As noted last week, today’s column will continue to summarize a few remaining concerns, which I have identified and have been evaluating in recent columns. To remember, these concerns are considered essential because they relate to fundamental concerns such as: the cost of production; the cost-price relationship; the competitiveness of the sector; commercial and financial cost recovery prices for gas and oil; and the projected share / ratio of Guyana’s rapidly evolving baby hydrocarbons sector.
Of particular importance, the misconception of similarly weighted concerns is still being explored. And, a few of these are briefly covered in today’s column.
I will begin, however, by raising a fundamental consideration: why, given the crushing global demand pressures placed on oil as a source of energy consumption throughout this year’s global general crisis, Guyana crude oil has continued to exhibit such robust investment inflows generally? This is addressed in the next section.
Why the success of deep water?
As things stand, despite significant obstacles associated with gas flares, initial failures of compression equipment, regulatory holdings (Payara) and so on, at this point and moving forward to 2021 and beyond, all leading energy intelligence analytics receive an ExxonMobil target set. for Guyana to be producing about 750 thousand barrels of oil equivalent (boe) per day by 2025/2026, so that can be clearly achieved. Although a wide range of factors explain this probability, here I would like to highlight one of these. That is, the capacity of the Main Contractor in Guyana’s Production Sharing Agreement (PSA) for the Stabroek Block.
At the recently concluded 2020 Caribbean Oil and Gas Summit (CARIVS) 2020, Alistair Routledge, President of ExxonMobil, observed that the company was convinced that its continued investment in proprietary technological advances and cutting-edge research skills had made a world of difference achieves a 90% discovery success rate in the Stabroek Block. In his presentation, Routledge referred to two specific technologies; namely, 1) full-field inversion imaging, and 2) algorithms to determine by using supercomputers the best opportunities to find oil and gas.
The following quote summarizes the central recognition Routledge made in his Conference presentation: “The foundation of these discoveries is an advance investment in proprietary seismic data and proprietary technology developed by ExxonMobil.” In addition, I would like to remind readers that Rystad Energy is earlier this year awarded ExxonMobil the Explorer Explorer Award 2019. Furthermore, worldwide, the company discovered in that year 12.2 billion boe, and in Guyana only 1.8 billion boe ExxonMobil also received the 2018 Auditor of the Year Award.
It must be said that such considerations obviously should play a large role in guiding Guyana’s petroleum strategy going forward; and above all in securing the core incentive provided by the financial regime in its PSA. This is reinforced by the information presented in the next section.
The path of failure
The second concern that I will address today, is the need to remind readers of the long track record of failures that have plagued the global oil and gas sector, over the past decades. In a recent announcement, Westwood Global Energy Group has reported that between 2008 and 2016, 11 billion boe of crude oil and 36 billion gas discoveries, with all discoveries greater than 100 million boe, have stopped moving into production commercial. This represents about 40 percent of total discoveries between 2008 and 2016. Scary as this is, some analysts believe it could get worse.
Therefore, a host of organizations, independent, private and social, are encouraging, with the recent US election move to the Democratic Party and its climate action agenda along with other pandemic and 2020 pressure on prices oil in motion. up to 2021 and perhaps beyond, the risks of stuck petroleum assets will increase exponentially. The Carbon Tracking Institute predicts that 30% of the proposed fossil fuel investment will not be pursued by 2030. Rystad Energy has claimed that 10 percent of today’s global recoverable oil and gas resources will be stuck due to the a COVID-19 pandemic. To take one further example, the Financial Times has estimated that if UN climate change targets were met, as much as 80% of recoverable hydrocarbons would become useless.
A third concern is the challenging political economy framework within which Guyana’s baby oil and gas sector is constrained to develop. I have repeatedly emphasized in this series of columns that this framework is distinguished by many challenges, including 1) weak capital raising capability 2) low technical and technological capability 3) limited managerial and entrepreneurial competencies 4) inadequate institutional organization and governance. ; as well as sharp political divisions. This listing does not include social and cultural challenges.
The above leads to two binding constraints. First, Guyana is in no position to fund, provide the skills or acquire the technology and capital needed to explore its hydrocarbon resources, let alone develop and commercialize these successfully. Secondly, as a result the government will always strive under any contract with multinational oil companies (IOCs) to balance the requirement to optimize national benefits while also optimizing its incentives for private investors to secure investment flows that it cannot provide as such. other.
Because of this tension, I concluded that all of Guyana’s PSA reflects a changing balance of power between the Government of Guyana (GoG) and the IOCs. As such, there will be invaluable pressures as we move forward to reassess and, if necessary, renegotiate these, independently of public complaints.
Given this, the search for a perfect contract is an essential folly. An existing Guyana PSA can and will be visited again. Opportunities for IOCs to gold plate costs and tax avoidance are inherent to all PSAs. However, tax evasion is illegal and legal contracts cannot overcome this reality. However, tax evasion is not illegal anywhere.
Next week’s column will wrap up discussion on this topic.