Latest update April 25th, 2024 12:59 AM
Oct 13, 2019 Letters
In responding to the Working People’s Alliance co-leader, Economics Professor, Clive Thomas, who recently made a public presentation on cash transfers from oil proceeds during, which he referred to his government colleagues as “ignars”, I as an attorney-at-law and oil and gas consultant, has said that the only person who is showing himself to be an “ignar” of the oil industry is Professor Clive Thomas with his “zombie economics”.
While I have respect for him as an economist, Professor Thomas has shown that with his cash transfer from oil proceeds proposal he is totally out of his element.
Let’s go through Professor Thomas’ faulty mathematics and incorrect assumptions:
First, he said that by 2025, Guyana’s oil production will soar to 1M to 2.5M barrels per day (bpd). This is not only wrong, it is also impossible.
The best-case scenario for Guyana’s oil production is about 780,000 bpd by 2025 and that is if everything goes perfect which means that there are no delays in project approvals and projects execution, and no unforeseen events.
As it stands right now, there is no serious consideration or possibility of Guyana producing 1.5M bpd let alone 2.5M bpd by even 2030.
Second, he makes an incorrect assumption that production profiles stay static.
Oil field production is not like a factory. There are varied production results. Even with the application of enhanced recovery techniques, daily production can fall by 33%-50% within 10 years.
Ghana’s jubilee field is a clear example. The FPSO was built for 120,000 bpd but is currently producing about 80,000 bpd and it has gone down to low figures like 60,000 bpd. There were even periods when the entire operation had to be shut down so there was no production.
In addition, it is important to note that half of those 10 years, the oil company gets the significant portion of the project cash-flow based on the deal which Professor Thomas’ APNU-AFC government senselessly trapped Guyana with.
Third, he incorrectly calculates the 10% after-tax revenue figure.
Let us be clear that no one at this point knows what government revenue would look like around 2025 because the final development plans for project 4 and 5 have not been completed to be sure of their respective or total capital expenditure.
That capital expenditure has to be recovered and the 75% cost recovery delays Government’s share.
Projects 4 and 5 could cost anywhere between US$5 to 10B.
This means there are huge sensitivity variations when you have those large variations in project developmental costs which at this point is not known with certainty. No one knows what the exploration costs would be since there is continued exploration in the block, which would also have to be recovered.
Fourthly, his calculation at US$70 per barrel is wildly optimistic and pointless.
In the last 30 years, there were only seven years when the average price of oil averaged above $70 for the year. In fact, if you look at the last five years the average price has been just above $50. One of the main reasons is the wider application of fracking, which does not require long lead times to start production like conventional production where the average is just under five years in mature basins, so additional production could be added supply in a short period.
This constrains big movement in prices for sustained periods.
Fifth, his calculation of Government revenue is not only wildly optimistic, it is complete lunacy. Professor Thomas says that Government would be able to put aside at least US$1B for redistribution to households, which he says amounts to 10% of after-tax revenue.
This, therefore, assumes an after-tax Government revenue of US$10B.
The possibility of Government revenue being US$10B by 2025 is complete lunacy.
Charles Ramson Jr.
Attorney-at-Law
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