Reference is made to my letter published in Kaieteur News on October 22, 2024 and captioned ‘Measuring oil profits in Liza One’. In response, Mr. Dominic Gaskin in his letter published in Stabroek News on Oct. 23, 2024 disagreed with some of the points I made in my letter, as identified above. Permit me, Editor, to respond to some of the observations made by Mr. Gaskin.
In my letter of October 22, 2024, I pointed out the fact that Guyana was receiving meagre returns for our non-renewable natural resources due to a ‘profit squeeze’. In contrast, Mr. Gaskin unreservedly supported the ‘profit squeeze’ imposed on Guyana by the consortium of EMGL, Hess and CNNOC. For example, he states that ‘…the contactor is … able to fund new exploration and development from current production as long as the total recovery or cost oil does not exceed 75% of the value of production in any month…’
He further states that ‘…the 75% cost recovery limit refers to recoverable costs incurred by the contractor across the entire block and is applied to the value of all production in the block…’ These statements by Mr. Gaskin confirm the ‘profit squeeze’ that the consortium is imposing on Guyana, given the lopsided PSA that refers to Guyana as the Non-Owner Associate, even though Guyana owns the resource and paid the consortium’s taxes (US$1.47 Billion) from its meager share of total revenue in 2023.
Christopher Ram has identified the extent of the profit squeeze as follows: ‘…the oil companies have earned five times more than the Government under a 50/50 profit share Agreement. … that the oil companies are engaging in lopsided front-end loading to grab as much as possible, as fast as possible. While draining the natural resources of Guyana, they are squeezing every ounce of flesh and drop of blood from the body of Guyana.’ (https://www.stabroeknews.com/2024/06/28/features/the-road-to-first-oil/oil-companies-have-earned-five-times-more-from-oil-than-guyana/).
The fact that the PSA contains the condition that profits are to be shared equally (12.5 percent each of total revenue), this is not the case, for the consortium is aggressively ‘Profit Squeezing Guyana’; and unfortunately, Mr. Gaskin has joined with the consortium against Guyana; and he is therefore hindering our interest in obtaining a more equitable share of revenue from our resources. Incidentally, the view that Guyana will be obtaining more revenue as extraction increases is correct and irrefutable; but what is palpably undeniable is the fact that the persistent inequity condition will remain undiminished, given the profit squeezing arrangement in the current PSA.
Calculating the breakeven price and quantity on Liza One required the published financial information for exploration and development cost, and the total variable cost associated with the number of barrels of extracted oil from the reservoir of 452 million barrels of oil; and from which 200 million barrels of oil have already been extracted. The fixed investment costs for exploration and development in Liza One have been identified in the amount reported of US$3.5 billion. Regrettably, Mr. Gaskin seems not to know that the exploration and development costs of Liza One have been published; and therefore, calculating a breakeven price and quantity is a rudimentary exercise, given that the amortization of the fixed cost is supposed to be included as part of current expenses. And in keeping with financial transparency, the consortium should publish the amortization schedule so that the outstanding balance on Liza One fixed investment is available to the public and to the auditors, who were denied access to all the project information.
It was noted that the average total cost of a barrel of oil was US$36.00 as stated by OILNOW. Lamentably, Mr. Gaskin seemed to have had some sort of trouble with accepting this OILNOW breakeven price. Consequently, I contend that if Mr. Gaskin was familiar with the statement by Mr. Phillip Rietema, Vice President and Business Services Manager of ExxonMobil Guyana Limited (EMGL), he would have been enlightened and would have avoided this elementary mistake. In particular, Mr. Rietema stated that ‘…these (Guyana) projects, they all have costs of supply under $40 a barrel… as a team look to optimize the projects we try and drive that down as low as possible. Again, every dollar counts, every dollar matters.’ (https://www.kaieteurnewsonline.com/2024/07/02/exxons-guyana-operations-secure-with-us40-per-barrel-breakeven-point-phillip-rietema-vice-president-of-emgl/). Therefore, the breakeven price of US$36.00 is realistic, given Mr. Rietema’s insider information; and undoubtedly, Mr. Gaskin needs to do a better job on matters pertaining to oil extraction in Guyana.
Sincerely,
Dr. C. Kenrick Hunte
Professor and Former Ambassador
