Dear Editor,
In 2015, the same year Guyana discovered crude oil in commercial quantities, Norway’s largest oil company then Statoil (name changed to Equinor) invested billions of dollars exploring the remote and geographically challenging region of the Arctic, in search of exploitable oil deposits. The outcome was major oil-field discoveries (e.g. Johan Castburg field in the Barents Sea). The company estimated that these oil-fields could yield in excess of 600 million barrels of oil. But decided not to commence extraction due to prevailing market forces. Equinor’s breakeven point was about US$80 – $85 per barrel; but economic changes – which were all forces beyond the company’s control, saw the price of Brent Crude fall from US$116 in 2014 to below US$50 per barrel in 2015. (Based on: Greenpeace. 2014/Statoil. 2015)
In Guyana’s context, oil discoveries are estimated at more than 8 billion barrels in the Stabroek Block. With the current price of oil hovering around US$41-43 per barrel Guyana’s breakeven price for oil is US$35 per barrel, being amongst the lowest in the world (according to Hess Corporation CEO, KN., 25/02/2020)
Given this breakeven point and the lucrative oil industry, Guyana should have capitalized on striking a better deal with the Production Sharing Agreement (PSA) with ExxonMobil (instead of 2% royalty, 12.5% on oil profit/14.5% on sales-revenue) plus taking into account that Guyana is bearing capital and operating costs.
In my view, Guyana should not have ventured into oil production until the following are in place:
1) A National Oil Company as a department under the Ministry of Natural Resources, staffed with “fit and proper” professionals to evaluate the oil sector and set clear objectives and partnership roles in order to define participation in joint-venture and production-sharing agreements.
2) Having legislated Local Content implemented in the interest of both the operators and the country. The Royal Institute of International Affairs, UK, sees “local content as the creation of jobs and supply chains to meet the needs of the petroleum sector and, conversely, the use of natural resources as a lever to build linkages with the rest of the economy. The purpose of developing national local content policies is to increase the value generated by the exploitation of a resource that remains in the domestic economy; and to develop linkages between the oil sector and rest of the economy. What matters is not only what happens in the sector but what happens beyond”.
3) Limit the amount of flaring and bringing of natural gas on-shore for beneficial purposes. “Gas flaring refers to the process of burning natural gas that is associated with crude oil when it is pumped up from the ground”. Flaring can be worth billions of dollars if the gas was captured and transported to be used as liquefied natural gas, for plastics and fertilizers.
Interestingly, natural gas is becoming an increasingly popular energy choice because of its reliability, affordability and when produced domestically emits considerably less carbon dioxide than other traditional energy sources.
Flaring releases carbon dioxide along with polluting methane and soot – which is contrary and a disincentive to both the LCDS and the GSDS.
According to a recent report, Nigeria first targeted gas flaring in the late 1970s and, through various schemes and regulations, has more than halved it since 2001. On record, oil companies such as, Chevron, Shell and Eni, which operate in Nigeria have cut flaring by some 90% and are working to cut it further. However, and unfortunately, ExxonMobil and Total have both declined comment on flaring. (https://www.nasdaq.com/articles/insight-nigerias-pioneering-gas-flaring-plan-risks-going-down-in-flames-2020-09-30)
In concluding, for those who propagate about preserving the sanctity of the PSA, I ask those individuals to assess it from a moral and ethical standpoint to see if the same contract doesn’t appear more like a “scamp [ity]” for a document.
Yours faithfully,
Paul Ramrattan
