Dear Editor,

THE journalists at Kaieteur News insist that ExxonMobil pay a 10% royalty after derisking the Guyana-Suriname oil basin. Furthermore, overseas non-profits have declared that the revised oil contract is “unfair” and “lopsided,” yet Ms. Valerie Marcel of Chatham House had admitted to Kaieteur News that she is “no fiscal expert.”

In the business world, oil companies such as ExxonMobil have to answer to shareholders who demand a profit for their investments. Therefore, countries which offer attractive terms for exploration and oil production are more likely to pique the interest of oil companies.

Despite calls made by Kaieteur News and others to raise royalty rates, this measure can backfire, as in the recent case of Nigeria proposing to increase royalties on oil production.

Viktor Katona for Oilprice.com has posited that increasing royalties for the oil companies is an unwise decision, because “First, some majors will simply leave.” (Nigeria’s Terrible Oil Decision)

It should be noted that “Exxon’s $8.2 billion Owowo West (140kbpd at peak) was postponed indefinitely.” (OilPrice). This illustrates that if royalties are set too high, the oil companies would look elsewhere for more attractive terms.

Furthermore, technology has changed the game for oil discoveries and production. One example is the booming shale oil industry in the United States. Additionally, oil companies including ExxonMobil, have been investing heavily in neighbouring countries such as Canada (Newfoundland) and Mexico (offshore). Therefore, increasing royalties can act as a double-edged sword. Theoretically, it would increase government share of revenues, but oil companies could also leave, halting oil production and stymieing future revenues for years.

Regards,
Riaz Hamid

(Disclaimer: At the time this letter was written, Riaz Hamid has no shares or beneficial interest in any of the mentioned companies.)