We need a definitive position on royalty
On the 15th of March, the Government of Guyana released its draft Model Petroleum Agreements for public scrutiny and comment/feedback within fourteen days and I would ask for clarity on the Royalty arrangement. My understanding is that Royalty should be free of production cost but numerous differing pronouncements on the 2016 Production Sharing Agreement are in the public domain; clarity on this seemingly simple issue has proven to be exceedingly difficult.
To simplify this we can substitute barrels of oil for percentage points, i.e. each barrel in a hundred represents one percentage point. If Royalty is free of production cost, then it must come out before production costs, 100 minus 2 Royalty to Guyana leaves 98, 75% goes to cost oil would be 73.5 to ExxonMobil, leaving 24.5 barrels to be divided equally between the oil company and Guyana, 12.25 Barrels for each side. Guyana’s total take while ‘cost oil’ exists is therefore 14.25 barrels per hundred. I have seen many utterances suggesting Guyana’s take is 14%.
Should ‘cost oil’ ever be fully recovered, then the share would be 100-2 for Guyana, then 98 divided by two 49 for each side, which gives Guyana 51 barrels per hundred; of course, there will always be some production costs, but the point is that according to my calculations, even under zero production cost, Guyana will never get 52% of production/profit as claimed by a recent ExxonMobil billboard.
Editor, I am open to correction as Guyana may have made an alternative arrangement of royalty calculation, but would ask that we get a definitive position on this issue going forward. Are we calculating royalties free of production costs or not? And if we are, have we been collecting 14.25% of barrels produced to date? Let’s get the present 2% calculating formulae correct before considering the future 10%.