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Govt’s push for faster oil extraction is a formula for billion-dollar losses and disaster – Opposition Economist
Kaieteur News – Vice President Bharrat Jagdeo recently signaled the government’s position to fast track the petroleum sector over the next 15 years, but given the current management regime, the Opposition believes this may very well set the nation up to lose billions of dollars and even expose the nation to a greater risk of disaster.
Economic Advisor to the Opposition Leader, Elson Low
During its weekly press conference, the Opposition shared this view, suggesting that the government instead take a step back in production activities, to allow for the country to benefit greater within the existing provisions of the Stabroek Block contract signed with ExxonMobil. Economic advisor to the Opposition Leader, Elson Low explained, “Guyana must urgently exercise intelligence and foresight to maximise the country’s oil revenues under the current Exxon PSA in parallel with efforts to ensure the people of Guyana obtain the maximum benefit that we can get.”
He said that the VP’s statements as reported in Thursday’s edition of Kaieteur News, announcing plans to fast track the oil industry for a minimum of 15 years is “reckless, wild and a recipe for massive loss and leakages of revenue that is needed for the development of the people of Guyana.”
As such, the Opposition proposed that the nation develop a strategy to phase the development of new projects in the Stabroek Block. Low said this must be done in a manner that allows the country to increase its take, through higher profit oil also.
He explained, “At the moment, the 50/50 split gets Guyana only 12.5 percent of oil revenues–a percentage that seems unlikely to budge under the ongoing oil rush. With five (Floating Production Storage and Offloading vessels) FPSOs already in operation or already approved, the country is now well-positioned to seek a larger cut of the pie. In terms of numbers, the 25 percent profit oil must be allowed to increase so that the 50/50 split would earn Guyana an increase of more than 12.5 percent.”
Low was referring to the fact that the oil contract allows Exxon to first deduct 75 percent of the oil towards repaying its investment (known as cost oil) and the remaining 25 percent (profit oil) is then shared evenly between the government of Guyana and Exxon (12.5 percent). With more investments being made daily, he has made the point that Guyana’s share of profit is not likely to increase in the near future, especially with the policy maker’s recent announcement to fast track such development. In this regard, the Opposition is calling for a phased development plan that would allow for greater profits for the country.
Low told reporters, “Of necessity, allowing profit oil to grow from 25 percent would require a measured spacing-out of the company’s expenditure on new developments so that it can recover its earlier investment cost faster. At the end of the day, Guyana’s oil lifts must increase due both to higher oil production and to a greater share of that production. Importantly, such negotiations between the government and the operator could occur within the framework of the existing 2016 PSA.”
The Economist was keen to note that a measured pace of new oil developments will also allow the country to build its institutional capacity building to monitor, evaluate, and audit the offshore operations. As such, he stated, “Jagdeo’s position that Guyana must extract its oil as fast as possible will fail to fully serve Guyana’s interest as it is a formula for billion-dollar leakages, losses, missed opportunities, and disasters. The proper balance must be found between continued expansion of oil production and a greater share of the profit for the country. With good faith negotiations, the company can still get high returns on its investment, while Guyana can maximise its oil proceeds.”
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