Key takeaways from Rystad Energy presentation

MUCH has been made in the media of a report on Guyana’s oil future from prominent Norwegian energy research firm, Rystad Energy. On Tuesday, Guyanese got to hear first-hand just what this report means from one of its authors.

London-based Rystad analyst, Sonya Boodoo gave a presentation at the Duke Lodge, hosted by the Private Sector Commission to an audience including PSC members, the business community, journalists and members of the public.
She presented the findings of Rystad’s Guyana Outlook report, including forecasts for government oil revenues in the billions for most of the 2020s and 2030s.

The report looked at a variety of oil price scenarios, including US$90 per barrel, $70, and $50. In these price scenarios, the amount of estimated total revenue over the next two to three decades ranged from $51 to US$160B. These estimates were based on not just the Liza Phase 1 project, which will start producing in 2020, but also the planned Liza Phase 2 and assumed production from all other discoveries to date.

Ms. Boodoo elaborated that these production levels would likely place Guyana in the top 30 offshore oil-producing countries globally by the 2020s. To achieve this level of production, Ms. Boodoo estimated that ExxonMobil and its partners would need at least three floating production, storage and offloading (FPSO) vessels.

The oil company already has plans for one FPSO to service the Liza Phase 1 development, and envisions a second to service Liza Phase 2. Additional development phases have not yet been planned, so Rystad made projections and assumptions about the future development of more oil-rich areas in the Stabroek block.

Significantly, Rystad also estimated that Guyana’s offshore resources would require major participation by oil field services companies with large expenditures needed for engineering, subsea installation, and maintenance and operations. These opportunities are expected to attract even more international service companies to come to Guyana.

As reported extensively in the Guyanese and international media, the Rystad report also found that, as per the contract with ExxonMobil, the Guyanese government will receive approximately 59 per cent of total oil revenues from the project; including a 2 per cent royalty on total revenues, and 50 per cent of the profits after costs.

According to Rystad, this revenue split is in line with other “frontier” areas. These places—like Israel, the Falkland Islands, and Mozambique – did not have a history of producing oil and gas, or significant proven reserves when signing deals.

That was the situation Guyana found itself in when signing our original contract; meaning that companies assumed high risks to drill here with no assurances of finding enough oil to recover costs. Those risks worked out well in Guyana, but in other places like the Falklands, those bets were proven wrong, and oil exploration companies suffered hundreds of millions of dollars in losses when they discovered little.

The Falkland Islands and Israel signed contracts in which these governments receive approximately 47 per cent and 58 per cent of total revenues, while Mozambique is getting around 64 per cent, placing Guyana neatly in the middle.

Ms. Boodoo and Rystad did illustrate a point that the International Monetary Fund emphasised in their own report as well: That the contract was well designed to entice companies to explore a new and unproven region by offering favourable terms, with Ms. Boodoo calling it “quite fair” in her presentation.

These findings agree with a previous report from another prominent voice in oil and gas industry research: Wood Mackenzie, which found that Guyana’s contract was “middle of the road.”

Once production begins and exploration occurs in other blocks offshore Guyana, we may soon have a status as a low-risk proven oil producer. If that is the case, then future oil contracts for new blocks could mean even higher government revenues.

As Ms. Boodoo and Rystad pointed out, Guyana could soon have the distinction of producing more barrels of oil per inhabitant than any other country.