Dear Editor,
Guyana got 17.4% of oil sales in profit for 2020. That number stands in the way of those who assert that it can only be 12.5%.
Numbers released by VP Jagdeo three weeks ago revealed that Guyana received US$184.9 Million in profit and US$21.2Million in royalty. Since royalty is calculated at 2% of sales, then sales were US$1,060 Million. So, Guyana’s profit as a percentage of sales was 17.4%. That is 184.9 out of 1060 equals 17.44%.
Any number above 12.5% should give pause to those who insist that Guyana’s profit is restricted to 12.5%. Guyana got more than that in its first full year as an oil producing nation.
To be clear, Guyana got 17.4% of sales in its share of the profit plus 2% of sales in its royalty receipts, making a total of 19.4%. Not bad in a generally dismal year for the oil industry, especially for Guyana’s two main partners in this enterprise – ExxonMobil and Hess Corporation, both of which reported substantial losses for 2020.
Editor, please allow me to point out that Guyana’s portion was obtained based on the contract as it stands, weaknesses notwithstanding.
I have read the Petroleum Agree-ment. I am not a Contract Attorney or an Oil and Gas Accountant or an oil and gas expert. But my understanding of Article 11 of the agreement is that:
1: profit is calculated monthly based on sales.
2: cost is based on the operator’s expenses that are explicitly allowed as recoverable costs, defined elsewhere in the agreement.
3: the amount of cost that the operator can claim in that month cannot exceed 75% of sales. If the cost turns out to be less than 75% of sales, then there is more profit to be shared between EEPGL and Guyana on a 50/50 split. I believe that the cost for all of 2020 was US$690 Million or 65% of sales. So there was 35% profit that was split equally between Guyana and EEPGL.
4: any of the operator’s cost not covered in any month is carried forward until covered. I believe that for Liza 1, a price of $48 and above makes that a non-issue. Even better, for Liza 2, a price of $34 and above will make this a non issue too. That’s because of anticipated lower cost of production in Liza 2.
Editor, please know that I have written someone at ExxonMobil who should be able to clarify my understanding. I wrote him yesterday but have not heard from him yet. If he tells that I am wrong, and that the others are right in asserting that Guyana’s profit will be limited to 12.5% of sales for many years to come, I will promptly let you know and will also congratulate those who were right all along, while I rue Guyana’s loss.
Yours faithfully
Tulsi Dyal Singh, MD
