleased with the consultation process being implemented by the Government, Ram said he hoped that it became widespread and more comprehensive.
“I would like to see more myself. And I would like to see wider consultation as well. You also want to see more informed consultation. You just don’t want somebody to come and make a long speech and at the end, you have a question or two to ask,” he emphasised.
Commenting on the same issue, well-known economist and former presidential advisor, Ramon Gaskin says the fact that the contract has not been publicly released will cause Guyanese to ask many questions and could possibly lead to much speculation.
Nevertheless, Gaskin said Government must now say whether the profit share is inclusive of the royalty, and whether production would actually begin in 2020.
Gaskin argued too that the two per cent royalty that was recently announced by Government was far below what other countries were getting. He said in some cases, countries in Africa were receiving between 10 and 12 per cent royalties.
He also highlighted the fact that ExxonMobil still did not have a production licence but an exploration licence, but oddly enough they have a production-sharing agreement.
For many countries, royalty rates for oil production vary, but the lowest of them all is between five and seven per cent, which includes to some extent equal profits of the oil proceeds.
For example, in Malaysia, royalty rates are paid on petroleum production set in agreements between the oil company and the federal Government and each of the 13 state governments.
These currently provide for five per cent of the value of the petroleum obtained to be paid to the state in which the oil is found, and five per cent to be paid to the federal Government.
In Mexico, when the price of oil is lower than US$48 per barrel, a royalty rate of 7.5 per cent is applicable; when the price of oil is equal to or higher than US$48 per barrel, the royalty rate is determined according to a set formulae agreed on by both parties.
Extraction from the offshore Liza field locally is expected to commence in 2020 at an initial rate of 100,000 barrels of crude per day in the first phase.
The offshore discovery in Guyana has around two billion barrels of high-quality oil.