— Exxon says will allow Guyana to grow economy through foreign investment

EXXON Mobil’s chief spokesperson Kimberly Brasington says that petroleum- sharing contracts as against royalties and taxes agreements are very common in “frontier markets” seeking to grow their economies through foreign investments.

The company’s senior director for public and government affairs articulated that in countries where oil-and-gas exploration and development are new, “Petroleum Sharing Agreements are oftentimes more attractive.”
She said it encourages investment in “frontier countries” such as Guyana, where the industry is new and requires large investment.
There are different types of oil-and-gas contracts, Brasington highlighted.

“There are those where countries make their revenues from taxes and royalties only, and those that earn their money from petroleum sharing.”

Guyana, she pointed out, has a petroleum-sharing agreement – also known as a PSA. This means the government on behalf of Guyana receives revenue mainly from the sale of the oil, and not taxes or royalties.

Brasington described Guyana as being unique, since this particular PSA includes not only the sharing of petroleum, but the payment of withholding tax on services and products, employees, and other local taxes and a two per cent royalty.

Contrary to what is being highlighted publicly, the spokeswoman said that ExxonMobil does face tax obligations while operating here. She noted, however, that Guyana’s returns from the company’s operation, is not derived from taxes and royalties specifically.

As it relates to the petroleum agreement, Brasington said the oil contract explains the tax arrangements and exceptions in Articles 15 and 21.

Article 15 of the oil contract which speaks to Taxation and Royalty indicates that apart from certain taxes that the company is subjected to pay, others such as value-added tax, excise, duty tax among others cannot be charged.

Article 21 speaks to import duties in which duty and other taxes were waived to allow the importation of work equipment and easy movement of materials in the execution of the company’s duties.

Brasington reminded that Guyana will receive 50 per cent of the profit oil, and the two per cent royalty which she said was an additional amount agreed upon in negotiation with ExxonMobil by the government.

She also reminded that the tax exemptions Guyana is affording the company are very common in frontier countries such as Guyan, where petroleum-sharing agreements versus Tax/ royalty contracts are signed.

ExxonMobil said that production-sharing contracts, such as the one Guyana has signed to, allow the parties signed to the PSC to own their share of the oil. PSCs divide gross production into what is referred to as cost oil and profit oil.

By the time production commences, the company said it would have spent an estimated US$4.4billion on its Liza Phase 1 alone.

Development and operating costs are recoverable, the company said. Exxon’s recovery is limited to 75 percent of the monthly oil production and this, they said, ensures that Guyana receives its share of the profit oil from day one. The company will thus recover its cost of exploration and development without profit.

Exxon said that “PSCs may have no royalty obligations, as the country’s primary compensation from the resource is profit oil.” They said that the initial bonus payments to a country is based upon their “risk profile” and “existing proven resource.”

Given Venezuela’s constant threats to Guyana’s territorial integrity and its past moves to prevent Guyana’s development of its oil industry, it had been said publicly that it would take a large international company with strong ties to develop the country’s oil resource.

ExxonMobil noted however, that it already had a signed contract with the government of Guyana and it felt it could have continued. They said because of that it was not seen as pertinent in the negotiations to offer Guyana a larger bonus.

ExxonMobil’s initial contract with Guyana was signed under the then People’s Progressive Party administration.