This agreement is more than fair compared to other new oil and gas producing countries
I am writing to respond to claims in a May 10 letter published in SN entitled “No country other than Guyana has ever received such low royalty and profit sharing and cost recovery” which claims a again that Guyana is a “victim” of a bad deal.
First, hyperbole of this proportion is unacceptable without an attempt to present the facts. Vishnu Bisram’s letter overlooks the fact that Guyana’s contract is at least average compared to other new producing countries. Guyana’s oil production could reach 1.2 million barrels per day by the end of the decade, which is expected to translate into annual oil revenues of US$30 billion, according to a study by Rystad Energy. 10 years.
Not even two years after the start of production, we are on the right track. To date, Guyana has received GY$150 billion from its oil operations and for the 2022 national budget, GY$126 billion is being used by the government to support the economic development of the country.
Bisram’s main claim is that the price of oil has almost doubled since the government signed the contract four years ago, but the percentage benefits have remained the same. It’s more a pun than a real accusation. Of course, the percentage benefits haven’t changed – that’s how contracts work and that’s exactly why percentages are used instead of fixed numbers. What has changed is that the profit Guyana makes from each shipment of oil has nearly doubled, from around US$60 million per shipment to over US$100 million this year.
Under the Stabroek Block Production Sharing Agreement, Guyana is entitled to:
• 2% royalty;
• 50% of all profits
• a cost recovery ceiling of 75%
This is more than fair compared to other new oil and gas producing countries like Suriname or Brazil, both of which have very similar compensation structures. This is not out of the ordinary and it is a gross mistake on Bisram’s part to imply that the government is essentially deceived. The reality is that the government’s average take is likely to be around 60% of the profit (taking into account both royalty before cost and profit after cost).
This places the country between Brazil at 63% and Mozambique at 57%. This very notion runs counter to Bisram’s implicit idea that successive governments of both parties have failed in their most basic duty.
It’s also important to remember what Guyana doesn’t get in this deal: financial risk. From 2015 to 2019, oil and gas companies invested approximately US$8.1 billion in exploration and development activities in the country’s offshore sector. Under the Guyanese tax regime, oil and gas companies investing in the offshore sector have assumed all risk during the exploration phase. No taxpayers’ money was ever invested in these efforts and Guyana incurred no debt. To do this development on our own, the debt required would have been almost unimaginable.
I have to question the motives of this letter because it is clear that Mr. Bisram finds reason to criticize the government and score political points. It’s especially disheartening when these claims run counter to all published reports and bare evidence of Guyana’s massive growth.
I hope that in the future we can all avoid the grand hyperbole in these letters and find the courage to hold others accountable in the face of inaccuracy.