While Guyana is not a member of the Oil Producing and Exporting Countries (OPEC), the recently agreed production cuts will have an indirect benefit for Guyana, as it helps stop the free fall of oil prices.
Attorney-at-law and Chartered Accountant, Christopher Ram
This view was expressed by Attorney-at-Law and Chartered Accountant, Christopher Ram, during an interview with this publication. In an invited comment, he explained the likely implications of the production cut and other global events, on Guyana.
“We are not directly involved, but the OPEC cut has helped to move the oil price slightly up. And in that sense, we benefit from the cut. In this year, our production is not going to be particularly significant, especially if Exxon was to make adjustments to take account for Guyana’s production,” Ram said.
The oil cuts can mean good news for Guyana
“However, as we move into the 300,500 and 700,000 barrels, whatever Guyana does in terms of oil production will have an impact on supplies and, therefore, price. Whether or not we are a member of OPEC, how we conduct ourselves will have implications for our standing and how we are perceived as an oil producer. We don’t want to be seen as a renegade free rider.”
Since the novel coronavirus (COVID-19) hit globally, it has had a serious impact not just on lives but also the global economy and specifically, oil. As of April 19, Brent crude has been trading at US$28 a barrel.
Brent crude was being traded at US$66 per barrel when Guyana first started oil production in December 2019. Rystad Energy, a Norway-based research company that has written extensively on Guyana’s oil sector, had projected that the situation will get worse.
According to Rystad in a previous missive, the spread of the coronavirus has dealt a blow to the global demand for oil. It noted that in February of this year, the demand for crude dropped by 4.6 million barrels per day. China, where the coronavirus had originated, made up 2.9 million barrels of this cut to demand.
Last week, OPEC (made up of 14 countries but dominated by Saudi Arabia) formed an agreement after days of video conferences with other non-OPEC members, to cut production in an effort to tackle the effects of the coronavirus on demand. It has been reported that US President Donald Trump intervened in brokering the agreement.
The agreement was for OPEC+ to cut 9.7 million barrels a day, while the United States, Brazil and Canada also cut their production. At the time it was brokered, Brent crude was hovering around US$31.
Last month, ExxonMobil had announced that it will seek to scale down its operations, in the wake of the global uncertainty in financial markets caused by COVID-19.
In a statement from the company, Chief Executive Officer (CEO) of ExxonMobil Corporation, Darren Woods had noted that Exxon is evaluating ways to cut back on its investment costs. With a presence in numerous countries including Guyana, this could have serious implications for oil exploration and production, as well as the oil revenues for such countries.
“Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term. We will outline plans when they are finalised,” Woods was quoted as saying in the statement.
“We remain focused on being a safe, low-cost operator and creating long-term value for shareholders,” Woods also said, adding that ExxonMobil has faced numerous market downturns throughout its long history and therefore has experience operating in a sustained low-price environment.
Exxon has a presence throughout the world, from Canada and the United States to Mexico and Brazil, to Australia and Russia and several European, Middle Eastern and African states. But it’s the company’s holdings in Guyana that have lately captured the world’s attention.
Last year, the company made fifteen discoveries. These discoveries have pushed the total estimated recoverable barrels of oil equivalent to over six billion. Oil production began in December and Guyana’s arrangement sees it selling its first shares of oil to Shell’s Barbados subsidiary.
