Guyana has successfully negotiated its toddler years in the oil and gas business. As it enters its fourth year as an oil producer and exporter, opportunities abound to transform the nation into a model of success.
Oil Production is Increasing Rapidly
The first three years of Guyana’s immersion in the business of Oil and Gas has seen a steady ramping up of production by the operator, ExxonMobil and its subcontractors. First, Liza Destiny came online in December 2019 but it suffered major operational setbacks lasting several months. Those have been corrected and it is now running well ahead of its rated capacity of 120,000 barrels of oil per day. It is now running at 140,000 barrels per day. Then the much larger Liza Unity came on stream in April 2022, and is now producing at full capacity of 220,000 barrels per day. Going into 2023, total production from these two production platforms is expected to continue at 360,000 barrels per day, then increase dramatically when the Payara platform, rated at 220,000 barrels per day kicks in later this year. Hess Corporation, the most vocal of the oil giants in the triumvirate that owns the rights to the Stabroek Block, projects a production rate of 1.2 million barrels per day in 2027.
There is Money in the Bank
By the end of 2022, Guyana had earned around nineteen million barrels of oil as its profit share, in addition to its royalty of two percent on all oil sold by the operators. The balance in the nation’s Natural Resource Fund (NRF) at the end of 2022 was US$1.26 billion.
The Bank of Guyana’s financial statement on the Natural Resource Fund shows that there were two withdrawals of US$200 million each in 2022 from the NRF to the nation’s Consolidated Fund. The amount available for withdrawal each year is dependent on the amount of money that entered the NRF the previous calendar year. It is explicitly quantified using a sliding scale incorporated in the NRF Act of 2021, under the First Schedule titled, “Calculating the Ceiling on Annual Withdrawal.”
Just over one and a quarter billion U.S. dollars entered the NRF during 2022. By applying the First Schedule mentioned above, that income allows the government to withdraw just over one billion U.S. dollars into the Consolidated Fund for use in 2023. That would be a massive boost to the income side of the 2023 national budget. For reference, Guyana’s budgeted revenues from all sources, excluding oil, for 2022, were less than US$1.5 billion. What a difference a year makes!
Recoverable Reserves Keep Climbing
ExxonMobil continues to make new oil discoveries. Nine new finds were announced by ExxonMobil in the course of 2022. At mid-year, ExxonMobil confirmed that Guyana’s recoverable reserves were eleven billion barrels of oil equivalent. Since then, four new finds have been announced: Seabob 1, Kiru-Kiru 1, Sailfin 1 and Yarrow 1. These would surely increase the recoverable reserves when ExxonMobil updates its estimates. How high will it go?
There are many more drill-sites within ExxonMobil’s Stabroek Block. Besides, other operators are intensifying their exploration in adjacent and nearby blocks. How high can it go?
Better Contract Terms for Guyana for 28 New Blocks Coming Up for Auction
The government of Guyana is planning to auction 28 new blocks offshore later this year. These new blocks collectively amount to seven million acres. Vice President Bharrat Jagdeo, who is heading this, has announced plans for a revamped set of auction criteria, which is aimed at removing the grave inequities in the Petroleum Agreement between Guyana and ExxonMobil in the Stabroek Block, and to obtain better terms for Guyana, seemingly aiming for Guyana to receive more money up front, in the life cycle of production from these oil blocks. These criteria include: Ensuring that the winning bidders pay Guyana competitive signing bonuses; operators paying corporate income taxes on their profits; higher royalties; and higher upfront profit sharing for Guyana by pushing the operators’ cost recovery schedules further back in the life cycle of each block. Of course, money from these new blocks, if any becomes productive, would be a few years off.
Premium Rocks are Giving Premium Oil and Earning Premium Prices
Guyana’s oil is rated as “light and sweet,” the kind that is easier to refine, and yields higher proportions of premium products and lower amounts of pollutants. Guyana benefits by an extra five U.S. dollars per barrel currently for this high quality crude oil versus the other widely traded grade of oil. It seems also that the native sandstone rocks hosting Guyana’s oil are brittle and highly porous allowing for the drill bits to crunch their way to the oil, speeding up drilling time and reducing drilling expenses – a bonanza in itself.
Associated Gas Will be Monetized
Since the start of oil production, the associated gas that comes up with the oil has been used to power some of the functions of the floating production, storage and offloading (FPSO) platforms. Initially, the rest of the associated gas was reinjected into the host rock to aid production, but technical problems with reinjection forced the operators to flare the excess gas. A better solution is in sight. A large portion of the gas, 50 million standard cubic feet per day initially, will be transported by pipeline to Guyana’s shore, to generate 300 megawatts of electricity for the country. The electricity supply in Guyana has historically been inefficient, expensive, unreliable and pollutive. The high cost of electricity has stymied basic manufacturing. Cheaper power will help make Guyanese entrepreneurs competitive in the market for manufactured products, including natural gas based agricultural fertilizers, not to mention eliminating the incessant blackouts and brownouts that have chronically plagued consumers.
President Promises to Step on the Accelerator in 2023
The President of Guyana, Dr. Irfaan Ali, has promised the nation that his government will step on the accelerator this year, to deliver to and demonstrate to all Guyanese that the riches of the oil and gas industry are manifestly for each and every Guyanese. He clearly understands the impatience that many people feel: They want to see more tangible benefits at the personal and household levels now, rather than later. The talk, the hype and the euphoria about Guyana’s world-leading growth rate in gross domestic product (GDP) since the advent of oil production have raised expectations of direct personal benefits across all sections of the population. These have been slow in coming except for those few thousands directly employed by the operators and their subcontractors. The difference now is that his government has the money to make bold changes at its own speed.
I have not seen any schedule of how the money will be allocated but, by using the national budget of 2022 as a rough guide, one might get an inkling of the government’s fiscal priorities. The 2023 budget should elaborate on this for those interested in the details of government spending. But, I believe that for healthy public relations, a simple table and timeline showing the full deck of significant new improvements lined up for implementation, and which are directly attributable to the oil revenues, should help to both assure the public that benefits are coming while tempering expectations about how much can be done immediately, and at what rate.
Live, Build, Save and Give
In July 2019, although I am a non-Guyanese, I proffered my ideas on a possible allocation and use of the oil revenues at a public talk titled, “Get Ready, Guyana. You are an Oilman Now,” in Georgetown. I suggested that the money be divided into four roughly equal baskets called Live, Build, Save and Give. The Live basket might be used for immediate improvements in societal necessities such as personal safety, security, health, education, etc.
The Build basket might be used for longer term improvements in infrastructure, such as technical colleges, hospitals, roads, bridges, relocation of most of the population to higher ground, a free port, stadiums, regional parks, a wide rail and truck transportation corridor from the border with Brazil to the Atlantic coast, empolderment of fertile coastal lands for large scale food production, large power generation plants to facilitate manufacturing, etc.
The Save basket was for the sovereign wealth fund to save and invest about a quarter of the oil revenues for when the oil runs out or becomes obsolete and for the benefit of future generations.
The fourth basket, Give, is for cash payments to every Guyanese living in Guyana, so that everyone benefits directly from the oil and gas industry, many will be lifted out of poverty, and to help offset some of the inflationary consequences that such a rapid increase in national wealth invariably brings. (The fourth edition of Oil Dorado goes into more detail on Live, Build, Save and Give).
The oil and gas revenue stream to Guyana started small in 2020, but will be huge by the 10th year and will continue to be huge for about the following 15 years as production volumes increase and, more significantly, as the operators’ capital costs are paid off by cost recovery from the gross revenues, thus leaving more money in the pot for profit sharing, and then tail off as the fields become depleted. Of course, in the initial years, ideally most of the oil revenues should be placed in and used for the Live and Build baskets in order to bring immediate and early improvements in societal conditions and basic national infrastructure.
The Time Window for Guyana is a Little Wider and Longer
I believe that Guyana’s premium oil, cheap to extract, and close to major markets will be in great demand even when fossil fuels become second to renewable sources of energy, as will happen over the next two decades. Commercial production of power from hydrogen fusion seems to be about two decades away, too. The time window for the beneficial use of oil and gas is shortening because fossil fuels are inherently pollutive, both to extract and consume. Environmentally friendlier alternatives such as wind and solar will provide stiff competition in the future. The time window for Guyana’s oil is a little wider and longer.
Signature and High Impact Projects
The government has initiated several high visibility, high impact projects which when completed will transform the lives of all Guyanese. Wider multi-lane highways are being built or are in advanced stages of planning. The rapid increase in the number of automobiles in Guyana in the last decade has shown the deficiencies of a road system designed more than a century ago. Wider roads entail widening the culverts and bridges which the roadways cross, over the innumerable creeks and canals that flow to the rivers and the Atlantic Ocean.
A new contemporary bridge will be built across the Demerara River to replace the old, purely utilitarian floating bridge currently in use. A 300 megawatt electricity plant will be built at the receiving end of a 140 mile long pipeline transporting associated gas from the Stabroek Block to Wales on the West Bank of the Demerara River. Considering that the total national generation of electricity is currently less than 200 megawatts, this increase is stupendous. The pipeline is big enough to more than double the volume of gas it can transport to the generators for future expansion.
On another front, to gradually shift power production to eco-friendly sources, plans for a hydroelectric power plant at Amalia Falls have been resuscitated. The plan is to generate 165 megawatts of electricity from this site. Small solar and wind farm projects have been described, but opportunities abound to exploit these readily available sources of renewable power on a massive scale. They are capital intensive upfront but, as the oil revenues mount, the wherewithal to execute these massive projects will be less foreboding.
Two big developments have been announced for Berbice. A new international airport is planned for the Canje-Corentyne districts. And a 30,000 barrel per day oil refinery is planned for location on Crab Island, which is now nearly completely joined to the mainland of East Berbice by a jubilant growth of mangrove forest. No pipeline has been announced, so presumably the crude oil will be brought by tankers from the Stabroek FPSO to the refinery. The products are intended for domestic use.
Monetizing the Rain Forests Through Carbon Credits
Guyana is blanketed by one of the largest standing rain forests in the world. An innovative way to keep it intact and protect it from destruction and obliteration, while also recognizing that it is a significant part of the global lung, has created the concept of carbon credits. The logic is that these forests capture carbon dioxide from the air and convert it to oxygen. In effect, they are huge chemical plants that do exactly what the world needs, removing excess carbon dioxide from the atmosphere. The bonus is that they do it naturally and do not require massive initial capital outlay. There is inherent value in this, translatable to cash.
An independent agency has verified that Guyana earned 33 million tons of carbon credits for the five years 2016 to 2020. Entities wishing to offset their carbon footprint are encouraged to purchase these offsets. The benefit to Guyana is that any sales this year is money immediately earned. So far, Hess Corporation has committed to buy US$750 million worth of credits over the next eleven years. They might be considered “insiders” in the transaction. The true value of the carbon credits await widespread acceptance of the concept by unrelated large corporations willing to pay for them. It is conceivable that this might be perceived as a gimmicky ploy or a passing fad, as has befallen some previous attempts at selling carbon credits. Time will tell.
The Price of Oil and Its impact on Guyana
The amount of money that Guyana gets from oil, both as royalty and profit, is dependent on the price of oil and the volume of production. When the price and the volume are high, royalty is high and profits are higher. It also allows for speedier cost recovery by the operators and it moves the date forward when higher profits are left to be shared between Guyana and the operators. Low price and/or low volume do the opposite. It is more beneficial for Guyana to encourage high production rates when the price of oil is high, such as now.
Increasing Numbers of Guyanese Benefiting Directly
ExxonMobil Exploration and Production Guyana Limited (EEPGL), the ExxonMobil subsidiary operating in Guyana on behalf of itself, and Hess Corporation and China National Overseas Oil Corporation recently announced that more than 4,400 Guyanese were working in support of their operations in Guyana. This is a steady increase over the years. The ripple effects should multiply across the economy and should increase exponentially with increasing exploration and production activities. The expansion in the government’s infrastructural projects will add thousands more to the roster of direct beneficiaries, as training and education catch up with the demands of bustling industrial and hopefully, agricultural growth. Opportunities abound.
Dr. Tulsi Dyal Singh is a Guyanese-born American. He has lived in Midland, Texas, since 1979.
He is a former president of the board of trustees of the Permian Basin Petroleum Museum, Library and Hall of Fame.
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Tulsi Dyal Singh, MDhttps://oilmanmagazine.com/author/tulsi-dyal-singh-md/
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