Guyana getting “the lion’s share of the profits”

The content originally appeared on: INews Guyana

Vice President and Business Services Manager of ExxonMobil, Phillip Rietema related that the oil giant has only recovered some US$20 billion of the US$30 billion investments in Guyana as of the end of 2023 while asserting that the Guyana Government has been getting “the lion’s share of the profits”.

He also added that the company’s net cash flow is still in the negative.

“Our net cash flow is still negative…we’ve committed, through the six projects that we’ve talked about plus gas to energy to invest up to US$55 billion in these projects and we’re still exploring…” Rietema stated during a recent edition of the Energy Prospectives podcast.Nevertheless, he admitted that “we’ve had profitable operations, we’ve had earnings which as an investor that’s what you hope for, but we’re more than reinvesting those earnings into new projects…”

He reminded that “these investments, they don’t pay off in one year.”

The Exxon official further explained that the oil company expects to be operating in Guyana for decades and as such, the existing contract that governs the current operations must remain stable.

Meanwhile, he explained that the Guyana Government is actually earning “the lion’s share of the profits”.

“Under the agreement, you take the revenues that are earned, and then its split between what we call cost oil and profit oil. Cost oil…that is oil that we’re entitled to as the contractor to repay our cost. And so, in the early stage of development, as we are today where we’re investing a lot, up to 75 per cent of the revenues are available for repayment of those costs. It’s really just a repayment, once that’s repaid, then that cost oil share will be much lower than 75 per cent. Then the remainder is considered profit oil and that’s shared 50/50 between the contractor group and the government. In addition…there’s a royalty of 2 per cent of revenue that is paid to the government and that comes out of the profit oil share of the contractor group. So, the contract is structured in a way that the Government of Guyana, and the people of Guyana are always going to have the lion’s share of the profit…52 per cent of the profit is for Guyana and 48 per cent for the contractor group,” Rietema outlined.

He added that as revenue grows with increased production, the amount of profit oil will also significantly increase. When the company’s sixth multi-billion-dollar project in Guyana comes on stream in 2027, it will bring the country’s production capacity to approximately 1.3 million barrels per day.

The ExxonMobil official highlighted that the earnings in Guyana’s Natural Resource Fund is currently close to US$5 billion and external estimates predict this can grow to more than US$100 billion.

“Those are just really huge numbers. I always like to put in context, before our first production, the annual GDP of Guyana was on the order of US$5 billion and now we’re talking about revenues just from our six projects, which will be north of US$100 billion and so, clearly that’s transformative for Guyana and gives the government and people of Guyana lots of opportunities to grow and develop rapidly over the coming years,” Rietema posited.

In further putting things into context, he explained that before the discoveries in the Stabroek Block, over 40 dry wells were drilled in the basin. He also made references to the company’s exploration campaigns in other blocks like Canje and Kaieteur.

Rietema explained that the company had drilled multiple wells in both blocks but did not find any hydrocarbons in commercial quantities.

While they exited the Kaieteur Block last year, ExxonMobil is still conducting evaluations to determine if there are other opportunities to drill in Canje.

“It does highlight…the high-risk nature of the business we’re in. Walking away from Kaieteur, we spent significant amounts of money in that block…but that’s not money we can recover…that’s just a lost investment and that’s the nature of exploration, it’s high-risk, but if you have a great discovery like we do, multiple discoveries in the Stabroek Block, it can be very rewarding as well,” he explained.

The Liza Phase One, Liza Phase Two, and Payara projects, which are producing overall more than 600,000 barrels of oil per day, account for the three floating Production, Storage and Offloading (FPSO) vessels operating in Guyana’s offshore Stabroek Block.

ExxonMobil has been present in Guyana since 1999 and initiated exploration activities in 2008. According to the provisions of the 2016 Production Sharing Agreement (PSA) signed under the former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government, 75 per cent of gross revenue goes to cost oil while Guyana gets a total of 14.5 per cent from the remaining revenue and royalty and Exxon gets 10.5 per cent.

Under the new conditions of the model PSA that the People’s Progressive Party/Civic (PPP/C) Government has implemented, the cost recovery ceiling has been lowered from 75 per cent to 65 per cent.

This is in addition to including terms for all future PSAs to feature the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to a fixed rate of 10 per cent and the imposition of a 10 per cent corporate tax.

Additionally, Guyana stands to benefit from as high as US$20 million signature bonuses for the deep-water blocks and US$10 million for the shallow-water blocks based on the model PSA.

The model PSA is being applied to future oil contracts, which will likely be signed once the Government reaches agreements with the companies that were successful at Guyana’s inaugural oil block auction last year.