OIL: Despite higher Govt. take; stricter policies; oil companies still flock to Suriname

Map showing location of Suriname’s Block 58 and Guyana’s Stabroek Block

Guyana was not the only South American country that struck black gold offshore last year. In fact, our neighbour to the east, Suriname, had announced three consecutive oil finds in its Block 58 in early 2020.

Following this discovery, international oil companies immediately began to flock Suriname, says the former Chief Executive Officer (CEO) of Suriname’s Staatsolie, Rudolf Elias. What Elias thought pertinent to highlight in a Kaieteur Radio interview, is that although the Suriname government has a higher take from its oil resources, and despite the fact that it imposes stricter policies, oil companies are running to set up shop in Suriname waters.     

Revenue share
Former Managing Director of Suriname’s Staatsolie, Eddie Jharap, had calculated that the probable revenue share from the production of oil in Block 58 would be 36 percent of gross production.

This is noteworthy, as Guyana is set to get a 14.5 percent revenue share from gross production revenues on its Stabroek Block. Despite the fact that Guyana’s Stabroek Block is much more lucrative, Suriname’s revenue share would amount to almost three times that of Guyana.
First off, the royalty for Block 58 is 6.25 percent of gross revenues, which is more than three times Guyana’s 2 percent.

Aside from the payment of royalty, the operational costs of about 20 percent of gross production are to be paid, Jharap had explained. He also pointed out the investment costs during the first five years, which would be about 20 percent of oil production per year.

The remaining 53.75 percent of the gross production is referred to as profit oil. As a concession holder, the state company, Staatsolie, obtains 16 percent of gross production free of charge.

Of the remaining 37.75 percent profit oil, the investors are to pay 36 percent income tax to the State of Suriname, which amounts to about 13.59 percent of gross production. A summation of royalty, Staatsolie’s share, and income taxes amounts to 35.84 percent of the gross production.

Staatsolie also has an option to participate up to a maximum of 20 percent with investment capital, in which case, Suriname’s share of the production would move from 35.84 percent to 43.39 percent of gross production.

In Guyana’s case, the investors recoup their investments by up to 75 percent of gross production, leaving 25 percent as profit oil. The profit oil is split 50-50 between them and the government. The oil companies pay no taxes. The government also receives two percent of gross production as royalty. Half of profit oil gives Guyana 12.5 percent of gross production. Added to a royalty of two percent, Guyana’s total revenue share is 14.5 percent of gross production.

Seat at the table
During the virtual January interview, former Staatsolie CEO, Elias, was asked to provide some insight into the Surinamese experience in being a partner with oil companies that are interested in developing discoveries. He was quick to note that the benefits, particularly as it relates to monitoring costs to be incurred, provide a strong case for countries to have a seat at the table.

To this he said, “It is critical to have a seat at the table because you get to have someone who is part of the project team and who will know firsthand what are the costs…and we know there is a transparent process they will go through because we are at the table. They can’t inflate, because we are there to see it and that is why I say Staatsolie should always have a seat at the table, because we want to know the costs of the different projects because it is the basis for the inflow the government will have.”

Currently, Staatsolie had a 20% participation stake in oil deals. Elias had indicated that it once stood at 10%, but after Guyana struck oil with one discovery after the other, Suriname was inclined to raise it to 20%.

Many have criticized Guyana’s contract with ExxonMobil as lopsided and unfair to the people. Despite facing international and local condemnation, neither of the major political parties has shown interest in securing better terms for the people. ExxonMobil has even boasted that it has received assurances from the parties that the contract will remain intact, and that its projects will be allowed to move forward.

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Comments

  • brandli62  On 03/17/2021 at 10:09 am

    The former CEO of Suriname’s state oil company Staatsolie has been advertising the advantages of having a state oil company. Initially, I felt that it might be good for Guyana to establish its own state oil company. Talking to experts made me change my mind. State oil companies have been in many countries a source of huge corruption and inefficiency. Examples are PEMEX in Mexico, Petrobras in Brasil and the Venezuelan state oil company. The experts said that the better model is an efficiently run state oversight agency that monitors all the contracts and operations in the oil sector. This makes a lot of sense.

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