Introduction
Last week I displayed the macroeconomic underpinnings in the claim several have made to the effect that “Guyana is the newest petrostate in the Americas”. To date, the data do reflect a historically unprecedented explosive growth of crude oil activities in Guyana’s income growth, export earnings, import spending and fiscal revenues over the years since First Oil [December 2019]. As indicated last week, this week’s column displays the microeconomic foundations of this claim.
As will be observed the micro data performance is equally stunning. Further, the macro and microeconomic data, while necessary for determining a petrostate, they are not by themselves sufficient for this purpose, as complementary systemic features are required [social, political, cultural, and institutional].
Microeconomic indicators
DROP 2021-2022
The Guyana National Budget 2023 reveals in great detail the official macro and microeconomic foundations of its rapidly emerging oil and gas sector. Basically, crude oil output has expanded from 43 million barrels in 2021 to 101 million barrels in 2022; that is an increase of 125 percent, when compared to just 43 million barrels in 2021. The average daily rate of production, DROP, for 2022 was 128,000 barrels per day (bpd), compared with 117,000 bpd in 2021. During this period the average DROP fluctuated around 169,000 bpd, and peaked at around 233,000 bpd in December. Currently the reported unofficial rate is 440,000 bpd.
Strategic policy
The Budget reports that there has been three major lines of public policy pursued in 2022; namely,
1] Strengthening the oil and gas sector’s legal and regulatory framework
2] Establishing and strengthening the pertinent institutions
3] Promoting accelerated exploration and production of the petroleum resources.
Legal, Regulatory and Institutional Framework
As regards 1] the Government has highlighted the new Natural Resource Fund Act. As the Budget claims, the NRF Board of Directors, Public Accountability, Oversight Committee and Investment Committee, are the three critical entities in the sector’s governance architecture, and these have been appointed. Furthermore, in order to ensure full transparency and accountability, since April 2022, notifications of receipts of petroleum revenues are being published in the Official Gazette and have been tabled in Parliament.
2] The new Local Content Act has also been brought into operation. The Local Content Secretariat (LCS) has been established, and the Local Content Register put in place. The Budget reveals the Local Content Register now includes over 500 Guyanese companies, and the Secretariat has approved over 29 five-year local content master plans to date. Further the latest available information shows that Guyanese accounted for 64 percent of total employment within the sector, totaling 3,153 at the end of the first half of 2022. Additionally, the LCS also successfully unbundled contracts and reduced the payment period for Guyanese suppliers from 45 to 30 days, particularly benefiting small Guyanese businesses.
3] The main elements of a new fiscal framework for a draft new model Production Sharing Agreement (PSA) will be released in addition to four areas of revised fiscal terms.
Turning to exploration, in 2022, 11 exploration wells were drilled, 10 of these in the Stabroek Block; resulting in 10 new commercially viable discoveries bringing the total number of discoveries made in Stabroek to 35, and a total of 40 for all blocks being explored. With the new discoveries in 2022, Guyana’s total estimated proven reserves presently stand at over 11 billion oil-equivalent barrels, with a “strong likelihood of upward revision as exploration activity continues”.
To the point, the announced 2022 Licensing Round runs until April 14, 2023; with the Budget reporting successful bids to be awarded by the end H1 2023. The round offers 14 blocks for tender in the shallow and deepwater areas of Guyana’s offshore area. Meanwhile, in the Kaieteur and Canje blocks, exploration continues.
With three FPSOs expected, Guyana’s production capacity is forecasted to reach 560,000 bpd by the end of this year. Additionally, recent advancements are supporting a potentially earlier start-up in 2025, and will produce at a rate of 250,000 bpd. This will therefore, increase overall production capacity for Guyana to approximately 810,000 bpd by 2025. Further, an application for the fifth development project – Uaru – was filed in November 2022, subsequently kick-starting Government’s review. It is anticipated that this platform will produce another 250,000-bpd following start-up in 2027. These will enable Guyana to generate just over 1 million bpd by this time.
Natural Resource Fund
Finally, the Budget forecasts a total of 136 lifts of profit oil from the Stabroek Block in 2023. Each lift according to the Stabroek Block’s Production Sharing Agreement, PSA, is approximately 1 million barrels. Out of these lifts, Government is projected to have 17 lifts of the profit oil from the producing FPSOs, earning an estimated US$1,406.6 million in profit oil and US$225.2 million in royalties in 2023. Based on the ruling formulae the Budget 2023 projects an estimated US$1,002.1 million, equivalent to $208.9 billion, can be withdrawn from the NRF and transferred to the Consolidated Fund to support national development priorities in 2023.
Conclusion
This wraps up discussion of the macro and microeconomic foundations of Guyana as a new petrostate.
