Behind the paryara project

Aug 19, 2020 Letters

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DEAR EDITOR,

There is no secret that ExxonMobil took advantage of the lack of local experience in the oil and gas industry during and after the 2015-16 contract negotiations. A number of items from financial, to operational, and technical have been detrimental to Guyana. So far, Liza project has experienced a number of flaws involving environmental mishaps leading to the emissions of over 10 billion cubic feet of toxic gases to the atmosphere, unveiling the lack of planning and proper management from both, Exxon and local Guyanese institutions.
After more than 8 months, the promised 120.000 BPD production is still not there, hurting the return of value to the country, as less produced oil certainly translates into less revenue.
The full monetization of the associated gas produced during the ExxonMobil offshore operations was never intended. The project itself literally does not elaborate much about the gas utilization and yet, still the Ministry of Public infrastructure claims after more than 5 years since 2015, that “the plan to use natural gas is still in the works” [https://www.stabroeknews.com/2020/06/02/news/guyana/ministry-says-plan-to-use-natural-gas-from-liza-1-well-still-in-the-works/].
Financially, the project was clearly overrated in terms of the declared breakeven costs for the produced barrel of $35; at least for phase I, hurting Guyana as this definitively reduces the net share left to the country. This comes to the attention as the equipment failure leading to the 10 billion cubic feed of toxic gases expelled to the atmosphere is a clear result of lack of investment, poor planning and pieces of equipment whose quality is by all means doubtful. Cost structure for the project needs to be reassessed in view of the hard data available since production startup in last December 2019.
Technically and rigorously speaking, nobody yet knows how much hydrocarbon is there to be recovered and produced, as so far they have only referred in terms of resources; not reserves. This poses a threat to the country as perhaps Exxon, could squeeze production irrationally to quickly recover their investment, leaving behind a sizable volume of unrecoverable oil after damaging the reservoirs, by imposing unacceptable reservoir management practices. Guyana needs to ensure, most of the “in situ hydrocarbons” are recovered and produced to be able to maximize the value of their assets.
Guyana also needs to renegotiate their net share and royalty scheme, as certainly a net 12.5% share is definitively unacceptable. Common practice dictates for at least over 20 % to 33% net.
In view of the above, one of the first announcements made by president elect Irfaan Ali was accurate, when pointing out that Payara project approval will have to wait on an international oil expert’s assessment and advice. Next day, ExxonMobil claimed that delays will reduce the value of the project [https://www.stabroeknews.com/2020/08/13/news/guyana/exxonmobil-still-holding-out-for-speedy-approval-of-payara-project/]. A very confusing statement, as there are lots of intangibles involved, from markets and geopolitics, to technical and operational. Supposed that as opposed to what it is, the project gets the green light and the oil price remains weak or even dropping, versus the scenario of the project getting delayed and the oil price sharply picking up precisely when approved. This will not only compensate for the differed capital cost but will definitively increase profits. The same can happen if as a result of the field development plan (FDP) review, more reserves are added, and a lower breakeven cost for the barrel is reestablished. There is no excuse for ExxonMobil other than avoiding a fair deal for the people of Guyana. President Irfaan Ali is by all means on the right track as opposed to his predecessor, and should proceed without delay prompting a thorough review of not only the Payara FDP, but all the contractual terms.
But politics seem to be playing once again a tricky game, as according to available information, the former premier of Alberta, Canada seems to be the one that will be heading the review team. Ms. Alison Redford, apart from having no technical expertise in the oil and gas industry [https://www.cbc.ca/news/canada/edmonton/alison-redford-used-public-money-inappropriately-ag-says-1.2730213] has had some ethical issues in the past. What would be the value that Ms. Redford could add to this team?
A field development plan establishes the path for the operational action plan, the resource layout, and the investment plan, as well as the whole economic picture in play. There is no space for politics during the review. Politics come behind the review, not before.

Millan Arcia Einstein

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