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Guyana fiscal take from oil bonanza will be around 37% – Tarron Khemraj

-Exxon, partners to cream off the remainder.

March 12 2018

Source

Dominic Gaskin

Economist Tarron Khemraj says that from all of the analyses he has seen of the oil deal for the Stabroek Bock, Guyana will end up getting just around 37% of the gross revenues while ExxonMobil and its partners will cream off the rest.

In his Business Page column in yesterday’s Sunday Stabroek, Khemraj also suggests that there may not be much room for Guyana to back out of the 2016 Production Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEGPL).

The APNU+AFC government’s secret renegotiation in 2016 of the 1999 PSA has evoked condemnation from prominent individuals and parts of civil society. The much-maligned agreement was concluded without expert negotiators being employ-ed and after the discovery by EEGPL of reserves of over one billion  barrels of oils in the Liza block with the prospect of more finds. The reserves have now ballooned to over three billion barrels of oil with more likely to be added. However, Guyana’s take will remain fixed to the 2016 terms no matter how  much oil is found.

In his column yesterday, Khemraj adverted to the recent arguments presented at a private sector forum by Minister of Business Dominic Gaskin about how much money Guyana could expect.

 

“The Government of Guyana will receive in the first year of oil production 2% of the gross value and 50% of profit oil. Based on the production of 100,000 barrels per day and at today’s oil price of about US$60 per barrel, this amounts to in excess of US$300M in government revenues in the first year. That’s not chicken feed,” he added.

He compared the revenues that the oil and gas sector would bring in to Guyana’s gold sector saying that the country’s current top export earner will pale compared to the returns from oil and gas.

Khemraj in his column said that Gaskin sought to shift the debate away from the percentages, rates and bonus to the expected aggregate inflow of revenues the government is likely to realize once production gets to 500,000 barrels per day. He added that Gaskin made a good point that Guyana does not have the capacity to exploit this natural resource and therefore, a partner with finance capital is needed. Khemraj  noted that Gaskin also said that going back on the contract will send a message of uncertainty to foreign investors.

Khemraj also pointed out that Kimberly Brasington from the local affiliate of ExxonMobil echoed a similar perspective about reneging on the contract.

“While Mr Gaskin was more aggressive in his posture, Ms Brasington delivered a subtle threat. She made it clear that changing the contract now will turn investors away from Guyana. The threat is credible since this is the way world capitalists operate. They not only read the news and follow keenly the business and financial press, but also meet at country clubs and golf courses. If they want to disrupt your market access they will do just that”, Khemraj asserted.

He added “Minister Gaskin does not want us to consider the gross revenues because the percentages and the signing bonus are in favour of ExxonMobil. All the market analysts and the economic analyses I have seen indicate that Guyana’s fiscal intake is under 40%. In other words, after accounting for royalty and 50/50 profit share, Guyana gets about 37% of revenues over the lifetime of the project. The bonus is just too low. It is clear the Granger government did not do the research. Furthermore, no one is asking for an exorbitant bonus. When I calculated a reasonable bonus, I accounted for the fact that ExxonMobil has a specific cost of capital or discount rate. A bonus of around US$200 million would not have disrupted its cost of capital”.

Proportionality

Khemraj further said that some kind of proportionality could have been negotiated on the government’s side in the 2016 agreement for when the market price exceeds certain upper thresholds. He noted that if the price increases to US$70, US$80 or US$100 per barrel, Guyana still receives 50% of profit after accounting for unit or average total cost.

The economist added that he has been unable to get a sense of how long it will take for ExxonMobil to recoup its fixed costs of exploration, development and pre-contract expenses. He said that he believed that Annex C of the contract is written to confuse the general public and allows for enough leakages so that it will be hard to pin down the average cost. He added that Annex C describes all costs as exploration costs, development costs, operating costs and the pre-contract expense of US$460.2 million.

“There is no cut off period for when exploration, development and pre-contract costs are recovered. This is important from a time value of money perspective and for the long-term average operating cost. The latter will have a direct impact on the 50/50 profit share. Furthermore, it is surprising from a non-discounting valuation standpoint why ExxonMobil would want to spread out long into the future its pre-production expenses such as development costs, exploration costs and the pre-contract expense. This just adds uncertainty to what exactly is the average total cost, which using the lingo of Annex C is the average (or per barrel) cost of exploration, development, operating and pre-contract expenses”, Khemraj said.

Noting Brasington’s assurance that ExxonMobil will be fair with respect to the average total cost, Khemraj said awareness of the global corporate governance framework under which Exxon conducts its business is important. He pointed out that Reuters reported on March 7 that ExxonMobil’s operating margin – the difference between revenues and variable costs – is 5.1%, a number significantly lower than the industry’s average of 13.5%. In the same article ExxonMobil made a commitment to increasing its operating margin by 2025.

“ExxonMobil played its best strategy that allowed the global giant to win a contract in its favour. However, a contract is a contract and there is probably not much room now to get out of it without incurring the wrath of the global capitalists. The Guyana government has signed off on a contract without seeking more information through a more inclusive approach. The APNU+AFC government played a strategy with limited information, which no doubt was motivated by pure political calculations….The result is Guyana will not obtain an optimal amount of revenues while the demand for these will be great’, he stated.

Replies sorted oldest to newest

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

FM
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

So Pot Solt comes on GNI to gather info., then writes his articles? 

FM
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

Bai dem man need foh learn from dem hussler and pushers. He down know what de rass he saying. 

FM
Leonora posted:
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

So Pot Solt comes on GNI to gather info., then writes his articles? 

Yea it seem like he use GNI foh info foh write SN article. Ehehe...

FM
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

37% would be the GREATEST DEAL in Oil History):  Kanta Prof on a Roll):

Nehru
Django posted:

Guyana fiscal take from oil bonanza will be around 37% – Tarron Khemraj

-Exxon, partners to cream off the remainder.

March 12 2018

Source

In his Business Page column in yesterday’s Sunday Stabroek, Khemraj also suggests that there may not be much room for Guyana to back out of the 2016 Production Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEGPL).

Usual unfocused rambling all over the map.

FM
Nehru posted:
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

37% would be the GREATEST DEAL in Oil History):  Kanta Prof on a Roll):

With that kinda revenues, me and me family just need to launch a few more charities in Guyana and collect bakshish from Granger and live the high life!  Pot Solt got me thinking!

FM
Demerara_Guy posted:
Django posted:

Guyana fiscal take from oil bonanza will be around 37% – Tarron Khemraj

-Exxon, partners to cream off the remainder.

March 12 2018

Source

In his Business Page column in yesterday’s Sunday Stabroek, Khemraj also suggests that there may not be much room for Guyana to back out of the 2016 Production Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEGPL).

Usual unfocused rambling all over the map.

Ehehehehe. Dem bais sayin fiscal term is bookkeepin term. Ehehehe. 

FM
Baseman posted:
Nehru posted:
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

37% would be the GREATEST DEAL in Oil History):  Kanta Prof on a Roll):

With that kinda revenues, me and me family just need to launch a few more charities in Guyana and collect bakshish from Granger and live the high life!  Pot Solt got me thinking!

Ehehehe. Mr TK juss call one a dem a street sense man pon SN. Here what de man seh.

Street sense can't help you here. If you want to learn how energy economists compare different kinds of contracts and their fiscal systems you have to look up how they calculate it. This is done for multiple countries since it's an equation that gives a standardize measure in spite of variations in contract. My advice to you is look it up if you have access through a university library. Do a search inside these two reliable energy economics journals: (i) Energy Economics and (ii) Energy Policy. Learn to write down the equation just like I learned. Good look.

FM
Demerara_Guy posted:
Django posted:

Guyana fiscal take from oil bonanza will be around 37% – Tarron Khemraj

-Exxon, partners to cream off the remainder.

March 12 2018

Source

In his Business Page column in yesterday’s Sunday Stabroek, Khemraj also suggests that there may not be much room for Guyana to back out of the 2016 Production Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEGPL).

Usual unfocused rambling all over the map.

Ehehehe 

FM
Labba posted:
Baseman posted:
Nehru posted:
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

37% would be the GREATEST DEAL in Oil History):  Kanta Prof on a Roll):

With that kinda revenues, me and me family just need to launch a few more charities in Guyana and collect bakshish from Granger and live the high life!  Pot Solt got me thinking!

Ehehehe. Mr TK juss call one a dem a street sense man pon SN. Here what de man seh.

Street sense can't help you here. If you want to learn how energy economists compare different kinds of contracts and their fiscal systems you have to look up how they calculate it. This is done for multiple countries since it's an equation that gives a standardize measure in spite of variations in contract. My advice to you is look it up if you have access through a university library. Do a search inside these two reliable energy economics journals: (i) Energy Economics and (ii) Energy Policy. Learn to write down the equation just like I learned. Good look.

Oye bai, nah get hyper. Then just define “Gross Revenues”. From a GAAP standpoint, I understand it one way. I believe it’s just terminology and definition, not substance!

BTW, mi like reading yuh stuff!

FM
Baseman posted:
Labba posted:
Baseman posted:
Nehru posted:
Baseman posted:

I see pot Solt asked some questions I posed on GNI!   Why he refer to 37% gross revenue?  If that was the case, it’s a killer deal. It means Guyana nets more than Exxon for doing nothing.  Pot Solt is all over the map!

37% would be the GREATEST DEAL in Oil History):  Kanta Prof on a Roll):

With that kinda revenues, me and me family just need to launch a few more charities in Guyana and collect bakshish from Granger and live the high life!  Pot Solt got me thinking!

Ehehehe. Mr TK juss call one a dem a street sense man pon SN. Here what de man seh.

Street sense can't help you here. If you want to learn how energy economists compare different kinds of contracts and their fiscal systems you have to look up how they calculate it. This is done for multiple countries since it's an equation that gives a standardize measure in spite of variations in contract. My advice to you is look it up if you have access through a university library. Do a search inside these two reliable energy economics journals: (i) Energy Economics and (ii) Energy Policy. Learn to write down the equation just like I learned. Good look.

Oye bai, nah get hyper. Then just define “Gross Revenues”. From a GAAP standpoint, I understand it one way. I believe it’s just terminology and definition, not substance!

BTW, mi like reading yuh stuff!

What he rass a seh bout Maths and energy economis? All abie need a post grad certificate fram Havard and law degree. And if yuh bin in de army better yet. Ehehehe...

FM
Riff posted:

From the little experience I have...37% gross is not bad for a country who is not putting in anything

Yuh gat foh look at the cost that will pop out of de blue. Dem bais seh Exxon not paying foh oil spill. 

FM
Labba posted:
Riff posted:

From the little experience I have...37% gross is not bad for a country who is not putting in anything

Yuh gat foh look at the cost that will pop out of de blue. Dem bais seh Exxon not paying foh oil spill. 

Datt ain’t popping out no blue, datt popping out de black!

FM
Riff posted:

From the little experience I have...37% gross is not bad for a country who is not putting in anything

Bai me get yuh point. Abie dese a daag and have to tek what dem man give abie. Abie dese get the less fiscal terms than any other kuntry. Only Mr Neroo kuntry England get woss fiscal term. 

FM
Labba posted:
Riff posted:

From the little experience I have...37% gross is not bad for a country who is not putting in anything

Bai me get yuh point. Abie dese a daag and have to tek what dem man give abie. Abie dese get the less fiscal terms than any other kuntry. Only Mr Neroo kuntry England get woss fiscal term. 

Why don’t you show Guyana vs few comps. Show using say 250k bpd and what would accrue to Guyana with their contract and what accrues to the other comps!   That would make it real. For many of us, it’s abstract.  

FM

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