Page 4 - LatAmOil Week 29

LatAmOil COMMENTARY LatAmOil
Guyana facing debates over royalties, revenue distribution ahead of rst oil
The South American state is working to establish a favourable investment climate while also addressing serious questions about future oil earnings
WHAT:
Georgetown has been urged to raise royalty rates and impose more detailed restrictions on its sovereign wealth fund.
WHY:
The government ought to have solid plans in place for how to handle oil revenues in place before it begins collecting the money.
WHAT NEXT:
Additional public debate is likely, but the country also needs to make some decisions.
GUYANA is moving closer towards becoming an oil producer – and perhaps even a major pro- ducer, given projections that its o shore depos- its could be yielding more than 1mn barrels per day (bpd) by the end of the next decade.
e South American country still has some distance to travel before it reaches this objective, though. It has yet to begin commercial develop- ment, and its biggest investor, the US super-ma- jor ExxonMobil, will not achieve rst oil until next year.
e Liza eld, which lies within the Stabroek block, is due to start production by the end of the rst quarter of 2020. ExxonMobil has made more than 10 discoveries at Stabroek since it began exploring the block in 2008, and it hopes eventually to extract 750,000 bpd from elds within the contract area.
Of course, Guyana’s government is eager to reap the bene ts of such projects, which are sure to generate revenue, create jobs and promote demand in sectors of the economy that can serve the oil companies and their personnel. But it will need to take steps along the way to establish policies that serve the country’s best interests. is essay will discuss two of the policy priori- ties identi ed by Guyanese o cials and outside experts.
Royalty rates
One of the policy questions now confronting the government has to do with the contractual terms under which investors operate at Guya- nese oil and gas elds. More speci cally, it relates to royalty taxes.
Currently, Guyana requires the holders of oil and gas licences to pay royalties at the rate of 2%. is is the rate stipulated in ExxonMobil’s contract for Stabroek, and it has garnered a fair amount of criticism from observers who say it favours investors ahead of the country itself.
Some of these critics have urged Georgetown to raise the royalty tax rate to 5%, pointing out that many other hydrocarbon producers use this number.
Meanwhile, others have gone even further, lobbying for an even higher royalty rate in the hope of generating additional revenues for Guyana.
But Alessandro Bacci, an upstream oil and gas analyst for GlobalData, argued for a rela- tively modest increase in royalties. Pushing the rate above 5% could discourage investments in exploration and production by making Guya- nese oil and gas less attractive and less compet- itive, he was quoted as saying by Energy Voice last week.
Guyana’s “ government will
need to take steps along the way to establish policies that serve the country’s best interests
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ExxonMobil
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w w w . N E W S B A S E . c o m Week 29 24•July•2019