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Guyana to lose $1.8 billion from ExxonMobil’s 50% windfall tax in 2023
There have been protests from both inside and outside Guyana against the Guyanese government’s work with oil companies to seek a fair oil deal.
Kaieteur News – The huge profits made by ExxonMobil and its partners in the Stabroek block last year could net Guyana $1.8 billion in windfall taxes. Excess revenue from rising oil prices is known as windfall income. Oil-producing countries around the world tax the huge windfall profits earned by oil companies, but Guyana’s policymakers have firmly opposed introducing such fiscal regulations here.
EMGL currently has three Floating Production Storage and Offloading (FPSO) vessels in operation. These vessels have a capacity to produce more than 640,000 barrels of oil per day.
In its 2023 annual report, the company highlighted that a total of 142 million barrels of oil were produced and sold last year; Guyana received 17 million barrels of profit oil. The average Brent crude oil price in 2023 was $83 per barrel.
However, according to project documents seen by this newspaper, ExxonMobil expects an average oil price of $53 per barrel. At this rate, ExxonMobil will earn $6.6 billion from the remaining 125 million barrels of oil in 2023. In contrast, at a price of $83 per barrel, ExxonMobil’s revenue is about $10.4 billion. Therefore, the rise in oil prices has given ExxonMobil and its joint ventures a huge windfall of $3.8 billion.
If Guyana follows Other major oil producing countries And note Advice from international experts By imposing a 50% windfall tax on these huge gains, the country could have received an additional $1.9 billion in revenue.
Significantly, the amount of windfall tax lost by the country exceeds the actual revenue deposited into the Natural Resources Fund (NRF) in 2023. Last year, the fund reportedly received $1.6 billion in profits and royalties.
Guyana is often praised by U.S. oil majors for the high quality of its crude. In fact, just last month, the Kaieteur News reported that Guyana’s cost of producing a barrel of oil is the lowest in the industry.
The International Energy Forum (IEF) and S&P Commodity Insights, in a June 2024 report titled “Upstream Oil and Gas Investment Outlook,” revealed the changing dynamics of global oil production costs, specifically highlighting Guyana’s position as a cost-effective producer in the industry.
The report shows that the Middle East has the lowest average breakeven price at about $30 per barrel of Brent, followed by Guyana at $36 per barrel. In contrast, the average breakeven price for new wells in the United States is about $57 per barrel of Brent.
The term “breakeven” simply refers to the average cost required to repay investors and earn a return.
Windfall tax
Oil companies operating in the UK will continue to face a 75% tax to cover the huge windfall they are about to receive after it was recently revealed that the chancellor has extended the Energy Profits Tax (EPL) – a windfall tax on UK oil and gas profits – by one year until March 31, 2029.
Other countries, such as Germany, imposed a 33% windfall tax on record profits of oil and gas companies in 2022. The Indian government also announced in 2022 that it would further tax the profits of oil companies, deciding to increase the windfall tax on crude oil from 9,500 rupees (116.49 US dollars) per ton to 10,200 Indian rupees (125.22 US dollars) per ton.
Some other countries, including the United States, Australia, Canada and Mongolia, have also introduced energy profit taxes.
Earlier, Vice President Bharrat Jagdeo told reporters that Guyana could not replicate the model because “we are bound by a production sharing agreement (PSA) which has very specific clauses in terms of taxation.”
To that end, he suggested, “If you change taxes here, it’s a default.”
In distinguishing between Guyana and the ABC countries, Jagdeo said these companies have been operating in these jurisdictions for decades and should therefore be subject to the standard taxation regime of the countries in which they operate.
The Vice President said that in such cases, the parliaments of these countries could easily make changes through legislation, such as imposing a windfall profits tax.
He maintained that this was the main reason why Guyana could not do the same and that if the government did go ahead with the legislative changes, it would be considered a breach of contract and “we would be in breach of the agreement.”
It must be noted that both ExxonMobil and the government have deviated from the terms of the production sharing contract, such as the need for audits and feasibility studies on the utilization of gas resources, but the government continues to find excuses to work with the company in order for the country to reap more benefits from its resources.
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