THE Production Sharing Agreement between CGX Resources and the Government of the Cooperative Republic of Guyana, signed in 2013 by then President Donald Ramotar, spells out that the rate for cost recovery is 75 per cent of production.

According to the document released on Saturday, recoverable contract costs means costs that the contractor is permitted to recover as from the date they have been incurred. It means that out of every dollar made from oil production, 75 cents go to the operator as repayment for costs incurred.

After cost oil/gas of 75 per cent is removed, the profit oil/gas of 25 per cent is then split 53/47 in favour of the Government of Guyana. As per the agreement, some of the expenses that are considered cost recoverable are acquisition, renewal and relinquishment of surface rights, labour and associated costs, transportation, charges for services, material, rentals, duties and other assessments, insurance and losses, training costs, legal expenses, interest and financing costs and abandonment costs.

Those expenses which are cost recoverable only with the approval of the minister are donations and contributions to organisations in Guyana, and expenditure for research into and development of new equipment, materials and techniques for petroleum exploration and production.

The PSA also stipulates that there shall be retroactive adjustments to the oil and gas entitlement, and this shall be an agreement with the minister based on recalculations using actual quantities of oil and gas produced and saved and recoverable contract costs.

The contractor is expected to prepare every month a cost recovery statement containing recoverable contract costs carried forward from the previous month, recoverable contract costs for the month in question, the total recoverable contract costs, and the quantity and value of cost oil/gas taken and disposed of by the contractor for the month in question. This cost recovery statement has to be submitted to the Minister no later than 30 days at the end of such month.

Following the release of the ExxonMobil Petroleum Agreement in December last year, there has been a vibrant debate nationally regarding the nature of the agreement and whether Guyana came away with a fair deal. One of the issues that stirred concern was that of cost recovery and, whether Guyana will be able to ascertain accurately what can and cannot be claimed as recoverable costs by ExxonMobil and its joint venture partners HESS and CNOOC Nexen.