Dear Editor
A PERSISTENT naiveté has pervaded much of the public comments on the 2016 Production Sharing Agreement (PSA). While I give due regard to the genuine concerns driving the comments, they have created a misleading and incomplete understanding in the minds of many. One is left stranded by the over-simplicity of the reasoning, the use of political rhetoric over objective analysis, and the disregard for or absence of basic comparative information.

I do not intend to debate the Ram’s, the editors of SN and KN, and the other contributors who have expressed dissatisfaction with the PSA. Instead, to broaden the discussion and to lengthen the trains of thought, I list below several points for consideration.
(i) Oil exploration is a high risk venture. Companies can spend hundreds of millions of dollars and find nothing. The more unproven the area (such as the Guyana offshore basin), the greater the risk, and the greater requirement to incentivise risk-taking. For an exploration company, that money is an opportunity cost. It is money a company could have spent in other countries. For a company as big as ExxonMobil, such opportunities abound worldwide.

Are Exxon’s recent moves in Brazil, for instance, going to divert dollars from Guyana in the near future? One also wonders if the highly-tipped but eventually dry well at Skipjack had been ExxonMobil’s first play in the Stabroek Block (instead of the lucrative Liza), if the company would have still been in Guyana today.

Guyana needs an investment regime that can compete to attract exploration of not only highly profitable fields but also small, geologically-difficult, or marginal fields (not all discoveries inevitably lead to production, as some may think). We must also incentivise continuous production in the face of price dips and rising extraction costs as fields deplete. The context then is “How can Guyana improve its attractiveness to investors, first, to come and, second, to stay until the wells run dry?”

(ii) Then we come to the need for Guyana to establish dominion over its maritime territory. Both the PPP/C (for the 1999 PSA) and the coalition government (for the 2016 PSA) must take credit if the strategy behind giving the world’s largest and most powerful oil company a massive concession smack against our western maritime border, was aimed at establishing uncontested control and sovereignty through occupation.

Exxon’s current arena of activity within the Stabroek Block is focused in the safer eastern portion. After all, in 2013, the research vessel of Anadarko, a US oil company, was seized by the Venezuelan navy in our western waters. Wouldn’t it be clever then on Guyana’s part to tweak its PSA to encourage companies to take on the risk of exploring and producing in the claimed territory?

(iii) We must not overlook that the PSA awards a 50 percent share of production to the country as a baseline. Right now, with cost recovery pegged at 75 percent of production, Guyana’s take of production in the first phase is projected to be 12.5 percent from the 25 percent profit oil (disregarding here the 2 percent royalty). As Exxon recoups its past and new expenditures, a time will be reached where the 75 percent cost oil will be more than adequate to cover costs and will therefore lead to “excess” profit oil. Guyana’s take will shift from 12.5 percent towards 50 percent of production. What is the problem with a deal that guarantees you an increasing share of profits?

We need a more grounded and balanced analysis of the 2016 PSA.
Regards
Sherwood Lowe