Every man, woman and child in Guyana must become oil-minded

Part 6 – June 30, 2017

You will have noted that the title of the column this week has been changed from Oil and Gas – the new Economic Horizon. It comes from the banner headline of the Daily Chronicle of November 18, 1930 and is a reminder to us all that we need to start thinking oil and gas not only because of the benefits which can accrue to the country but also that there are in fact few countries which have made proper and responsible use of their oil endowment. We only have to think of the Dutch Disease, Resource Curse or Oil Curse, or think of Venezuela, the country with the highest reserves of crude oil in the world based on latest data, to recognise that oil is not a panacea. Indeed, oil countries are more than fairly represented in the list of most corrupt countries. So as we bear the topic in mind, we need to be ever conscious that oil then is neither a good indicator of a country’s economic wellbeing, its human capital or a measure of its governance.

Where does oil come from, how is it discovered, explored and extracted? Is there some pool of the gushy, mushy stuff just waiting to be taken out of the ground, whether under the earth, the sea or the oceans across continents? I have reached out to oil industry experts who have all tried to make the origin of oil and gas into a concept which I can understand and can therefore pass on. If I fail on both counts, it is entirely my fault.

After all, it is not easy for an accountant to dispel the embedded, popular notion that oil and gas reside in large cavern-like pools underground.

Let us begin by looking at a photograph of a sandstone reservoir rock taken by an electron microscope. This photograph comes from the book Deepwater Petroleum and Exploration and Production – a Non-Technical Guide published by Penwell of the USA.

Scientists disagree by factors of varying degrees whether it is hundreds of millions or billions of years about the origin of the earth and the origin and formation of petroleum.

They seem to agree however, that petroleum is transformed remains of long dead fossils of plants and mainly tiny marine organisms. One oil man I spoke with recently took out his iPhone to explain to me the various eras through which the earth has evolved referring to the Holocene and Pleistocene eras as though it was the most elementary information concerning the planet, providing my only moment of comfort when the better-known Jurassic and the Triassic periods were mentioned.

The next point to note is that hydrocarbons (an organic compound consisting of hydrogen and carbon) reside in certain types of tiny matter called rocks, formed over these extended periods. The photograph shows void spaces called pores, about a tenth of a millimeter in diameter, between grains of solid rock about twice that size.

Since it takes twenty-five millimeters to make one inch, it would take 250 millimeters to make up one pore! Deep under­ground with the attendant pressure of water or earth or rocks, these pores can be filled with water, oil, or gas. Some rocks have no pore space, and consist of solid minerals. One of the challenges of the geoscientist is to predict where rocks with a substantial amount of pore space occur, the ones capable of storing hydrocarbons.

Of the three main rock groups, the sedimentary rock is the only group that interests petroleum geologists since these form both the reservoirs and the sources of hydrocarbons. Sedimentary rocks, in turn, are divided into three groups, all of which are important in deepwater oil and gas development sandstones, carbonates, and shales. Put simply, sandstones are derived from other rocks deposited over time to the ocean or sea floor.

Carbonates derive from other organisms like coral reefs and algae, while shales are very fine-grained sediments, consisting largely of clays, the composition of which includes a few percent organic material, micro-vegetable, and maybe some micro-animal matter.

Some time in the near future the oil companies operating in Guyana will reveal some geological data they have assembled in their exploration.

Another source of course is the Guyana Geology and Mines Commission but with the more extensive work done in the immediate past by ExxonMobil and others this is likely to be more useful.

Of course, as neighbours of Venezuela, we can be heartened by the fact that we share many of the characteristics of that country. Maybe, the best is yet to come.

Until next week.


Absence of rules on thin capitalisation will hurt Guyana

Introduction Regulations made under the Petroleum Exploration and Production Act require the application for a prospecting licence to be accompanied by a statement giving particulars of the applicant’s financial status while in the case of a production licence, the application must give full information as to the applicant’s financial status.

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Excessive spending (and borrowing) can undermine Sovereign Wealth Fund

Introduction In the course of his presentation of Budget Speech 2018 delivered on November 27, 2017, the Minister of Finance announced that the Government of Guyana would be partnering with the Islamic Development Bank (IsDB/the Bank), through the Malaysia Agricultural Research and Development Institute (MARDI), to update the expertise and technology in rice production through a Reverse Linkage Project to the tune of US$863,000.

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The 1999 and 2016 Petroleum Agreements Compared – Annexes

Introduction In this the 39th column I wrap up the comparison of the 1999 and 2016 contracts by looking at Annex D which is completely new in the 2016 Agreement.

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Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 38 

Introduction Column 37 which appeared last week dealt with the classification of costs and as indicated there, attention now turns to what Annex C describes as Pre-contract costs.

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