Introduction
In today’s column I recap the gist of those earlier columns that were directed at taking stock of the prevailing condition of three key parameters facing Guyana’s oil and gas sector, on the eve of the planned switch away from the fiscal metrics of the Stabroek Block PSA, to the new fiscal template scheduled for implementing at intended public auctions.
The three parameters are 1] the Government Take ratio 2] estimated recoverable hydrocarbon resources, and 3] the time-bound opportunity window for Guyana’s crude oil exportation. This task is being pursued so as to facilitate before and after comparisons following changes to the fiscal metrics of oil blocks rights.
1. Government Take ratio
For the purpose of taking stock of current Government Take ratio, I had basically summarized the sources and results of all known and publicly available measures of this statistic. For the record, I identified five sources and ten separate estimations. These Take ratios range from 50 to 60 percent, and average 55 percent, after rounding. I offered a couple observations on these. First, three were prepared by non-profit organizations [Oil Now, IADB, and University of Trinidad & Tobago] and two for-profit firms [Rystad Energy and Wood Mackenzie] Second the ratios cluster within a modest range.
2. Recoverable resources
There are three individual current estimates of recoverable resources which may be worth citing as featuring in a taking stock of this measure. First, ExxonMobil and partners estimate of 11 billion plus barrels of oil equivalent, boe. I remain unclear if this refers to the Stabroek Block or the Guyana-Surinam Basin or is a deliberate tactical understatement. Second the Government has included in its public auction invitation the bids statement that the bidding is for 24 billion boe Third, my estimate which is re-visited here.
My gauging of recoverable resources is based on two primary drivers. Firstly, a bullish outlook on Guyana’s hydrocarbons potential. And, second the incentivizing/ disincentivizing investor “resource price” set by the ruling Stabroek PSA.
Amplifying my reading reveals Guyana’s shared geological structures with West Africa support the bold thesis of the petroleum system of the Guianas Basin being 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.
Additionally, the results of two United States Geological Service, USGS, surveys, 2000 and 2012, formed the basis for my initial prediction of Guyana’s hydrocarbon resources. I have updated that prediction as follows. Representing the USGS results on a continuum, I opined that the reported 95 percent confidence value data reflect what I interpret as a conservative interpretation of the geological data. And, by parity of reasoning, the 5 percent value represents a more expansive 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 initially 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 now assume this circumstance supports 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 a laundry list of considerations not repeated here I moved 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 now is a 10 percent fractile, yielding about 28-30 billion boe.
Window of Opportunity
Moving on to the third feature I take note of; that, is the time-bound opportunity window afforded to Guyana for profitable crude oil exports. Here I established this window as up to the decade of the 2050s based on two considerations. First, the United Nations target date for successful global climate transition away from carbon emitting fuels. And, second the US Energy Information Administration’s modeling of primary energy use. The first consideration is largely declaratory and to that extent straightforward.
For the second consideration the US, EIA data support the UN target revealing that, despite challenges of global climate transition Guyana faces a decades-long opportunity to become, and remain, a significant global player as a primary energy supplier with its petroleum resources. The desired global transition away from petroleum is, at a minimum, around three decades away.
The US, EIA’s International Energy Outlook had estimated global primary energy shares from pre-Covid 2018 up to 2050. This modeling exercise centred on five modes of primary energy supply. The projected shares by 2050 are: renewables 28, petroleum liquids 27, natural gas 22, coal 20, and nuclear.
Revealed trends are petroleum loses its pre -eminence held in 2018 and declines as a share of global primary energy supplies. The share of renewables rises from 15 percent to 28 percent; natural gas remains constant over the period, at 22 percent; with coal’s share falling the most, from 26 prevent to 20 percent, and, finally, nuclear power’s share declines from 5 to remaining a marginal source.
Conclusion
Next week I re-visit the third topic, which is the fiscal metrics of the proposed public auction offerings.
