After the oil is gone!

Nov 21, 2022 Features / Columnists, Peeping Tom

It is estimated the combined gross recoverable reserves the total amount of oil which the oil companies expect to extract from the Stabroek Block from its four approved field development plans is an estimated 11 billion barrels.

Assuming an average price of US$55 per barrel, these fields are expected to generate cost to the value of US$605 B. Of this amount Guyana is expected to receive only US$87.8 B in revenues. And these field development plans will span a total of 40 years which means that Guyanas average annual take will be just over US$ 2B.

This may seem to be an astronomical sum but it is not when one considers that this US$2B is less than the countrys Budget for 2022. And of course two things must be considered: first that the gross recoverable reserves may have been exaggerated and the field production costs and operation expenses understated.

Oil prices are not locked in. The contract provides for revenues to be calculated based on the market price for oil. If oil prices collapse as they did in 1998 when it bottomed out at US$10.80 per barrel, then Guyana would not be able to cover the cost of recovering the oil and would have to end production or take a loss. This would mean that the country could end up in serious oil debt.

The situation can be even dire if the oil companies begin to throw us bills reflecting higher costs and expenses. What happens if instead of US$20B in field development costs, these costs skyrocket to around US$40B with no increase in the anticipated production? What happens if expenses increases leaving us with less profit oil to split?

Because of how the Production Sharing Agreement was designed, Guyana has no say in how the oil companys expenses. Guyana can only chcek after the fact and if discrepancies are found then there is long process involved, including arbitration, to resolve these differences. Glenn Lall, the publisher of this newspaper, has been forewarning the country about some of these dangers. In his latest Tik Tok video he has asked a pointed question as to what happens if we are still have costs to repay and the oil is exhausted.

This is a real possibility. The absence of ring fencing means that unpaid expenses for Liza 1 can be thrown over to Liza 2; and unpaid expenses from Liza 1 and Liza 2 can be transferred to Payaya; and unpaid expenses for Liza, 1 Liza 2 and Payara can be charged to Yellowtail.

With Exxon holding all the cards, Guyana is at the mercy of the oil companies in terms of its revenue intake. No wonder the Government is now saying that the countrys oil revenues are modest. Guyanese are thus likely to see mad haste to give out further oil blocks and to force the existing operators _ Exxon, Hess and CNOOC ramp up oil production. Guyanese therefore must not get excited by all this nonsensical talk about economic transformation. The resources are simply not going to be there to do the things which people feel are going to be done and substantially raise Guyanese from poverty to prosperity.

The government has therefore gone on a borrowing spree. This supposedly fastest growing economy in the world is borrowing to revamp its health system. It is borrowing billions to revamp its education system. Jagdeo and Ali are also on a begging expedition. They are trying to secure investment from the Gulf states to invest in a modern port in Guyana and to finance other projects.

The Brazilians have cashed in and are going to be responsible for growing corn and soya. This is not the approach which one expects from a country which is supposed to be flush with oil revenues.

What we are witnessing is political desperation by Jagdeo and Ali seeking to have persons invest and trade in Guyana, and also to borrow heavily from the Inter-American Development Bank.

Guyana got a rotten deal from the oil companies. And that is why we have found ourselves in this dilemma. Unless that deal is amended then Guyanese should not look forward to the sort of future which the government is promising. Indeed we might end up in afar dangerous condition since there is going to be a mad scramble by the bourgeois class to appropriate much of the oil revenues. Already we are seeing this happening in the form of contracts for infrastructural projects. The moderate wealth being generated have not are not likely to substantially change the living standards of Guyanas poor. (The views expressed in this articles are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)