THE BIG SHAFT

Dec 14, 2019 Features / Columnists, Peeping Tom

Oil production has not yet commenced but Guyana is already saddled with a bill for US$11B. Of this amount, US$960 M is pre-contract costs and the remainder is the estimated costs for developing the two major fields, Liza 1 and Liza 2.
Before a drop of oil has been produced, every single Guyanese owes Exxon Mobil and her partners, US$15,000 or about G$3M. This per capita burden is about five times higher than the per capita debt burden which made Guyana one of the most highly indebted nations in the world.
And those with memories will recall how much suffering that debt burden inflicted on the population.
Despite the oil, Guyana will have a bigger debt, in the form of cost recovery, to service that debt. It will take years to remove this debt from around the necks of Guyanese.
Let us assume, hypothetically, that it costs US$5M for the development costs of Liza 1. Oil production is expected to start at 120,000 barrels per day. Assuming a price of US$55 per barrel, and the 75% cost recovery cap, it will still take about four years to clear the initial developmental costs of Liza 1 alone.
The Opposition leader has joined the chorus of calls for greater scrutiny of the US$10B developmental costs. Guyanese are circumspect about these projected costs and, as given the suspicion, there are fears that these costs can be overstated by as much as US$2 B.
A great deal can be done with US$2B. You can build a high span bridge across the Demerara and Berbice Rivers. You can bridge all of our rivers, construct the road from Linden to Lethem and increase public service wages five times and still have plenty change left over.
The discussion about scrutiny of the development costs of Liza 1 and Liza 2 are therefore not misplaced. It is important that every cent be accounted for.
And this is what this newspaper has been calling for. It is simply calling for Guyanese to demand from their leaders that the country is not overbilled for the development costs of these two fields. For every billion dollars which the country is overcharged a great deal could have been done to benefit the country and its people.
But who is going to scrutinize these costs? Guyana is just pretending that it has the capacity to audit these costs. It does not. This is a task which is beyond Guyana. The GRA does not have the capacity to do this. It does not have the skills to undertake such a task.
One solution is for the outsourcing of the auditing of the costs. Well, Guyana has not had a good experience in outsourcing scrutiny of foreign multinationals. The Jagan government brought in a firm to examine the Omai deal. The firm advised that Guyana got a decent deal. The 5% royalty was considered a decent deal.
Guyanese know what happened. An estimated 2.5 million ounces of gold was taken out of Guyana and the company never showed a profit. So much for a good deal.
According to Exxon, The Liza Phase 1 development is expected to produce up to 120,000 barrels of oil per day with a with storage capacity of up to 1.6 million barrels. The field is expected to have 17 wells in total – eight oil producing wells, six water injection wells, and three gas reinjection wells.
Production from Liza 2 is expected to commence in 2022 and the field is designed to produce 220,000 barrels per day. It will have approximately 30 wells, including 15 oil producing wells, nine water injection wells and six gas injection wells.
The combined production of Liza 1 and Liza 2 will only result in production of around 330,000. This is not going to be enough to allow for rapid pay-off of the developmental costs so that more monies can come Guyana’s way. And no amount of auditing of the pre-contract costs and the field development costs is going to change that.
There is only one solution to the present conundrum in which Guyana finds itself. Auditing the pre-contract costs and the development costs of Liza 1 and Liza 2 are not solutions which are likely to be favourable to Guyana.
There is only one solution: renegotiate the oil deals. As someone said, “Simply put, the Stabroek Block contract has to be renegotiated, and the Canje and Kaieteur contracts rescinded now.”

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