Introduction
Last week’s column identified several of the ‘known unknowns’, as these are termed in strategic management. They help determine the likely revenue yield from Guyana’s 2016 Production Sharing Agreement, PSA. The known unknowns include the actual outcome of 1) Risk-sharing between Guyana and the private Contractor (Exxon and partners); 2) Returns to the two Parties (Government revenue and Contractor profit); and 3) Sustainability of investment flows to the petroleum sector through time. Alongside such known unknowns, there is the more difficult category of unknown unknowns. By definition, we cannot be cognizant of these now, except for the fact that we know they exist.
Elaborations
Today’s column offers five elaborations on last week’s key observations. First, the division between Cost Oil (that is the percentage of the value of total output, which is allocated under the PSA to Exxon and its Partners), and Profit Oil (as defined in the PSA) which is deliberately designed to compensate or secure for Exxon and its partners (Contractor) for the risks attached to their previous exploration and development as well as operational expenditures. When recognized this way, it means that through this mechanism the PSA in effect guarantees a minimum return to Exxon and partners. This further indicates, therefore, the limitation identified here, is insensitive to price rallies in the petroleum market, which I think one can reasonably predict would occur, at least during the medium-term after 2020, when Guyana’s oil and gas production and export is expected to come onstream.
