The 2016 Petroleum Sharing Agreement does not contain any Article on ring-fencing. Does this omission give the oil companies the rights to do just as they please? There is no Amendment or addendum that permits the oil companies to subtract unlimited exploration and drilling costs from the extraction and sales of crude oil.
The 2016 Production Sharing Agreement (PSA) between Guyana and ExxonMobil (and partners) does not include ring-fencing provisions. By what Article or Amendment are the oil companies permitted to add up an infinite amount of capital recovery costs per year before arriving at distributable profits?
For one year, 75% of exploration, drilling, and development costs without any ring fencing are subtracted from crude oil sales, with the excess over 75% carried over into future years. A slither of 25% is split 50/50 for Guyana’s 12.5% plus 2% royalty, from which Guyana must pay the calculated profits tax at some unknown rate for and on behalf of the oil companies. After royalty, oil companies add 10½% to their 75% capital recovery take or 85½%.
If the one year crude oil sales were a loaf of bread with 24 slices, the oil companies walk away with 75% plus 10½%, 85½% equivalent to 20½ slices, leaving 3½ slices for Guyana; not even half a loaf.
The sole official addendum to the 2016 PSA, dated 26 April 2019, addresses only the issue of royalty cost treatment. “…the parties have come to a mutual and satisfactory agreement that the payment of royalty… shall not be recoverable cost, in any manner or formulation under the Petroleum Agreement.” See https://kaieteurnewsonline.com/2022/09/04/exxon-contract-was-renegotiated-by-granger-govt-in-2019-ram/
It is amazing that the oil companies can be permitted to subtract unlimited arbitrary capital recovery charges from the sale of crude oil. The matching principle in accounting, subtract the costs incurred in generating the revenue in order to arrive at profits has been compromised. The oil companies are demanding their pound of flesh. Guyana deserves its profit taxes and indeed, no arbitrary made-up rules for ring-fencing.
Sincerely,
Ganga Persad Ramdas
