Latest update November 7th, 2024 1:00 AM
Oct 03, 2024 News
-“says if country has troubles absorbing US$4.4B what more troubles it would have with US$10 billion”
Kaieteur News – Former President, Prime Minister and now Guyana’s Ambassador to the United States, Samuel Hinds said Guyana should rejoice with the money it has received thus far from its oil resources, saying that if the country has trouble absorbing the little it has now, what would it be with a bigger share.
In a letter which appeared in today’s Kaieteur News, Hinds commenting on an article in this newspaper on Tuesday said Guyana should rejoice for receiving the US$4.4B out of the US$ 10B it should have received to date from its oil.
This newspaper reported on Tuesday that the Ministry of Natural Resources (MNR) on Monday revealed figures which indicate that Guyana should have received US$10B from the production of oil in the Liza One and Liza Two fields to date. However, due to the government’s failure to manage the sector prudently in the best interest of Guyanese the country gained a meagre US$4.4B since the startup of production activities in the Stabroek Block, operated by ExxonMobil Guyana Limited (EMGL
“I am sure that the amount of US$10 billion is arguable; whether so or not, perhaps we should rejoice that we received directly US$ 4.4 billion, when without oil we would have received nothing, zero,” Hinds said. “Let’s feel good about the US $ 4.4 billion. If we have troubles absorbing the US$4.4 billion according to some reports, what more troubles we would have had in absorbing US$10 billion! Sometimes there could be too much of a good thing,” the former president said.
The Ministry of Natural Resources (MNR) on Monday revealed figures which indicate that Guyana should have received US$10B from the production of oil in the Liza One and Liza Two fields to date. Due to the government’s failure to manage the sector prudently in the best interest of Guyanese however, the country gained a meagre US$4.4B since the startup of production activities in the Stabroek Block, operated by ExxonMobil Guyana Limited (EMGL).
The ministry was responding to an article carried by Kaieteur News on September 22, 2024 under the headline ‘Guyana poised to receive less than US$9B of US$70B from Liza 1 and Liza 2’. In the article, Kaieteur News showed that the two projects, which are currently in operation, have a combined reserve of about one billion barrels of oil. At an average oil price of US$70 per barrel, the two projects are expected to generate about US$70B. Using a breakeven cost of US$40 per barrel, it was outlined that US$30B would remain from which other costs would be deducted, leaving Guyana with only US$9B of the revenue.
The Ministry however clarified that the breakeven cost substituted by the newspaper was incorrect as this was an average figure which applies to several developments offshore. “In July, ExxonMobil Guyana’s Vice President, Phillip Rietema, stated that the company’s operations are secure at a US$40 per barrel break-even price…the US$40 per barrel figure is an average break-even price that applies to several developments offshore, not specifically to Liza 1 and Liza 2,” the MNR statement said.
To this end, the Ministry said the Liza One breakeven cost was US$35 per barrel, while the Liza Two breakeven cost is US$25. Notably, the break-even price is the minimum price at which the crude needs to be sold, to cover all the costs of producing it, the MNR said. This includes capital, operating, and other necessary expenses.
While Kaieteur News arrived at an earlier figure of US$9B to be received in revenue from the two projects, the country should receive about US$20B according to the information supplied by the Ministry. Using an average of US$30 as the breakeven cost for Liza One and Liza Two, the projects are estimated to generate some US$40B in revenue at an average cost per barrel of US$70.
The US$40B would have to be split between ExxonMobil and Guyana, meaning that the country should receive US$20B while the oil company should receive an equal sum. According to information displayed by the Bank of Guyana on the Natural Resource Fund (NRF), the country only received the sum of US$4.4B as at the end of June 2024. This is particularly alarming and raises further questions about the management of the sector, since 40% of the reserves have already been depleted to date.
Liza One, which commenced oil production in December 2019, has already produced close to 200 million barrels of oil (MBO). The Field Development Plan for that project however indicates that the project, operated by the Liza Destiny Floating Production Storage and Offloading (FPSO) vessel, has a reserve of 452 MBO. This means that 44% of the reserves are already drained.
Similarly, at the Liza Two project, the Ministry reported that almost 200 MBO have been produced by Exxon since the commencement of production activities in February 2022. That field, according to the FDP holds about 570 MBO. Consequently, 35% of the reserves have already been produced by the company. It could also be deduced that about 40% of the collective reserves at the two projects have been depleted. Due to the government’s failure to implement a ring-fencing provision, ExxonMobil uses revenue that should come to Guyana to fund its investments across the Stabroek Block.
A ring-fencing provision would force the operator to use the revenue generated at one project to pay for its expenses. In the absence of this key mechanism, Exxon is allowed to take revenue from Liza One, Liza Two and Payara to develop its other projects. If those projects were ring-fenced, the country would have been receiving a greater share of profits today, since Exxon has already recovered over US$19B – the total cost of the three projects.
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