THERE is a view being propagated by a certain media house that the Government of Guyana will owe Exxon some $20 billion by 2025, suggesting that the government will have to borrow money to repay this debt. This view, however, is contextually incorrect. It is not a case where the government somehow would have to find US$20 billion by 2025 to repay Exxon.

The investment of itself will repay the investors their capital investment and will yield a profit which will be shared between the government and the oil company; in other words, the future oil revenues. The PSA has a 75 per cent cost recovery threshold from which the contractor will recover the initial investment. The projected capital investment for the Stabroek block over the life of the project is US$60 billion and the life of the project is 30 years.

Therefore, one can safely divide US$60 billion by 30 years, that’s US$2 billion per year X five years = US$10 billion; plus, pre-discovery cost and investment to date is about US$10 billion by now, that’s how the proponents arrived at the US$20 billion figure by 2025 – which is based on Exxon’s projected investment.

In other words, what the proponents are saying is Exxon’s projected investment by 2025 would be US$20 billion but what they did not say is that Exxon will recover that investment from production and the revenue generated therein – of which there is a 75 per cent cap, which is quite disingenuous.

Further, it is Exxon’s shareholders’ funds being invested ($20B) which will be recovered from the investment itself – not the Government of Guyana funds or the people of Guyana.
The Government gets a profit share which works out to 12.5 per cent + two per cent royalty = 14.5 per cent and this is a guaranteed 14.5 per cent until the end of the cost recovery period.

Noteworthy to mention, because of the 75 per cent cost recovery threshold, the recovery period for these investments will be very short. Liza phase 1, in the above illustration for example, using an average price per barrel of US$45 at an annual production capacity of 43.8 million barrels of crude, the investment cost of US$4.3 billion will be recovered within three years using the payback method. With the Net Present Value (NPV) investment appraisal method and a discount rate of 10 per cent, the investment can be recovered within four years.

As such, from the Liza 1 alone Guyana can earn over US$2 billion in the first five years and up to US$6 billion within ten years – taking the post recovery period into the equation. In other words, Guyana’s projected earnings from the Liza 1 development alone over the first decade is equivalent to 120 per cent of current GDP; 3.5 times current level of total public debt and five times government’s revenue using 2019 figures.

The development cost is usually the highest cost and, therefore, when the development cost is recovered, the operating expense is minimal since the infrastructure to extract the crude is already in place.

This view, with reasonable certainty, can be substantiated through a perusal of Exxon’s 2018 annual report which confirmed that total operating cost was just about 27 per cent of total revenue. Hence, this means that in the post recovery period, profit share will be greater assuming, for example, that operating cost will be 30 per cent of total revenue, then effectively there will be 70 per cent of revenue for profit share of which 50 per cent is Guyana’s share.

Therefore, Guyana’s profit share can be as much as 35 per cent post recovery period + 2 per cent royalty resulting in a total take of 37 per cent; up from 14.5 per cent during the recovery period in the first three to four years for Liza Phase 1 development alone. In addition, Liza phase 2 and many other FPSOs and development fields will be operationalised over the decade.

The Guyanese people, therefore, need to recognise that ExxonMobil and its partners are not Guyana’s enemy as some persons in society would want us to believe. ExxonMobil is Guyana’s development partner and instead of chastising the oil company, we need to look for win-win situations for Guyana and all its development partners.