The Bank of Guyana has reported that United States (US) oil giant ExxonMobil recovered US$4 billion in cost recovery for just the first half of this year, bringing the country closer to a time when Guyana’s oil revenue share from the Stabroek Block will substantially increase.
Under the terms of the 2016 Production Sharing Agreement, ExxonMobil is allowed to recover its investment in the Stabroek Block, via cost recovery. Specifically, no more than 75% of revenue from ExxonMobil’s share of oil lifts goes towards cost recovery.
According to the Bank of Guyana in its half-year report, Exxon recovered US$4 billion in the first half of 2023 through this mechanism. The report notes that this cost recovery was partly responsible for a deficit in the capital account of the Bank of Guyana.
“The current account recorded a higher surplus from increased crude oil exports, however, the overall balance of payments recorded a larger deficit of US$196.4 million compared to US$100 million for the same period last year. This outturn reflected a capital account deficit which was relatively higher than the current account surplus.”
“The shortfall in the capital account was due to the outflow of oil revenues to the Natural Resource Fund (NRF) as well as cost recovery (withdrawal of equity) by the oil and gas sector despite higher inflows to the private sector in the form of foreign direct investments (FDIs) which expanded from US$1,946.3 million to US$4,045.3 million,” the report states.
At present, Guyana earns approximately 14.5 per cent of overall revenue from the Liza One and Two fields, separate from its profit share. Last year, Exxon recovered a total of US$7.4 billion from the Stabroek Block.
With a total of some US$30 billion in investments offshore Guyana, ExxonMobil had already recovered the cost of its first oil-producing development in the Stabroek Block, Liza Phase 1, as of this year.
The development cost for the 120,000 barrels per day Liza Phase 1 project is pegged at some $3.7 billion. It is estimated that by next year, Exxon will recover its investment from its first two projects in the Stabroek Block, resulting in Guyana’s revenue increasing to at least 50 per cent.
Since taking office, the People’s Progressive Party/Civic (PPP/C) Government has produced an improved model PSA that, among other things, reduces the cost recovery ceiling from 75 per cent to 65 per cent. This ensures that from the initial investment, more revenue from oil production comes to Guyana.
Other features in the PSA under the new fiscal terms include signing bonuses as high as US$20 million signature for companies that secure deep-water blocks, and US$10 million for the shallow-water blocks.
Additionally, all future PSAs would include 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.
This model PSA is being applied to future oil contracts, which could be awarded as soon as this year since the recent conclusion of the oil blocks’ auction. During the auction, a total of 14 bids were received from six companies, for eight of the 14 oil blocks off Guyana’s shores on the auction block.
The 14 oil blocks that were up for tender included 11 in the shallow area and three in the deep-sea area, ranging from 1000 to 3000 square kilometres (sq km). It is expected that the awarding of the new oil blocks will be done by the end of this year.
US oil major ExxonMobil, which is already producing oil offshore Guyana, is one of the six oil companies that submitted bids for the blocks. The other companies are SISPRO INC (Guyana); Total Energies EP Guyana BV; Qatar Energy International E&P LLC; Petronas E&P Overseas Ventures SDN BHD (Malaysia); Delcorp Inc Guyana and Watad Energy and Arabian Drillers of Saudi Arabia; Liberty Petroleum Corporation of the US and Ghana-based Cybele Energy Limited; International Group Investment Inc and Montego Energy SA (London).
There is also interest from governments in developing Guyana’s oil blocks. Among the countries that have expressed a willingness to work at a government-to-government level were India, Qatar and more recently, the Dominican Republic.