Introduction
Today’s column continues my re-visit of Government Take and recoverable oil resources in Guyana. It offers an updated prediction of recoverable oil resources. While its perspective is shaped by many factors, two drivers lead it; namely, 1] a burgeoning global bullish outlook on Guyana’s hydrocarbons potential; and 2] the incentivizing/disincentivizing investor “price” set by the given Production Sharing Agreement (PSA). The first driver complements my previously expressed bullish outlook. And, the second, invokes the revised PSA template announced for coming oil block auctions.
For years, I have monitored numerous energy analysis and intelligence firms arriving at the conviction that my bullish outlook on Guyana’s hydrocarbons potential is understated at 11.2 billion boe. I have read analysts who privately advise clients of amounts roughly double this size. Thus, the world’s largest digital media energy platform circulates the description, “Guyana, one of the world’s hottest oil drilling zones’ [Source, Energy World, Economic Times, November 4 2022. The prediction is that by 2035, Guyana will be producing 1.7 million bbls/d becoming the fourth largest offshore oil producer.
Since 2016 I have repeatedly stressed that, the “Nobel Prize winning economic theory of incomplete contracts” assures the constant need to revise/re-negotiate Guyana’s ruling PSA. The announced template for the auction of 14 blocks next year shows significant adjustments to: size and location of exploration zones; signature bonus; royalty rate; cost recovery terms; profit split ratio; and, the introduction of ring fencing and corporation taxes.
I’ll return to these drivers next week in my concluding column.
Atlantic Mirror Image
I start by recalling my much earlier reference to Justin Stolte’s “Testing the Atlantic Mirror Theory”, urging the geological principle that, “the petroleum system of the Guianas Basin is a mirror image… of the petroleum system present in West Africa.” I am persuaded that the geologic structures across the Atlantic are shared, suggesting the similarities of the basins are responsible for the multiple companies exploring hydrocarbons offshore and onshore Guyana! Indeed, during the late 2000s and 2010s, several companies had engaged in systematic petroleum explorations, including: Repsol, Century Guyana Ltd, CGX Energy, Anadarko, RATIO Oil, Eco Atlantic, Tullow, NABI Oil and ExxonMobil.
From my reading it appears that, the Guianas Equatorial Margin, embraces two sedimentary basins (known collectively as the “Guianas Basins”). These are separated by the Demerara Plateau, which is a structurally high, thick succession of Jurassic and Lower Cretaceous carbonate-rich sediments.
I am convinced these shared geologic structures support the bold thesis that the petroleum system of the Guianas Basin is a mirror-image – labeled the “Atlantic Mirror” theory – of the petroleum system present in West Africa, where several elephantine petroleum accumulations have been discovered in recent years, including, the Jubilee discovery offshore Ghana.
I confess the theory is responsible for shaping my strongly bullish outlook on Guyana’s potential recoverable hydrocarbons. The USGS data though frame the specific quantities predicted.
Updated Prediction
Last week I re-stated that the Atlantic Mirror Image theory, along with results of two United States Geological Service, USGS, surveys, 2000 and 2012, formed the basis for my initial prediction of Guyana’s hydrocarbon resources. Representing the USGS results on a continuum, I opined that the reported 95 percent confidence value data reflect what I interpret as a cautious or conservative interpretation of the geological data. And, by parity of reasoning, the 5 percent value represents a more expansive or generous valuation. The middle position on this continuum is represented by the 50 percent value and the mean likelihood, as defined in the USGS Report. Taking the above into consideration I chose the mean likelihood from both surveys and then rounded up to the nearest whole number to arrive at 13-15 billion boe.
More heroically, I further assumed this circumstance supported the thesis of asymmetric risk. That is, the decision agents in the sector [both resource Owner and lead Contractor for operations] vested in the likelihood [thesis] that the reward outcome [resource finds] will be greater or lesser than is the norm depending on the placement on confidence interval. Risk is not assumed to be distributed “as likely or not”, equally along the continuum. The upside risk is therefore, more appealing to both Owner and Contractor.
The USGS reports that their results are based on a probabilistic method where: 1] estimated reserves are fully risked; 2] estimates are confined to conventional resources; 3] on the probability distribution curve Fractiles [ F95, F50, F5 and the mean] reveal the estimated amounts to that value and their chances for the minimum attained. Thus, for example F95 reveals the “at least” amount that is expected with a 95 percent choice of finding.
Extrapolating from the laundry list of considerations cited here — namely 1[ the reasoning indicated in the above paragraphs; 2] the lack of a cohesive and coordinated global climate agenda from COP27; 3] a strongly exploration-incentivizing global oil market price for crude oil [in the neighbourhood of US$ 100 per barrel; 4] Guyana’s continuing explosive success rate for petroleum exploration from First Find in 2015 to date; 5] its steeply rising creaming curve over the same period; 6] the reported yet-to-explore zones; and 7] indicated Guyana offshore and onshore explorations to come — there is a clear need for me at this juncture to hazard a revised or indeed updated best guess or guesstimate of Guyana expected crude oil reserves.
For this I have embraced greater risk dynamics and therefore move from the search for a mid-point on the continuum, to one closer to the 5 percent confidence value and consequently riskier. My best guess at this point of time is a 10 percent Fractile, yielding about 28-30 billion boe.
Conclusion
My next column in this series, Part 14 offers a few concluding observations.
