DEAD MEAT


The AFC declared on Monday last that it would be contesting the November 12 local government elections on its own. It could be that in the discussions between the parties the AFC put forward for the local government elections the same formula agreed in the Cummingsburg Accord, signed by the parties on February 14, 2015. Under that formula the AFC got 40 percent of the seats in the National Assembly and of ministries. Far higher than its showing in the two previous elections, this percentage was necessary for APNU to entice the AFC, because a coalition was necessary to defeat the PPP. The apportionment was retained for the last local government elections but it is clear that APNU has now likely proposed a smaller proportion for the AFC, which the latter has clearly refused to accept.

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SWEEP AWAY THE COBWEB


An extensive debate is currently raging in the media on the Government’s lethargic approach in preparation for the oil industry. Among the contentious issues are  legislation for local content, the sovereign wealth fund, petroleum legislation, the department of energy. The most glaring deficit appears to be the lack of expertise in Guyana on oil and gas and the deep concern that these issues will not be addressed in time for 2020 when the production of oil is due to begin. Mr. Imran Khan’s eloquent defence of the government’s efforts recently on an Al Jazeera television programme which included Messrs. Christopher Ram and Jan Mangal, has not diminished concerns.

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THE $20 BILLION QUESTION FOR GUYANA


On Friday last the New York Times published “The $20 Billion Question for Guyana.” It was a lengthy review of Guyana and the impact that the oil discovery by Exxon and its partners in offshore Guyana is likely to have. Two recent articles by the Wall Street Journal and Foreign Affairs, of world-wide reputation, like the New York Times (NYT), were published and reprinted in Guyana. Few Guyanese would recognize the description of Georgetown by one of them as ‘sleepy’ or by the NYT as a ‘musty clapboard town…which seems forgotten by time.’ Notwithstanding these unflattering first impressions of Georgetown by foreign journalists, the articles helped to highlight, not only the amount of financial resources that will become available to Guyana, but how those resources can be used or misused.

Guyana is described as an unlikely setting for the next oil boom. It is ‘one of the poorest countries in South America can become one of the wealthiest.’ The NYT article said that all the talk in Georgetown is about a sovereign wealth fund to manage the money. It underlined Minister Raphael Trotman’s comment, perhaps speaking hyperbolically, if he indeed said so, that we have been given a chance to get things right because ‘the Chinese cut down our forests and dug out our gold and we never got a cent…we could end up with the same experience with ExxonMobil.’ Whatever the dangers, Rystad Energy is quoted as predicting that Guyana will get $6 Billion by the end of the 2020s. But this is a modest estimate with a production of eventually 500,000 barrels a day. Doug McGhee, Exxon Operations Manager, predicted better social services and infrastructure, ‘if the government manages the resources right.’

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500,000 Barrels A Day.


With the production of 500,000 barrels a day for 300 days a year at US$40 a barrel, the annual income would be US$6 billion. The cost of production of oil varies widely, depending on whether it is onshore or offshore and if offshore, how far away and how deep. To give some idea North Sea oil was produced by BP in 2014 at US$30 a barrel. It went down to US$15 a barrel in 2017 and is expected to go down to US$12 a barrel by 2020. The estimated cost of production in offshore Guyana has not been made known by either the Government or ExxonMobil. We are therefore left to speculate.

Assuming that a maximum of about half of the income would be deducted as production costs, US$3 billion would be deducted as production costs from an annual income of US$6 billion. Guyana would earn 50 percent of the profit, that is, US$1.5 billion plus 2 percent of US$6 billion as royalty which would add another US$120 million. At minimum, therefore, Guyana’s economy would double. More likely than not, Guyana’s economy would grow to three times its current size and even more, if the price remains around US$60 per barrel and if more discoveries are made resulting in higher production. ExxonMobil has drilled only eight wells in seven of which oil was discovered. It plans to drill another twenty. There are also other blocks to be explored by other oil companies and other blocks yet to be given out for exploration.

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