Aggressive scrutiny by Guyanese exposes dangerous loopholes on environmental, financial issues in Rystad Energy study

Aug 07, 2022 News

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By Kiana Wilburg

Kaieteur News – Guyanese stakeholders from both government and private sector, collectively demonstrated on Friday last, that their desire to truly understand the extent to which the nation will benefit from its oil resources shall not be a superficial exercise.

This much was clear to a Norwegian company called Rystad Energy which sought to share with citizens, particularly those from the business community, its calculations of how much money it forecasts will be earned from the oil barrels in the ExxonMobil-led Stabroek Block.

Through the facilitation of Oil NOW and the Georgetown Chamber of Commerce and Industry (GCCI), Rystad’s Senior Vice President and Head of Latin America and the Caribbean, Schreiner Parker presented some of the key findings of the firm’s Guyana study.

At the Duke Lodge Conference room, Parker noted that government revenue from domestic production is on track to break the US$1 billion mark this year and accelerate to US$7.5 billion annually in 2030, according to Rystad Energy research. He said this year is set to be a turning point for the Georgetown government to start capitalising on the vast reserves in the offshore field, with revenues more than doubling over 2021 levels.

Parker went on to note that the government’s take from the production is expected to increase until 2025, reaching US$4.2 billion annually. The Senior VP said too that the recent spate of prolific discoveries and the steady pace of Final Investment Decision (FID) position the Guyanese government to reap the rewards of these finds with cumulative revenues totalling US$157 billion by 2040.

He was keen to note that Guyana is also the global leader in total offshore discoveries since 2015, with 11.2 billion barrels of oil equivalent, amounting to 18 percent of discovered resources and 32 percent of discovered oil. Of the total, he said a whopping 9.6 billion barrels are oil, far outpacing the US in second place with a comparatively small 2.8 billion barrels. The Stabroek Block accounts for all of these finds, but recent discoveries in other areas show the potential for growth elsewhere, noted the Rystad official.

Expounding further, Parker said Guyana is forecast to produce 1.7 million barrels per day (bpd) of oil by 2035 – not accounting for as-yet undiscovered volumes – propelling the country to the fourth position on the list of the largest global offshore oil producers, leapfrogging the US, Mexico and Norway.

Comparing the fiscal regimes of other offshore leaders, Parker said Guyana’s is on the higher end, with the government’s take clocking in at 59 percent of total value.

In closing his presentation, Parker noted that Guyana is making several steps in the right direction with the establishment of a Natural Resource Fund and membership with the Extractive Industries Transparency Initiative (EITI). He was keen to note that it is incumbent on Guyana to strengthen the necessary institutions to ensure the people benefit from the resources which ultimately belong to them.

NO PEER-REVIEW

Following his presentation, Parker fielded several critical questions from concerned stakeholders. First to lay out his observations was Chartered Accountant and Attorney-at-Law, Christopher Ram. He demanded to know the qualifications of the presenter or the entire range of expertise that underpinned the study. In addition to this, Ram queried whether Rystad allowed for the study to undergo any peer-review to test or challenge the veracity of the claims being made. While the first question was never answered, Parker noted that none of Rystad’s work is peer-reviewed.

Ram therefore concluded that the report by Rystad is not only authoritative in the absence of being peer reviewed but its reliability is compromised, to say the least.

The lawyer also queried whether the report took into consideration the impacts of environmental or technical offshore risks on the glowing forecasts, to which Parker answered in the negative. He admitted that no cautionary note was assigned in this regard since it was the expectation of the company that stakeholders know best practices ought to be considered. Ram was keen to note, however, that he believes that was a grave oversight and therefore further weakens the credibility of the study.

NO EVIDENCE

Kaieteur News Publisher, Glenn Lall then took to the floor, asking almost immediately if Rystad was paid by the government or Exxon to deliver the study and its rosy picture of the country’s future.

Lall also asked if Parker was aware of the challenges Guyanese stakeholders faced with the passage of the NRF Law which he deemed so easily to be a step in the right direction. The transparency advocate also challenged Parker to say how he arrived at the conclusion that the gas-to-energy project is viable for Guyana when he presented no facts, feasibility studies or independent figures.

Lall also upped the pressure by asking him if he is aware of any other contract in the world that mirrors Guyana’s 2016 Exxon deal which has a mere two percent royalty and a 50 percent profit oil take, both of which swim in a sea of flawed provisions.

Parker could not answer any of Lall’s questions whether pointedly or satisfactorily. He admitted that his understanding of the passage of the NRF Law was superficial, could not present any facts on the gas project, and failed to mention a single contract that mirrors the flaws of Guyana’s 2016 deal with Exxon.

59 percent GOVT. TAKE

Financial Analyst, Joel Bhagwandin then took to the floor and challenged Parker about his company’s reporting on the government’s take which it deemed to be 59 percent. The analyst said his computations on the same matter provide a much lower take. He asked the Rystad Agent to say how he arrived at his figure as he believes it was inflated.

Parker said, however, that it is simply a methodology problem. Parker said the calculation was made looking at the 26 commercial discoveries today in the Stabroek Block using a US$50 long-term projection. He noted that stakeholders must appreciate that Guyana’s 2 percent royalty is taken from gross while the 50 percent take is profit oil. He said those are two different cost banks and when assimilated, along with the addition of the income taxes, 59 percent was arrived at as Guyana’s take.

Bhagwadin disagreed, adding that taxes are included as part of what the government already gets from profit oil. He said this occurs based on the structure of the 2016 Production Sharing Agreement (PSA).

Another stakeholder lamented the manner in which the 59 percent was calculated, while stressing that Guyanese are reaching a point where they will require an interrogation of anything thrown their way in a very aggressive manner. The attendee said, “It is nothing against you but any company that comes here must present a transparent methodology along with granular facts…”

Lending his voice in solidarity, Ram asked, “Guyana gets 50 percent profit oil take and 2 percent royalty, what kind of magic transforms that into 59 percent?”

He reminded that Exxon, Hess and CNOOC get a tax certificate from Guyana saying that they pay taxes here when they do not. The Chartered Accountant added, “You are completely out of the mainstream, they are deducting millions of dollars for decommissioning too and that is not considered in your study…”

EXXON’S CLIENT

Stabroek News’ journalist, Marcelle Thomas then asked Parker pointedly if Exxon is one of Rystad’s clients to which he answered in the affirmative. He added that all the top operators in the world including Hess Corporation and CNOOC are Rystad’s subscription partners. He also said none of his company’s reports are skewed in favour of its clients.

GAS-TO-ENERGY VIABILITY

Veteran Journalist and Broadcaster Denis Chabrol also returned to the gas-to-shore matter, challenging Parker to say if he feels it is the best option, to explain the associated pros and cons financially, and to touch on the environmental implications if such was examined by Rystad. Though Chabrol appealed for a direct answer on his question, Parker did not prove how he arrived at the conclusion that the project is financially viable and necessary.

He reiterated that the country is facing three options with gas: reinject it, flare it, or bring it to shore. Parker said he believes the gas project is vital as it will be transformative in lowering electricity costs and supporting the expansion of other industries.

Pressed by KN Publisher Lall to say how he is aware it will lower electricity costs when there is no final price tag on the project, Parker submitted to his audience that he is not the author of Rystad’s position on this matter. He then offered Lall his business card and promised to send the Rystad report on the matter at a subsequent date.

MONTE CARLO SIMULATION

Bobby Gossai, Senior Petroleum Coordinator within the Ministry of Natural Resources along with Moderator of the event on Friday, Economist and Executive Director at GCCI, Richard Rambarran, both questioned the Rystad agent on whether the Monte Carlo Simulation (MCS) was used in the preparation of the study.

In simple terms, MCS is a mathematical equation that allows one to understand the best and worst case scenarios of certain events over a period of time. This method is of particular importance when it comes to the oil and gas sector that is vulnerable to certain external risks.

Readers would recall for example that in the 2020 period, when the world was hit by the COVID-19 pandemic, lockdown measures worldwide reduced the demand for oil and gas resources. Many oil companies recorded billions in losses during that year. Oil prices were low then slowly picked up in 2021 when the market started opening up and restrictions were relaxed. Fast-forward to 2022, no one would have imagined that Russia would invade Ukraine in February, sending oil prices soaring through the roof.

Better yet, not a soul in 2015 or 2016, when Guyana was hitting discovery after discovery, projected these two unprecedented events would hit the oil sector down the line. It therefore proves that the oil sector and fiscal forecasts have to consider the best and worst case scenarios hence the relevance and importance of the question posed by Gossai and Rambarran.

Parker eventually revealed that he did not use the Monte Carlo Simulation. His company simply calculated the barrels available from 26 commercial discoveries, along with other economic factors, using a flat US$50 rate per barrel into 2040. There was no consideration of impacts from worst case events like the pandemic or the war.

Both Guyanese economists then urged Parker to consider closing this loophole in the study or at least stating upfront, the true contours of the methodology used.

In his defense, Parker said he is not the author of the report; he is merely the humble messenger. The Senior Vice President said the report was not meant to be technical but just provide a layman’s understanding to persons of what Guyana could get 20 years into the future. Parker added that the intention of the company was to be as simplistic as possible and not super pedantic in its extrapolations. “This piece is for the general readership, the layman,” he reiterated.

Parker in his closing remarks said he felt enthused by the discussion as it is “a very healthy indicator that the Guyanese population and its citizens are involved. It is critical to have an evolved citizenry. It is an indication that there is a healthy democracy to express opinions.”

 

 

 

 

 

 

 

 

 

 

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