Dear Editor,
Reference is made to a Kaieteur News (KN) article dated March 6, 2024, with the caption: “Guyana only receiving 0.5% royalty instead of 2% from Exxon – Professor Hunte”. The article was based on a letter to the editor and authored by Professor K. Hunte. The computation of the royalty by Professor Hunte is grossly incorrect and baffling to say the least.
In that regard, the professor argued that the royalty is calculated on profit oil instead of sales as per Article 15.6 of the Petroleum Agreement. The Professor relied on the 2022 financial statements for ExxonMobil Guyana (EMG, formerly EEPGL), Hess and CNOOC for his analysis, albeit a flawed and misleading analysis.
Ironically and thankfully, the evidence disproving the learned professor’s flawed analysis and computation is exhibited in the referenced KN article (March 6, 2024, edition), wherein a copy of EMG’s financial statements for 2022 was included as part of the report. To this end, EMG reported gross revenue of G$876.8 billion in 2022, representing EMG’s 45% stake in the Stabroek Block (Hess has 30% and CNOOC has 25%). In the said financial statement, royalty expense was G$18.9 billion, which represents 2.15% of gross revenue (sales). Similarly, Hess reported revenue of $591.5 billion for the year 2022 and royalty expense of $12.5 billion, which represents 2.1% of the gross revenue (sales).
The only notable difference in financial reporting is by CNOOC, whereby CNOOC’s financial statement reported on net sales as opposed to gross sales. As such, there is no royalty expense reflected on CNOOC’s financial statements. This is where I rather believe Prof. Hunte et.al, are confused. They are not quite sure how to read and analyze the financial statements correctly, as is evidently demonstrated herein.
Of note, the total royalties deposited into the Natural Resources Fund (NRF) in 2022 amounted to G$32.2 billion, whereas the royalty expenses reflected on the financial statements amounted to $31.4 billion. Clearly, the amount deposited in the NRF is greater than the reported amount in the financial statements of the oil companies.
The reason (s) for this variance are that (i) royalties are deposited every quarter into the NRF at the prevailing market price for crude, (ii) the financial statements are prepared based on the average price for the reporting period, and (iii) together with variances based on the differences in the exchange rate used for the conversion into the local currency.
Yours respectfully,
Joel Bhagwandin
