Dear Editor,
Minister of Governance Raphael Trotman, claims ExxonMobil’s Liza well has between 800 million to 1.5 billion barrels of oil. In the same breath, he admits he has no credible evidence to support his contention. Trotman does not seem to know what amount of oil is extractable versus known reserves, the former always being lower than the latter, particularly for offshore oil. This not only shows Mr Trotman as uninformed, it confirms that this government remains in the dark regarding the hard data regarding this ExxonMobil find. Furthermore, there seems to be a reluctance to demand more information and data in order to make informed decisions. I don’t care if this government is overawed, overjoyed or suffering from the never-see-come-fuh-see mentality when dealing with a company that is worth 200 times Guyana’s GDP, the fact of the matter is that selling a nation’s oil wealth requires fully informed negotiators on the people’s behalf. There is nothing that prevents the government from independently retaining experts to assess the information (however limited) they have to make their own determinations. As it stands, ExxonMobil holds all the cards and the information. ExxonMobil is one of the most powerful corporations on the face of the earth. It will do what is necessary for its shareholders. I fully endorse that. The question is whether this government and its point man on oil, Minister Trotman, will do what is necessary and beneficial for their shareholders, the people of Guyana?
Talk of asking ExxonMobil to deliver a platform between three and five years is pure headiness. ExxonMobil will decide when it wants to sink a platform, regardless of the government. Furthermore, there is a glut of oil. OPEC is ratcheting up its output. Saudi Arabia is on a pumping frenzy. With an Iran nuclear deal imminent, even more oil will flood the world market, driving up supply and softening the price. While emerging oil plays like US shale and Canadian oil sands have softened in response to OPEC’s increased pumping of conventional oil, technology is rapidly responding to try to bring down the cost of these types of higher production cost oil. In fact, shale technology in the past decade has advanced at a rate that outstrips the rate of technology growth in conventional oil for the past five decades. Yes, it is happening so fast and these unconventional oil sources will be close to conventional oil production cost in a decade. Generally, technology continues to improve in terms of extracting energy from oil. Major economies are increasingly shifting to alternative energy, reducing demand even further in an already saturated supply side marketplace. The industrialized powers are agreeing every year to even more greenhouse reduction targets to hasten that shift from oil. More offshore oil is being explored and discovered. If Mr Trotman is to be believed, we have to add 800 million to 1.5 billion barrels of oil to this saturated oil landscape. We have not even delved into Arctic oil against the backdrop of higher melting at the polar caps and easier access. Russia has started exploring this massive reserve. OPEC has stated it expects to stay the course of higher output for years.
What this means is that cheap oil and too much oil is the new normal for the short and intermediate term. Oil analyst, Wood MacKenzie, has a $70 breakeven price per barrel for any oil from the Liza well. Oil is trading at $57 per barrel as I type. ExxonMobil can establish a platform, which incidentally will cost tens of billions of US dollars, within three to five years if this government pushes for it. The catch is that with oil projected to remain hovering around $55 to $60 per barrel for the near and intermediate term, this government has to deliver incredible concessions to Exxon to take such a fiscally ludicrous risk. No prudent corporation will not have a monetary trigger for taking on such a risk if oil prices remain depressed for a long time. They will not get stuck holding sub-value barrels of oil. At some point, they will want their money. ExxonMobil will demand further incredible concessions on future exploration and discoveries from Guyana. If the thinking is that even if Guyana gets zero in oil royalties for many years to make this platform happen in this economically unsound scenario, it will get jobs, the Minister and his comrades better think again. The jobs will be offshore. They will be specialized. They will predominantly go to non-Guyanese. The onshore jobs are unlikely if a well is constructed in this era of depressed oil prices. To save costs, ExxonMobil is likely to demand use of Venezuela, Suriname, French Guiana and Trinidad & Tobago’s existing onshore and offshore oil facilities, further eliminating the likelihood of any substantial jobs onshore created in Guyana.
Hopefully, the minds at ExxonMobil make the right decision and focus on building only when there is certainty that oil prices will rise and remain elevated for a sustained period in order to recover their investment and to deliver profitability to both ExxonMobil and the Guyanese people.
Yours faithfully,
M Maxwell
