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Guyana may have reaped billions of dollars in U.S. oil profits this year as costs of three projects are recovered
This year…
Kaieteur News – Although ExxonMobil Guyana Limited (EMGL) has so far recovered more than $19 billion from oil revenues from Guyana’s Stabroek Block, more than enough to cover its investments in three oil-producing projects, the country will not benefit from a higher share of its resources this year.
If Guyana ring-fenced its oil projects in the Stabroek Block, the Liza One ($3.5 billion), Liza Two ($6 billion) and Payara projects ($9 billion) could all be reimbursed by 2023. Ring-fencing provisions require each project to pay for itself. After reimbursing the project costs, Guyana would receive 50% of the revenue generated by the project. This means a significant increase in revenues flowing to the Natural Resources Fund (NRF).
In the absence of this key principle, ExxonMobil is free to use revenues from these producing fields to finance projects that have not yet started production or to invest in its exploration activities in the block.
On Thursday, the company confirmed that it had recovered $19 billion in costs by the end of 2023. The three projects currently in operation had a total cost of $18.5 billion. This would have allowed the costs of the three projects to be settled by December 2023, and Guyana would have made more profit from the oil and gas industry this year.
In 2023, the Stabroek Block generated revenues of approximately $11.8 billion, of which $8.4 billion was deducted by ExxonMobil to recover costs, while Guyana’s oil revenues for that year were only $1.6 billion.
The 2016 Production Sharing Agreement (PSA) provides that 75% of all revenues generated each month are available for cost recovery. Costs not recovered in the current month are carried forward to the next month, while the remaining 25% is split equally between Guyana and ExxonMobil as profit.
Yesterday only Kaieteur News The International Energy Agency (IEA) stressed in its 2024 Oil Report that oil demand will slow in the coming years. The report explained that clean energy transition and “strong growth” in global electric vehicle sales are expected to lead to slower growth in oil demand, with global consumption peaking in 2029 and starting to decline the following year.
The International Energy Agency said that world oil demand is being affected by the transition to clean energy, and the agency has been actively advocating for accelerating energy transition in recent years.
The IEA said that continued soaring sales of electric vehicles, improved fuel efficiency of internal combustion engine vehicles, structural economic shifts, and a decline in oil use for power generation in the Middle East will begin to offset increased demand for oil from the petrochemical industry this decade. “As a result, the report forecasts that global oil demand (including biofuels) will stabilize at around 106 million barrels per day by the end of the decade, averaging just over 102 million barrels per day in 2023,” the agency said.
Such a large oil production buffer could lead to a lower oil price environment, posing a serious challenge to U.S. shale producers and the OPEC+ group, the report said. Guyana, as a relatively new oil producer, should be particularly mindful of the impact of the oil price crash on its economy, especially since the country has agreed to forgo early profits in the industry and no longer place limits on its projects.
The oil industry’s chief policymaker, Vice President Bharrat Jagdeo, previously explained, “We acknowledge that we are giving up revenue now for huge revenue in the future because that money will go into new projects that will increase production, so even with the same 50/50 share plus a 2% royalty, the revenue for Guyana in the future will be huge because of the larger scale, and we are deliberately giving up revenue for this period for that purpose, and trying to grab this bone now may result in you losing all bones and even bigger bones in the future.”
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