It is very intriguing, and unfortunate at the same time, when one reads in the local press articles from supposedly brilliant minds peddling a bunch of nonsense and the most unscholarly commentaries. Such only serves to devalue the true meaning of intellectually sound analyses, and the intellectual faculties of the persons themselves on pertinent matters of national economic importance are called into question.
It is important for one to be reminded that, firstly, Guyana is known for producing some of the most prolific scholars in the world; and secondly, we are not living in an era that some of our parents and grandparents lived through more than two decades ago. Contemporary quality education today is becoming more and more easily accessible and affordable to the Guyanese people – implying that a vast majority of Guyanese are well educated and cannot be easily fooled these days by international consultants from the rest of the world. In fact, many Guyanese are by far much more brilliant than some of these very foreigners that come here and try to mislead the people with “wishy-washy” analyses, or a bunch of nonsense in the truest sense of the word.
Having said that, particular reference is made to the presentation made by Rystad’s Senior Energy Analyst at a private sector forum earlier this month. Rystad’s learned Senior Analyst suggested that, should Exxon extract all of the oil reserves it has discovered so far, Guyana’s total take could reach US$100 billion (G$20.8 trillion) at production capacity of about 700,000 – 900,000 barrels per day. It is extremely unfortunate that Rystad did not think it wise and prudent to consider the massive levels of deductibles contained in the PSA between the oil exploration companies and the Government of Guyana. Had they opted to do so, they would have presented a much more realistic and scholarly analysis at that forum.
Guyana, unfortunately, will not earn $20.8 trillion dollars in twenty years from oil revenues. That is nothing but an overly optimistic and unrealistic picture painted by Rystad, perhaps on the assumption that Guyanese are stupid people. It is basic mathematics one needs to understand to refute such overly ambitious nonsense. Based on what is publicly revealed by Exxon, production will commence in 2020 at 120,000 barrels per day (Bpd). Then, in 2022, production may be increased to 220,000 bpd. So, at 120,000 bpd x 336 production days in a year for 2 years, total production should be 80.64 million barrels. Then at 220,000 Bpd for another four years, total production should be 295.68 million recoverable barrels of oil.
Therefore, in the first six years of production, Exxon would have extracted 376.320 million barrels of oil. Multiplying 376.320 million recoverable barrels by Rystad’s optimistic US$70 per barrel give rise to gross revenue of US$26.342 billion in six years.
After the first six years, there will be only 14 years remaining for the oil industry, a notion which this column previously dealt with extensively on the changing dynamics of global oil economics, in which a series of articles were published in this regard. It was thus established that this is the main reason that oil production in Guyana would have to be increased to as much as one million barrels per day, in order to maximise profits; because when the next energy market crash comes – which is imminent within the next twenty years (and the oil companies are well aware of this) — that will mark the demise of the oil industry in Guyana.
More importantly, one ought to consider the deductibles from Guyana’s profit share, of which the major one is the corporate tax for Exxon, which is at a current rate of 40%; and another major deductible is Exxon reserves the right to retain whatever amount of crude it needs for its operation. This is obviously uncertain, but perhaps a conservative assumption is about 10% of the total production, which could be less, or more. It is important to note that Guyana will not benefit from Royalty from that portion either. Hence, in this regard, and for ease of reference, the author represents hereunder an extract of a table with a simulation of computations that were previously done and published in an earlier column.
Potential Gross Annual Oil Revenues: Computation using average oil price at US$50 per barrel and number of production days of 28 days per month
