Evaluating Open Oil’s Financial Modeling of Guyana’s 2016 PSA – 2

Introduction Within hours of the publication of my last Sunday’s Stabroek column, where I had indicated my intention to  write a “three-part review of Open Oil’s reported financial modeling exercise of Guyana’s 2016 PSA”, its Founder and Author of the exercise wrote to the Stabroek News Editor “to correct some inaccuracies” (letter published, Monday, May 7, 2018).

The petroleum project life cycle

The economic perspective

Introduction This week’s column wraps up the ongoing discussion from an economic perspective of the last remaining of the five items, which that I had earlier identified from Guyana’s fiscal regime for its 2016 production sharing agreement, PSA.

The economic perspective

Resources, reserves and tax compliance

Introduction Last week’s column addressed two of five topics singled out earlier for comment in order to highlight their significance from an economic perspective; namely 1) Government take/developmental benefits/economic profit; and 2) accounting for costs.

Government take and the 2016 PSA: Misleading metric

Rational incentive Based on the economics Nobel Prize winning theory of “incomplete markets”, my previous column posited that, the Parties to Guyana’s 2016 PSA have a rational incentive to re-negotiate the contract, if underlying conditions of the country’s petroleum sector drastically change.

Known unknowns and Guyana’s petroleum fiscal regime

Introduction As far as I can determine, a standard formulation of Guyana’s fiscal regime for its petroleum sector would describe this as ‘The Terms and Conditions that are applied to both the Owner (State) and Contractor (Exxon and its partners) for conducting their business within an integrated framework; from exploration activities, right through the production chain (upstream to downstream), as well as trading’.

The ‘fiscal terms’ of Guyana’s 2016, Production Sharing Agreement

Introduction: Catalogue The catalogue of desirable features energy economists promote for effective PSAs are that 1) ownership of the petroleum wealth should remain within the domain of the country in which it is discovered; 2) the State/Principal should maintain managerial control of this wealth, but 3) the Contractor/Agent (in Guyana’s case Exxon and its Partners) should maintain operational control of contract-assigned petroleum activities.

How production sharing agreements have had to adapt

  Introduction From their very inception, oil agreements/contracts have embodied dynamic processes between states, as sovereign owners or guarantors/regulators of rights to a country’s petroleum wealth, and individuals/oil-companies that contract to develop this wealth.

Critique of Guyana-type production sharing agreements

Introduction Production sharing agreements or contracts (PSAs), have been, from the time of their earliest introduction to the oil and gas sector, subjected to in-depth critical analyses and/or evaluations from economic, legal, and institutional perspectives.

What Next: More on the Natural Gas Option!

Introduction Last week’s column had raised the conundrum: What next? Given that, I am advising against state investment in oil refining therefore, what other major options I am recommending for realizing the substantial potential of Guyana’s recent petroleum finds.

Queries in support of Decision Rule 2

(No overall economic justification for a Guyana state-owned refinery)

Introduction In last week’s column I sought to recall, for the benefit of readers, several key observations and conclusions that were drawn from my earlier review of refinery economics in order to support Decision Rule 2.