Guyana can earn as much as US$18B from Stabroek Block – financial analyst

Oil and gas sector

…cautions against unrealistic expectations in first 4 years

Much has been said about how rich Guyana stands to be with revenues from oil and gas. What has not been so clear is the timeline within which Guyana earns all this money. According to one financial analyst, the country’s returns form the first few years will be a modest one.
In an interview with Guyana Times Financial Analyst Sase Singh explained that cost recovery is designed so that developers can recover their investment costs up front.
“That usually eats away at the revenue sizably but it is capped according to the contract.  But Guyana will be hit from all sides in the first four years – there is recovery of investment cost, operations cost, marketing, brokerage and shipping cost for selling our portion of the profit oil and thus from 2020-2023 it will not be pretty for Guyana,” he said.
However, Singh noted that when these first four years are out of the way, what will follow will be an unprecedented bonanza. According to Singh, there is a distinct possibility, subject to global oil prices, that the Treasury will see a flood of revenue.
“Let us focus the peak revenue period – from 2024-2034 (10 years of oil bonanza). I am talking about Guyana actually seeing its oil revenue triple in that first year – 2024.  I would not be surprised if the Treasury has influx of a billion US dollars in oil revenue in 2024. I would not be surprised if in some of those 10 years, Guyana experienced oil revenue of more than one and half billion per year.”
“I would not be surprised if the average oil revenue per year in those 10 years, from 2024-2034, is more than a billion US per year. If the oil projections from the developers are reliable, Guyana can see as much as US$18 billion flowing into the Treasury from this Stabroek Block,” Singh stated.

Financial Analyst Sase Singh

To better illustrate the potential windfall, Singh gave an example of the per capital distribution of a one off $5 million check to every Guyanese resident. However, he acknowledged the unsustainability of similar modes of distribution, which were suggested in sections of society.
“My recommendation is a 20 per cent cash transfer to the people which is a GY$50,000 tax free check to every Guyanese for 15 years starting from 2024. Then 40 per cent will be assigned to support the major Private Sector led infrastructure projects like the deep water harbour, plantation agriculture projects, an oil refinery at Crab Island on the mouth of the Berbice River, support to a tolled transportation link from Linden to Brazil and so forth.
“The final 40 per cent should be (invested) in the Sovereign Wealth Fund, which will be managed professionally and in such a manner so as to not deplete the capital. The interest revenue will be used as support for the National Budget,” Singh also suggested.
After its 10th discovery of oil in the Stabroek Block, ExxonMobil has estimated the recoverable resource in the block to be five billion oil equivalent barrels. At US$50 a barrel, that equates to well over US$200 billion. In addition, an independent assessment, or competent persons report, had found that 2.9 billion barrels of oil existed in the Orinduik block.
All of this will represent a monetary windfall for Guyana, which will be saved and invested through a Natural Resources Fund. A green paper on the Fund was recently laid in the National Assembly, but the fund itself is still in its planning stages.
Government had released the draft Natural Resources Fund Bill of 2018, which had proposed among other things a 22-member Public Accountability and Oversight Committee that would oversee the management of the Fund and provide checks and balances.
Investment firm Merrill Lynch has for some time expressed an interest in being involved in managing Guyana’s oil finances.
In fact, representatives from the firm had reportedly met with Central Bank Governor, Dr Gobind Ganga. The Opposition has urged that the vetting process for the fund manager be a rigorous one.