Guyana’s Oil and Gas Sector:  Wrapping up the finances and petroleum metrics embedded in the Buxton Proposal – Part 8

Introduction
I began the discussion on the petroleum metrics and finances of the Buxton Proposal by observing that the only material change to the  data previously utilized was the computation of Government Take by the IDB in their Technical Note back in August 2020, entitled ‘Traversing a Slippery Slope: Guyana’s Oil Opportunity.’ That Note concluded Guyana’s government share of total revenue sits at 51%. That is, Government Take or, as it is sometimes termed, the average effective tax rate, AETR. The IDB’s rate falls within the range of the other rates computed prior to First Oil, December 2019

Relation-2
As indicated last week, the second of the three relations zero in on the estimation of overall profit or surplus. Profit or surplus is expressed here as simply the difference between the average price per barrel of oil equivalent (boe) and the average cost of producing same. Brent crude oil price behaviour is used here as a proxy for the price Guyana crude obtains in the world market. For purposes of the Buxton Proposal and the Guyana Petroleum Road Map, I have used an estimate of US$ 70 per boe at “full ramp-up”. To recall briefly, full ramp-up is specified as the stage when Guyana’s daily rate of production, DROP, of crude oil falls in the range of 1.5 to 2.5 million barrels of oil equivalent, boe, (mboe) per day. Therefore: Profit = Price less Cost per boe.

Because the second relation looks at the determination of how projected overall profit or surplus is calculated, the larger is the positive difference obtained between the price per boe and its cost of production, the greater is the expected rate of profit. For purposes of the Road Map, I have used a range of cost ratios in the production of Guyana crude. This range is from 0.31 to 0.46 of the projected price, which as indicated above is US$70 per boe. This yields a dollar value of unit cost of US$21.70 and US$32.2 per boe.

As it turns out, this cost-price ratio compares high, with Rystad Energy’s cost-price ratio of 0.33 for its model of Guyana crude oil and gas production analytics. The difference is significant, nearly 50% higher. I acknowledge my high value of cost, but I accept this, as a useful restraint, given that I am so “strongly bullish”, when projecting Guyana’s reserves potential.

Thomas Petroleum Metrics Values
Schedule 1 summarizes the key values that I have identified so far, in regard to the relations dealt with that govern the petroleum metrics; namely, Government Take (55%); crude price per boe (US$70); Guyana’s DROP (ranging from 1.5 to 2.5 mboe per day); and, finally, my projected cost price ratio (ranging from 0.31 to 0.46).

Rystad Energy Analytics
At this stage, I introduce once again, the Road Map’s presentation of Rystad Energy’s modelling of Guyana’s petroleum metrics as it relates to the third critical relation — estimation of Government Take. The key data in Rystad Energy’s model are captured in Schedule 2.

This information shows: 1) the fiscal elements assessed by Rystad Energy (royalty, profit sharing, signature bonus and a miscellany of other charges/fees/ rentals and so on, covered in the PSA template that was used); 2) Government Take, which averages 60% of net cash flow 3) a DROP of 0.6 mboe per day. This low DROP is used in Rystad Energy’s model, despite ExxonMobil and its partners projecting a DROP of 0.75 mboe  per day by 2025 (before full ramp-up), and additionally, excluding any output from other holders of petroleum blocks 4) a cost/price ratio of 0.33 derived from Rystad’s proprietary model. This cost-price ratio is about 10% below the mean of the two cost ratios, which I apply.

Juxtaposition of Model Values
For ease of comparison, I display in Schedule 3, the variances in the variables as applied by Rystad Energy and myself, based on Rystad Energy’s model. The difference in Government Take reveals that mine is lower (55% versus 60%). My projected average annual price of Guyana crude oil is also lower (US$70 per boe versus US$75 per boe). My DROP is, however, higher at 1.5 to 2.5 mboe per day versus 0.6 mboe per day for Rystad Energy. My cost/price ratio too is higher. This ranges from 0.31 to 0.46 of price versus 0.33 of the price by Rystad Energy.

Thomas’ Model, at Full Ramp-up
Finally, Schedule 4 summarizes the values I obtained for Guyana oil and gas, at full ramp-up. These reveal that, with a cap of 10% of Government Take to be spent on the Buxton Proposal at full ramp-up, it is theoretically affordable for Guyana. The task that must now be completed, is a feasibility/pilot study to determine a workable scheme.

Conclusion
This completes, for now, my discussion on the petroleum metrics and finances of the Buxton Proposal. Going forward, in the remaining columns devoted to this topic, I shall offer a strategic appraisal of, first, some areas of mis-specification, deliberate and otherwise, of certain strategic aspects of the Buxton Proposal that can certainly serve to render it ineffective, or worse, unintendedly harmful as a policy intervention vehicle. Secondly, I offer the view that the Buxton Proposal is congruent with the United Nations global sustainable development goals, UN SDGs. I illustrate this by way of a summary appraisal of certain political economy features of Guyana’s emerging oil and gas sector along with direct cash transfers from oil revenues to citizens