Understanding Energy | What first oil means for Guyana’s future

GUYANA is now officially an oil producing country. Not only that, but within a few years it could be one of the largest in the Western Hemisphere. As a nation, we have suddenly arrived at a position of global prominence that would have been unthinkable just a few years ago. It’s worth taking a moment to celebrate the occasion and re-examine how we got here.

Although it has only been a few years since oil was first discovered offshore, Guyana has long been a focus of the global oil industry. Dozens of exploration wells had come up dry over the years, prompting many international companies to walk away empty handed after one too many disappointments.

That all changed, however, when the Liza discovery was finally made in 2015, more than 16 years after ExxonMobil and the government’s agreement was signed.
That first successful well was in waters so deep that drilling wouldn’t even have been considered possible a couple decades ago – the technology simply was not capable of accessing it cost effectively. But since then, 13 more discoveries on the Stabroek have made Guyana one of the more unexpected hotspots in the global energy industry. To date, there have been upwards of 6 billion barrels of oil equivalent discovered.

With production underway, Guyana is just a few months away from getting its first cargo, or “lift,” of oil for sale on the international market. A lift is common terminology in the industry that refers to the process of offloading and selling freshly produced crude oil.
According to recent statements from the Department of Energy, the government has already solicited bids from international traders to market and sell that oil in the short term. In the meantime, the government will work towards a more permanent solution for selling our crude.

The majority of lifts in the first few years will be divided between Exxon, Hess and CNOOC. These companies invested billions of US dollars of up-front capital needed to finance development and are now allowed to recover those costs through a share of production. Per the terms of the production sharing contract, they can recover a maximum of 75 per cent of their costs in a given year and the remaining 25% will be profit oil which will be split 50-50 between Guyana and the companies. By late February, it will be Guyana’s turn to claim and sell our first oil lift.

Once the initial costs are paid off, the revenues from the 50-50 profit share will increase substantially. Guyana will also receive a two percent royalty on all production.
Liza Phase 1 is just a first step in Guyana’s eventual overall production. If assessments from international analysts are correct, we could be producing more oil than Venezuela or Mexico within just a few years.

But that steady progress will require that additional phases of production are approved and brought online smoothly. Liza Phase 2 is already well advanced and Payara—the third project on the Stabroek Block—will likely receive final approval from the government early in 2020.

Combined, these two projects will help Guyana reach nearly half a million barrels of production per day before the mid-2020s. All the while, further exploration and development will be taking place offshore and at least two more potential projects could be in progress by 2025.

The revenues from this massive production can be spent on all manner of vital needs within Guyana, from better healthcare to infrastructure such as a new road system, bridges, seawalls or an updated electric grid for Guyana.
It’s a historic moment that holds risk and promise, the same way first oil was for so many other countries. With the right steps towards careful, safe and transparent development, we can reshape our future—investing to make Guyana a better place to live and do business for future generations.

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