AS many Guyanese are aware, the Department of Energy announced this week that it plans to raise royalty rates for future contracts. This is an eminently sensible step given our streak of successful discoveries in the Stabroek block and clear international interest in Guyana. Companies are queuing up for the show – they can pay for entry!
I also note an advertisement in Kaieteur News comparing Guyana’s 2% royalty with 35 other countries which asks the question; “when will Guyana start demanding what it deserves?”
Perhaps a bit of context would be helpful when considering the Kaieteur News advertisement. Royalty rates are determined by a number of other factors in any contract, such as a country’s share of profit oil, tax structures and project timelines. Most importantly, royalty rates usually reflect how established a country is as a producer and the extent of proven reserves.
So why are all of these countries enjoying far higher royalty rates? Well, take a look at the table here, which examines the same countries:
Guyana trails far behind every other nation on the list. Recall that when the 2% royalty was agreed, we had just discovered oil and have still not produced a drop. So, we see that being a proven producer is key. Guyana’s exploration success certainly merits a raise in royalty rates, but I think we must proceed with the goal of establishing a track record as a reliable producer.
Think what we may about whether the original 2% royalty our government negotiated was appropriate, we Guyanese made a commitment in the eyes of the international business community. That commitment has spurred companies like ExxonMobil, Total, Tullow and Hess to invest heavily in further exploration which has driven our value ever higher.
Our officials and the Department of Energy have the leverage now – let us push them to drive a hard bargain on our future contracts. But let us also be aware that reneging on our old contracts may serve to unravel our appeal to those same future investors. If that is the route we choose, then so be it. But we must consider context, not potentially misleading facts and figures.