Introduction <\/p>\n\n\n\n
It has been a week of headlines in the\npetroleum sector. First out was Dr. Mark Bynoe who told the Stabroek News about\nGovernment\u2019s plans to market its share of crude oil. This was followed by a\nreported interview with the same newspaper in which the Minister of Finance disclosed\nthat Guyana is likely to get US$200M in first oil year. Then came a report in\nOil Now, a local internet news medium, in which the Norway-based business intelligence company Rystad\nEnergy estimated Guyana\u2019s total income from the Stabroek of US$117.5 billion. While\nJordan and Rystad dealt with both quantity and value, the thrust of Bynoe\u2019s\nstatement was about marketing. <\/p>\n\n\n\n
Each of the articles appears to have\nsimply accepted whatever numbers without question and could build exaggerated\nexpectations if they are not put into some context. This Column is most\nconcerned about Bynoe\u2019s statement because it appears to be a policy statement\nof some consequence and which therefore cannot be ignored. <\/p>\n\n\n\n
Bynoe\u2019s plan <\/p>\n\n\n\n
According\nto Bynoe, the Government of Guyana will go to tender either during the current\nquarter or the next for \u201ca fee-based marketing service\u201d to market its share of\nexpected crude oil production. In what is in fact a major policy pronouncement,\nBynoe announced that the government will be selling its own share of exported\ncrude and that it will issue a tender during the current (July 1 \u2013 September\n30) or the fourth quarter of 2019 (October 1, December 31) for a fee based\nmarketing service. <\/p>\n\n\n\n
Trading in crude oil is probably as\ncomplex as producing the stuff with its infinite number of variables and\nimponderables. In deciding to do its own marketing, the Government is assuming\nboth risk and responsibility and it is therefore important that the possibility\nfor errors is minimised and that key assumptions are rational and as far as\npossible grounded in facts. Of course, it is possible that Bynoe deliberately\noversimplified the matter and that he fully understands that selling crude oil can\ninvolve spot price (immediate sale, purchase, price and payment) and future\nprice market (future sale, purchase, future price and payment). Yet, his\ndescription of the transaction as a \u201cfee-based marketing service\u201d (what else\ncan it be?) suggests that he thinks that this is some straightforward physical\nproduct, which it clearly is not. <\/p>\n\n\n\n
Trotman\u2019s catastrophe <\/p>\n\n\n\n
The APNU+AFC Government left the\nnegotiation of the Petroleum Agreement to Raphael Trotman with catastrophic\nlong term consequences for the country. Now it seems to be leaving the disposal\nof Guyana\u2019s share of petroleum under the Agreement to Mark Bynoe who according\nto his appointer, knew nothing of the sector. While Granger and his cohorts\nseek every subterfuge to perpetuate themselves into Government, they are leaving\nthis singularly most important economic development for the future of the\ncountry in unqualified, inexperienced and inept hands. First Oil will soon be\nupon us and time is running out. Failure to act could be as consequential as Trotman\u2019s\nnightmare without, thankfully, its permanence, since no marketing contract can\nhave some of the asphyxiating clauses which exist in Trotman\u2019s 2016 Agreement. <\/p>\n\n\n\n
One assumes that Bynoe is familiar with\nthe provisions of Article 14 of the Petroleum Agreement under which not later\nthan three months before the first scheduling of crude oil, the Contractor is\nrequired to propose to the [Government] offtaking procedures whereby the\nParties will nominate and lift their respective shares of Crude Oil. The\nquestion is whether the Contractor and the Government have had any discussions\non this matter since it seems to form the core of Bynoe\u2019s plan. He would be\naware too that Article 14. 2 (a) requires that lifting be carried out without\ninterference to Petroleum Operations. <\/p>\n\n\n\n
Short on details, wrong on facts <\/p>\n\n\n\n
Bynoe did not go into details but it\ndoes appear that what he is proposing is to have is an agent negotiate Crude\nOil sale on the Government\u2019s behalf, a formidable tripartite arrangement. But\nas pointed out in the next paragraph, Bynoe has substantially overestimated\nGuyana\u2019s share and whoever the buyer is will find the unit cost of\ntransportation quite high. Worse, in the context of the more reasonable\nfigures, it is unclear how and whether Bynoe\u2019s plan is not dead on\narrival. <\/p>\n\n\n\n
Let us look at his estimate. According\nto the Doctor, Guyana\u2019s crude oil will\nbe sold in \u201cmillion barrel cargos\u201d and a crude cargo lift will be used every\neight to 10 days. Something\nis clearly wrong either with the reportage or the maths. Let us test Bynoe\u2019s\nfigures against the certainty that Guyana will receive only 14.25% of\nproduction for up to the fourth year. We know too that in the first and second years,\nproduction will be 120,000 barrels of oil equivalent per day. From this we can\neasily calculate that over an eight day period, production will be 960,000\nbarrels and over a ten day period, production will be 1,200,000 barrels. In other\nwords, Guyana would have to take all the production to permit a one million\nbarrels every eight days: and that is gross production, without deductions for\npetroleum used for fuel or transportation in the terminal system. <\/p>\n\n\n\n
Taking 14.25% of the eight days\nproduction, Guyana\u2019s share is 136,800 barrels while its share over a ten day\nperiod will be 171,000 barrels. Put another way, for Guyana to earn 1 million\nbarrels as its share of production, it would need to accumulate its share over\napproximately two months! <\/p>\n\n\n\n
What is even more worrying is that Bynoe\nhas an advisor who shadows him wherever he goes. Not only do Bynoe\u2019s numbers\nand his plan not make any sense: it is also embarrassing to leave then out\nthere as part of Government\u2019s policy. <\/p>\n\n\n\n
Next\nweek: A look at Jordan\u2019s and Rystad\u2019s projections. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Introduction It has been a week of headlines in the petroleum sector. First out was Dr. Mark Bynoe who told the Stabroek News about Government\u2019s plans to market its share of crude oil. This was followed by a reported interview with the same newspaper in which the Minister of Finance disclosed that Guyana is likely … <\/p>\n