Evaluating Open Oil’s Financial Modeling of Guyana’s 2016 PSA – 6

Introduction

Today’s column continues with my critiques of Open Oil’s financial modeling exercise of the Guyana 2016 Production Sharing Agreement, PSA. As indicated earlier, the critiques, which are raised here are in no particular order of priority; save and except that, the first of these, represents in many ways, the most fundamental, in a theoretical and logical sense. That is so because this critique rests on both the intrinsic limitations of financial/economic modeling per se and the highly likely failure of modelers to portray their results, with an appropriate measure of caution. Indeed, rather than such caution, there is an unacceptable tendency to “amplify” their results, whether to attract attention or otherwise. Today’s column will concentrate on rounding out the first critique, for the benefit of my local readership.

I should warn readers though; that passionate as I might appear to be when highlighting the limitations of the predictive power of financial/economic models, I remain a firm believer of their usefulness. I therefore hereby readily acknowledge that, the development of robust solutions to economic modeling of petroleum projects and their assessment of associated project risks, are absolutely essential for Guyana’s progress, in its coming time of oil and gas production and export circa 2020.

Put another way, financial and economic models which seek 1) to assess the economic and/or financial viability of petroleum projects 2) to simulate the contributions to Government and/or Contractor take, prior to the project’s development/ production phases (for example Liza 1) 3) to support project strategy and decision making by the resource Owner and/or Contractor, during the project cycle. Such information will clearly aid the optimization of risk management and thereby further support the financing of projects, investments, and the provision of returns/benefits from these. ….