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In spite of gloomy market conditions, Guyana should continue pumping oil
– makes less economic sense to do otherwise –University of Houston Instructor
In spite of COVID-19’s devastating impact on the global petroleum industry, where declining demand for crude and low oil prices have forced some countries to shut off wells, there is no reason why Guyana should contemplate same says University of Houston Instructor, Tom Mitro.
University of Houston Instructor, Tom Mitro
In an exclusive interview with Kaieteur News recently, the international consultant who specializes in contract negotiation and renegotiation, said that Guyana must continue pumping oil in spite of gloomy market conditions. Mitro was adamant that it makes less economic sense to do otherwise.
Expounding further, the University of Houston Instructor said, “…I see that Exxon has demobilized a rig in Guyana. That is (one of the things) that tends to get cut or deferred in any new exploration or appraisal drilling during a low price period.”
Be that as it may, he said, “It is much more difficult and makes less economic sense to shut down an ongoing field development such as in Guyana. For one, the companies usually have contractual obligations to pay the subcontractors. Deferring the projects would result in the company having to pay penalties and de-mobilization costs as per their contracts.” Adding another point for consideration, Mitro said that a deferral in the middle of a development just ends up delaying when the operator starts producing oil.
Further to this, Mitro said that the local authorities would be wise to pay attention to very small companies that participate in offshore projects as they may run out of financing at low oil prices and have to sell their interests, drop out of projects or even go bankrupt.
Additionally, Mitro said that ExxonMobil and the government will have similar interests during this low price period, that is, “neither wants to produce at a loss.” The University of Houston Instructor also said that this is a period when it helps to have a good marketing team or connections into refineries. In this regard, he commented, “One advantage of an Exxon or Hess is that they do have a refining system and they will typically give priority to crude oil that they produce in their upstream rather than buying other people’s oil.”
Mitro said that the Government of Guyana will need to pay extra attention to the reported transfer price during this period of uncertainty. He also said that this will be a difficult time for the government trying to sell its own share of profit oil because it has no refining system to connect to. “They may have to make big discounts in order to sell,” Mitro said.
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