Jan 03, 2021 News
By Kemol King
Kaieteur News – Guyana’s Production Sharing Agreement (PSA) with ExxonMobil subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), is notoriously lax in the regulatory strength it gives to Guyana and offers extremely generous terms to the supermajor and its Stabroek block partners.
From its fiscal terms, former Energy Director, Dr. Mark Bynoe, had said that Guyana should expect about US$300M from the sale of its crude in 2020.
This was already a meager amount for oil as cheap to produce and as valuable as Guyana’s, but the sale of the Stabroek block’s Liza crude did not even meet two-thirds of that amount. Guyana received just US$185M from the sale of its crude in 2020 – 38 percent below the former Energy Director’s expectations.
This sheer drop may mainly be attributed to two major occurrences- the global oil price crash and a tumble in ExxonMobil’s production due to flaring at the Liza Destiny Floating, Production, Storage and Offloading (FPSO).
The oil price crash is mainly attributed to the fallout from the COVID-19 pandemic and the Russia-Saudi Arabia oil price war. The first case was detected late in 2019 but the virus began to spread out of control in early 2020 and reached Guyana by March. By then, the oil price had already debilitated rapidly.
Brent, the standard Guyana’s Liza crude is being traded against, was comfortably over US$60 a barrel early in 2020, but crashed to US$20 by spring. Worse off than Brent, West Texas Intermediate – a US standard – fell to negative prices in April. The pandemic had driven demand so low that American energy companies ran out of room to store petroleum.
As for the other cause of the oil price crash, talks between Russia and the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) over proposed oil production cuts broke down in March last year, shortly after the genesis of the global expansion of the virus.
OPEC styles itself as a stabilizer of oil markets, and is in concert with Russia. The disagreement lasted nearly four months. By the end of June, Russia and Saudi Arabia agreed to production cuts.
To demonstrate the effect of the pandemic and the oil price war on revenues, Guyana’s first million barrels or so got US$55M into the Natural Resource Fund (NRF) in February. In May, the second lift got Guyana US$35M.
To compound the drop in the oil price, ExxonMobil flared gas way longer than the Environmental Protection Agency (EPA) expected it to, as revealed by former Head of the Agency, Dr. Vincent Adams in mid-January 2020.
The company was only supposed to flare temporarily at start-up in December 2020 to commission its equipment. However, it reported defects in the equipment.
This prolonged flaring forced the EPA to slash Exxon’s production by 60 percent, as revealed by Dr. Adams in June last year. He had said that it was a necessary action to reduce the rate of flaring.
In the meantime, the supermajor failed its own deadline to fix its defective equipment and bring the flaring to an end.
The People’s Progressive Party Civic (PPP/C) took up office in August and sent Dr. Adams on leave, then fired him as it came to an end. Meanwhile, it allowed Exxon to ramp up production in October, with a consequent increase in flaring. The pollution of Guyana’s airspace with toxic gas only came to an end in December, one year after production began. The EPA reported that Exxon flared a total of 12.429 billion of cubic feet of gas.
Though Guyana had expected to receive its fourth oil lift in November, the lift came mid-to-late December. The sale got Guyana US$49M – a bump up from US$46M from the third lift.
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