Evaluating Open Oil’s Financial Modeling of Guyana’s 2016 PSA – 8

Introduction

Today’s column concludes the discussion of Open Oil’s modeling exercise of Guyana’s 2016 Production Sharing Agreement (PSA). I shall address the three topics last week’s column indicated, namely: information gaps; the treatment of Government Take; and national versus project-based modeling.

Information Gaps

Previous columns had expressed concern about financial/economic models, which are not forthcoming about the limitations of data inputted into them, particularly as regards their quality and coverage. However, I do not wish to single out Open Oil’s modeling exercise as a notable offender. To the contrary, under the header: “Information Gap Analysis and Next Steps”, the model’s Report declares “there are several gaps of information that, if filled, would improve the economic model.”

The model identifies five gaps. The first is Contractor estimates for expenditures on exploration, capital, and ongoing operations. This item is controversial, particularly because of Exxon’s recently announced claims on its exploration expenditures for cost recovery. The second gap listed is detailed estimates of petroleum reserves (based on the Society of Professional Engineers Classification system). As noted, the model’s base case utilises Liza 1, with a field size of 450 million barrels. It does reference Liza Phase 2, and indicates precise reserves data were not available. Consequently, the third information gap listed is a definitive fix on Contractor timing of its implementation, cost, and production profile…..