Introduction
Today’s column has two primary goals. The first is to provide non-specialist readers, after five successive weekly columns, with a brief re-cap of the distinguishing elements of the Buxton Proposal. At the risk of some repetition, this is done solely for the convenience of such readers. And the second goal is to introduce the key petroleum metrics that undergird the economics and finances of the Buxton Proposal.
Before pursuing these two goals, I take the opportunity here and now to debunk the fake news as well as the noise and nonsense that, relentlessly, keep representing, falsely, the global crude oil industry, as if it was still dominated by the production and trade of “big oil” or transnational corporations, TNCs. At the risk of sounding like a broken record, I record once more here that, as far back as May 2010 a decade before Guyana’s first oil, Ian Bremmer had reminded us in the Wall Street Journal that, the leading global producers of crude oil were all state-owned National Oil Companies, NOCs. NOCs accounted for 75 percent of global output then and were home to several oil revenues-to-cash-for-citizens transfers.
These NOCs included Saudi Aramco, China National Oil Company, Gazprom, Petrobras, Petronas, National Iranian Oil Company, Indian Oil Company, Sinopec, and Petroleos de Venezuela. It is amazing how far the print and social media will go in deception.
In what follows, the two tasks listed above are addressed in the order indicated.
In Summary
In an earlier summary, the essence of the Buxton Proposal was reduced to eight (8) distinguishing elements. These are listed briefly below.
1. The Proposal represents my call for direct, regular (annual or otherwise), predictable time-bound payments to all Guyanese households. Time-bound is determined by the daily rate of crude oil production, DROP, (in barrels of oil equivalent, boe).
2. Cash transfers from oil wealth to citizens are implicitly and explicitly conditional. Why? These are designed a) to support households’ accumulation of human, financial and productive assets and b) to protect households from low and fluctuating incomes/consumption. Lack of such “support” along with “low and fluctuating incomes/consumption” are indeed viewed as easily the leading drivers of income poverty in Guyana.
3 At its implementation and executing peak, the Buxton Proposal cash transfer target is set at an annual payment of US$5,000 (1.05 mln G$) to each household. The Proposal kicks in fully, at the peak target level. To be precise this target level is defined as: when, and only when, the daily rate of crude oil production (boe), DROP is at full ramp-up. Full ramp-up according to the Petroleum Metrics of the Road Map that I have prepared requires attaining a DROP that ranges between 1.5 and 2.5 million barrels per day of oil equivalent, mboed.
4. Cash transfers however, can commence whenever the Authorities determine. These are basically pro-rated to the full ramp-up DROP target level. Thus, for example, a DROP of 500,000 boed would yield 0.33 of the target level of US$5,000 (1.05 mln G$) with a DROP of 1.5 mln boed. Similarly, a DROP of 750,000 boed yields 0.50 of the target level, and, a DROP of 300,000 boed, yields 0.2 of the target level, and so on.
5. With approximately 210,000 households in Guyana, the estimated annual cost at full ramp-up is US$1.05 bln.
6. To ensure Government budgetary affordability, the total annual budget for the Buxton Proposal is subject to the externally imposed binding constraint or cap of a maximum of 10 percent of Government Take.
7. Since cash transfers are financed from export income (foreign exchange (oil)) adverse macroeconomic effects are constrained.
8. Finally, the recommended feasibility/pilot study shall advise on the basic operational matters; such as the trigger level to initiate the scheme, frequency of payments (one or several annually), types of allowable transfers, legal identification of household recipient, and so on.
Guyana’s Petroleum Metrics
Turning to the second goal, in this Section I introduce the data that were used in support of the petroleum finances and metrics, which speak to the viability of the Buxton Proposal, at full ramp-up as defined above. The Schedules listed to be introduced are:
1. Estimates of Guyana Government Take up to the publication of the Proposal.
2. Rystad Energy average Government Take from offshore E&P sector for selected countries
3. Other Rystad Energy’s Analytics Guyana-based
4. Thomas’ similar analytics
5. Estimated Government Take (at full ramp-up)
6. Comparators: Thomas’ analytics, Rystad Energy and Wood Mackenzie
7. Average Annual Oil Price [Brent]
8. Rystad Energy metrics
9. Guyana-Suriname Basin USGS Assessment: Oil & Gas – Undiscovered Fully Risked Resources, 2000
These petroleum metrics reveal three key relations, previously addressed in the Guyana Petroleum Road Map series of Sunday Stabroek columns These will be revisited in detail in the remaining columns and are listed below by way of conclusion.
Conclusion – IDB
The relations are:
First, Guyana petroleum revenue sales are a function of estimated reserves (Table 9), the DROP (Table 4) and price of Guyana crude (Table 7).
Second, Profit earned is a function of petroleum sales, cost (Table 3) and profit (Table 3).
Third, Government Take is a function of the PSAs (Tables 1, 2, 5).
Since the original publication of the Buxton Proposal, the Inter-American Development Bank, IDB, has released a study conducted by its Infrastructure and Energy Sector [Technical Note No IDB-TN-1994] entitled, ‘Traversing a Slippery Slope Guyana’s Oil Opportunity,’ August 2020. Its results in estimating Government Take are added to the discussion on metrics, which follows.
