Dear Editor,
Reference is made to SN’s blogger, Justin, (SN August 10 blog on Andre Brandli’s letter). He explained Guyana’s share of oil revenues as follows: “Your mango tree has 100 mangoes which sell for $10,000 on the market. I pay 2% royalty. But I have the right to 75% cost recovery+ 50% profit sharing, and you get $1,450 as net. The villagers exclaim that “you mek $10,000 from the mango tree today!”, but in your hand you have a $1,000 bill, 4 $100 bills, and if you’re lucky, a commemorative $50 bill. This can’t even buy a box of fried rice” (End-of-quote).
Editor, I have attempted here below to provide a fuller explanation of some aspects of the oil contract. I have also tried to rebut the Gov’t’s perspective as represented by folks like Dr. Randy Persaud. The government’s position amounts to ceding portions of our sovereignty to Exxon. This has happened in Chad. It should not happen here in Guyana. I like Justin’s mango illustration – and it does work out to 14.5%. Or, as I say 14.5 barrels out of every 100. But we still have not made our case. GoG spokesmen have said “as we pay down CAPEX, Guyana’s share will rise from 14.5/100 barrels to say 50/100 barrels’. We can accept this if it were only true. It turns out this is a falsehood. If Exxon is adding to CAPEX with every new oil well/oil field/pipeline, then commonsense tells us it will never be paid down – and all the reserves will be depleted. This is called Absence of Ring Fencing. It gets even worse, much worse.
Compare the reality of this PSA with the Concept of Retained Earnings. Exxon takes out say, $5 billion for CR every year, so CAPEX is reduced by $5 billion. Sounds great. But here is the trick. Exxon ploughs back that same $5 billion to do another well/pipeline. CAPEX rises by $5 billion. Result: Exxon comes in for a bigger share of profits (more wells, greater production). This only happens in the event of Retained Earnings, namely, profits stay in the business to allow for expansion. Exxon’s taking out the profits, then ploughing it back in – this is a case of turning RE on its head. It’s a killer strategy designed by these rapacious oil companies. Dr. Randy Persaud argues: Guyanese should show gratitude to Exxon for investing in Guyana – and to show sympathy for Exxon whenever, wherever they lose money – as in the case of their write off of $25 billion in Russian in 2021 when the war broke out.
Dr. Randy misses the point in all of this. We have come a long way from Columbus’ time in the 1500’s – trinkets exchanged for gold. Today in 2023, people in oil host countries have a pretty good idea of contracts (how and when they can be renegotiated) and the value of our oil resources. Concepts of Sovereignty and Independence are all traded away – ceded away to the oil companies. VP Jagdeo has turned this into an era of Shifting Sovereignties. Renegotiation is “not stopping progress”; “chasing away investors”; ending oil drilling/extraction. It is negotiating for Fair Value of our oil resource.
Sincerely,
Mike Persaud
