With the price of oil currently averaging around US$74 per barrel (West Texas Intermediate) and the Bank of America projecting that oil could reach as high as US$100 per barrel by next year, the turnaround in global circumstances presents an opportunity for Guyana to earn so much more.
Analyst Arthur Deakin
This is according to analyst at Americas Market Intelligence (AMI) and Africa Market Intelligence (AfMI), Arthur Deakin, who conducts political, economic and other risk analysis activities for the mining, energy and infrastructure sectors.
He noted that at the time Guyana lifted its first 5 million barrels of oil, the price of crude averaged roughly US$49 a barrel. This low, largely influenced by the COVID-19 pandemic which prompted most countries to impose travel restrictions to limit its spread, played a huge role in how much Guyana earned from oil production in the Liza field. Now, however, oil prices have been recovering amid the global increase in travel.
The Liza Destiny which is currently producing the oil in the Stabroek Block
“The resurgence of oil prices is good news for the Guyanese Government, as it will lead to a larger amount of oil revenues over the coming decades. When considering their first five oil lifts, and excluding the 2 per cent Government royalty, the Guyanese Government made US$246 million dollars,” the analyst said.
“Considering that they lifted 5 million barrels, the average price was roughly $49/barrel. If prices were at $100/barrel, as is projected by Bank of America, the amount that would have entered Guyana’s coffers would have been over half a billion dollars, more than double the original amount.”
According to Deakin, this is already a very substantial difference. He noted that when one thinks about it in terms of the long-term development of Guyana’s energy sector, the upliftment in the price of crude has the possibility to change the entire trajectory of the country.
“Although the total amount of oil revenues does range, let’s go with the hypothetical assumption that it will be $170 billion at $60/barrel. If Brent crude prices average $100 over the upcoming decades, then that total amount of oil revenues would be $283 billion, a $113 billion increase,” Deakin said.
“Now of course, 50 per cent of the profit oil is split with the operators, who will recover their capex costs even quicker than expected. This uptick in price will certainly attract more energy players and investors towards Guyana, but you have to consider that we are trending towards a commodity super-cycle. If prices collapse, it is best that it happens when Guyana is producing relatively low amounts of oil, which will only be the case through 2025.”
In March 2021, the Natural Resources Ministry had disclosed that to date, a total of 5,009,797 barrels of oil worth US$246.5 million have been lifted. This sum, added to the royalties the country receives, took the total in the NRF account to US$267.6 million. With the earnings from the sixth lift in April and royalty payments, this amount is expected to have climbed to over US$300 million.
Guyana received its first payment of US$54.9 million for an oil lift dated February 19, 2020. The second lift on May 21, 2020, was valued at US$35 million; while the third lift, which occurred on August 9, 2020, was worth US$46 million.
The fourth lift of oil offshore Guyana occurred on December 9, 2020, and came in at US$49.4 million in value. And on February 5, 2021, some 997,420 barrels of oil were lifted from Liza Destiny. A sum of US$61 million was paid for that lift.
ExxonMobil, as operator in the Stabroek Block, began producing oil on December 20, 2019. Guyana’s oil revenues are being banked in the New York Federal Reserve, where it is earning interest.
President Dr Irfaan Ali has said that Guyana’s oil and gas resources would play a critical role in its development, with a portion of the money going towards the development of world-class education, human capacity and healthcare system; reducing energy costs and enhancing the local infrastructure to benefit Guyanese.
It is expected that once the Natural Resource Fund Act, which stipulates that various committees must be established to provide oversight for the fund, is reviewed, it will be brought to the National Assembly by the current Government and pave the way for the fund to be accessed.
