16. Guyana’s oil find $2.7B barrels

Guyana - Payara 2 Giant discovery - ExxonMobil - MCAL

16. Guyana’s oil find $2.7B barrels – V.010817

Contents:

0. Arrangement Guyana Government with ExxonMobil.

How much money would Guyana get from ExxonMobil offshore oil production ? – Note Marcel Chin-A-Lien

1.Guyana’s oil find estimated at $2.7B barrels – July 29, 2017 – www.kaieteurnewsonline.com

2.ExxonMobil secures environmental permit ExxonMobil secures environmental permit – Eighth well to be drilled – Jun 13, 2017 News 0 Comments – www.kaieteurnewsonline.com

3. Several questions unanswered about nation’s oil find – July 31, 2017 – www.kaieteurnewsonline.com

0) Arrangement (PPL) Guyana Government with ExxonMobil

How much money would Guyana get from ExxonMobil’s offshore oil production ?

The contents of the arrangement that the Guyana Government in 1999, has signed and apparently recently renegotiated with ExxonMobil, has never been published.

Therefore there is a lot of uncertainty and public discussions on transparency going on regarding this important item.

This to know how much money Guyana would get from its offshore production.

In 1998 Guyana signed an arrangement (PPL) with CGX.

My educated-guess is that the arrangement (PPL) signed with ExxonMobil in 1999 could resemble the arrangement signed previously with CGX.

The contents of this PPL can be found by researching Internet publications.

The Petroleum Prospecting License (PPL) was signed between CGX Energy,Inc.(Company) and the Government of Guyana (Government) on June 24, 1998.

The main articles are:

Cost recovery production allocation is as follows.

Maximum Cost Recovery is 75% during the first 3 years, afterwards 65%.

Profit Oil Split (Developer Share): During the first 5 years, 50% for the first 40,000 b/d. And 47% for Production above 40,000 b/d. After 5 years, 45 % for all production.

The Developer does not pay income tax. The PPL provides that the income tax is paid from the Government’s share of the profit oil.

The Company has an exemption from VAT, exercise taxes, duties, fees, levies and from property tax.

The Company does not pay royalty. This is considered to be included in the Government’s share of profit oil.

Training expenses of US$ 40,000 per year are required, only during the exploration period. These are qualified as exploration expenses.

Annual license rental payments of US$ 40,000 per year are required during the exploration and production period.

In my opinion this represents a very good deal (arrangement) for the Company.

And a rather ” inconvenient deal ” for the Government.

Tip that can benefit a country with billions of US$:

Always be so diligent to first design, negotiate and only later sign your own PSC.

Customised with those clauses and articles you wish to have.

Consult with clever and seasoned PSC and E&P specialists and advisors with worldwide experience. Once signed it is extremely difficult to change and adapt it substantially to your benefit.

From what I perceive from publications the Government did recently renegotiate the original PPL with ExxonMobil and obtained somewhat better conditions.

Including a royalty and a better overall share.

One would assume that the original 1999 PPL was rather favourable for ExxonMobil. Given that it was signed in a period when there was relatively little interest of IOC’s in offshore Guyana.

As is usual in such cases and in high risk, still non-oil-proven basins, it is to be assumed that Guyana has granted rather favourable (“soft”) conditions to ExxonMobil. In order to attract exploration investments with a clear work program, including seismic and drilling.

Now that it has become a proven basin, it is a different ball game.

Contracts with new entrants could be negotiated with a much better share for Guyana.

By focussing on items such as the royalty percentage, ring fencing, the ceiling for cost recovery. By drastically optimising its profit share, from the profit oil. Immediately after the IOC has recouped its investments from the ” cost oil ” .

Financial engineering, valuation and cash flow modelling, in tandem with the expected production profiles from the fields are fundamental in this respect.

The main objective of Guyana should be to maximise its petroleum wealth by encouraging appropriate levels of offshore activities.

To this end Guyana must design a robust fiscal system with for example the following characteristics. It should provide a fair return for both the state and the international companies. It has to be clear and avoid undue speculation, just as is now frequently surfacing in the press. Administration has to be efficient without undue rules, permits and burdens. At the same time it should provide enough flexibility and create a healthy, competitive competition and market efficiency.

A much different Petroleum Sharing Contract is certainly highly recommended in my opinion.

How much money would Guyana get from ExxonMobil’s offshore oil production ?

The following estimate represents merely my own and personal opinion.

Assuming that the ExxonMobil PPL contains the same articles as the PPL with CGX.

A ballpark estimate of the monies involved is as follows.

Precise data must be obtained by making a full DCF economic analysis.

Assumptions are:

Gross oil production volume of 1.5 billion barrels, 160 thousand /bbls /day /during 13 years, oil price US$ 50 / barrel, Capex-Opex 11 billion US$, initial production starting 2020:

Total oil revenue is some 75 billion US$.

Total profit oil is 68 billion US$.

Guyana Government Profit Share is some 35 billion US$.

This amount will be received in the period 2020 – 2033.

Almost 3 billion US$ per year.

Payout (end of negative cash flow) is reached in about 4 years, in 2024.

The economics of the Liza – Payara – Snoek giant fields development is highly profitable, with an IRR exceeding 100%.

Marcel Chin-A-Lien – Advisor Petroleum Exploration & Production, Business-Commercial-Policy Development.

1) Guyana’s oil find estimated at  $2.7B barrels

Jul 29, 2017 News 0 Comments –  www.kaieteurnewsonline.com –  V.30717

-Says govt. will receive revenue from day one

ExxonMobil’s Operations Manager, Doug Mc Gehee, on Thursday updated a room full of entrepreneurs about the oil giant’s activities in Guyana. This was at the launch of the eighth edition of the Georgetown Chamber of Commerce and Industry’s (GCCI) Business Guyana Magazine.

Mc Gehee painted a bright picture about what Guyana can expect when oil production begins. So detailed was Mc Gehee’s presentation that GCCI’s Nicholas Boyer, said that he learnt a lot and was reminded of many details surrounding ExxonMobil’s activities in Guyana.

However, much of what was said focused on the drilling and exploration activities itself as opposed to the agreements that it has with the government on oil production. Mc Gehee spoke extensively about the drilling activities and went into some technicalities about the drilling activity.

He noted that the overall estimation of oil already discovered in Guyana is now between 2.25 billion and 2.75 billion oil equivalent barrels. This, according to Mc Gehee, represents oil bearing rocks found in Liza one, two, three and four wells, Liza deep, Payara and Snoek. He reminded that oil was not found in commercial quantities at the SkipJack well.
Mc Gehee even joked that when Skipjack was found empty, they decided that the luck was with Liza so they named the others Liza three, Liza four and Liza deep.

The Operations Manager said that ExxonMobil is committed to exploiting the full potential of the Stabroek Block and “so we will keep drilling.”
He said that about 120 barrels of oil will be produced a day for the first 20 years in Guyana.
During his speech, President of GCCI Deodat Indar charged Mc Gehee to shed light on a few issues. Indar was keen to note that the GCCI is pleased that a world class company such as ExxonMobil has invested heavily in Guyana.

He said, “We are committed to working with you. It is with a degree of excitement that I say, I am pleased to see the announcement that over 140 Guyanese companies now supply either goods or services to ExxonMobil offshore operations.
“Also that you have created a Local Content Center aimed at developing Guyanese businesses to become oil industry compliant suppliers.”
Indar said that it takes a supply boat approximately 10 hours travelling at 9.5 nautical miles per hour to reach the offshore operations compared to 24hours from Chaguaramas, Trinidad to reach Exxon Offshore Operations.

He said that this speaks to time and costs, obviously Guyana being cheaper in this case. He added, “So I am also pleased to see the contract for the onshore base being awarded right here in Guyana, which I understand, Muneshwers’ are hiring Guyanese like crazy.”
The Chamber President noted that ExxonMobil has license to explore 6.6 million acres of land offshore Guyana. “To put that in perspective means that the Island of Trinidad can fit 5.2 times in the blocks now controlled by ExxonMobil.

“The world class finds in the Liza field and Payara Field say clearly that the oil reservoirs are huge. In some corners of the oil industry this is termed, ‘basin masters’. So with this large resource at your control comes a huge responsibility to the Guyanese people.”
He then charged Mc Gehee to inform this gathering “how you see the role of Exxon in the development of Guyana.” But Mc Gehee did not say too much on this.
“Let us understand where you intend to direct resources to build internal capacity in the areas of labour, providing goods and services to you as a major operator. Over the past three years you have conducted exploration and drilling activities in Guyana.

“We would like to see more Guyanese involvement in the workforce for low end jobs such as cooks, chippers and painters, ablebodied riggers, ablebodied Unlimited riggers, Banksmen on the supply boats and Stena Carron if that’s possible at this time.”
In this regard, Mc Gehee said that already, 60 to 70 percent of the crew on the supply vessel is Guyanese. He said that more are to be employed by ExxonMobil. However, he did not speak to how a Guyanese business can bid to provide service to Stena Carron.

Guyana - Payara 2 Giant discovery - ExxonMobil - MCAL
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Guyana – Payara 2 Giant discovery – ExxonMobil – MCAL

“At the end of the day it is Guyanese taxpayers who will be footing the bill as a deduction from its future earning; therefore it is only fair that we be given first priority as they say in Canada, for all things soap, rope and dope. “

2) ExxonMobil secures environmental permit ExxonMobil secures environmental permit –   Eighth well to be drilled – Jun 13, 2017 News 0 Comments — www.kaieteurnewsonline.com

While politicians and anti-corruption advocates alike continue to call for more transparency in the activities of ExxonMobil and its negotiations with the Government of Guyana, the oil giant continues to move closer to

(Photo: The Stena Carron will be part of the drilling programme at the Payara-2 well.)

getting its production licence. Kaieteur News understands that within the last week, the Environmental Protection Agency (EPA) granted ExxonMobil its Environmental Permit. ExxonMobil’s Senior Director of Public and Government Affairs, Kimberly Brassington confirmed this yesterday.

Brassington said that the Environmental Permit is for the Liza phase 1 development project.She said, “Before a development project goes forward there are two key projects that Exxon, as an operator, looks for—the first is to have the Environmental Permit and then Production Licence.”

Brassington continued, “It is significant that we have the Environmental Permit to go forward with the project and now we are waiting on the Production License which will come on the government.” Brassington said that the final investment decision will follow the receipt of the production licence.

Back in May 2015, ExxonMobil made its first announcement of a huge oil find in the Liza-1 well and encountered more than 295 feet (90 metres) of high-quality oil-bearing sandstone.

A second well was drilled – Liza-2 – and the company confirmed the finding as “significant,” with a potential recoverable resource of 800 million to 1.4 billion barrels of oil equivalent.

Drilling operations on ExxonMobil’s Skipjack prospect, the company’s third well in the Stabroek Block offshore Guyana, yielded disappointing results. It was reported that the company did not find commercial quantities of hydrocarbons within that well.

The Liza-3 appraisal well was subsequently drilled to a total depth of 18,100 feet in 6,000 feet of water on a location about 2.7 miles from the Liza-1 discovery.

The well hit around 200 feet of net pay “in the same high-quality reservoirs” as the first two Liza wells, according to ExxonMobil partner Hess, which further solidified the potential recoverable oil in the reservoir.
EIGHTH WELLMeanwhile, the company through its affiliate Esso Exploration and Production Guyana Limited (EEPGL), is gearing up to drill its eighth well in the Stabroek Block offshore Guyana.

In an advertisement published in last Monday’s edition of the Kaieteur News, the Maritime Administration Department (MARAD) stated that the EEPGL will commence the drilling programme at the Payara-2 well next Tuesday, June 20.

This programme is scheduled to last for a three-month period.The drill site is approximately 108 nautical miles from the coast of Guyana and covers an area of one square kilometre.A previous well was drilled at Payara – Payara-1 – and is ExxonMobil’s second oil discovery on the Stabroek Block. It encountered more than 95 feet of high quality, oil bearing sandstone reservoirs.

The well data will be analyzed to better understand the full potential of the well. The Snoek-1 well discovery was announced in March 2017. Snoek is ExxonMobil’s third oil discovery on the Stabroek Block and was drilled in a new reservoir. It encountered more than 82 feet of high quality, oil-bearing sandstone reservoirs.

The well data is being analyzed to better understand the full potential of the well. Kaieteur News contacted ExxonMobil’s Head Office in Georgetown yesterday, and was told that the drill ship, Stena Carron is currently wrapping up an exercise at the Liza-4 well and will soon move over to the Payara area.

The drilling operation at the Payara-2 well, will utilise the following vessels: Stena Carron, M/V Cat Island, M/V Fast Titan, M/V Hannah Chouest and the HOS Commander.All mariners are required to stay clear of these vessels and navigate with caution when in this vicinity.

3) Several questions unanswered about nation’s oil find.
Jul 31, 2017 News 0 Comments — www.kaieteurnewsonline.com

– Georgetown Chamber of Commerce

The Georgetown Chamber of Commerce and Industry (GCCI) still has many unanswered questions about the future of Guyana with oil as one of the main resources contributing to the country’s economy.

GCCI recently launched the eight edition of its yearly magazine—Business Journal. This year’s edition focused on “the promise of oil.”
Because of the theme of the Magazine, GCCI invited an executive of ExxonMobil to speak at the event as well as Minister of Natural Resources, Raphael Trotman. While ExxonMobil’s Operations Manager, Doug Mc Gehee attended the event; Minister Trotman was a no show.

However, GCCI was hoping to have the Minister shed light on many issues at the event.
During his speech, GCCI President, Deodat Indar said that the Chamber is committed to working with the Minister and the Ministry of Natural Resources. He said, however, that like any good partner, the chamber will constructively criticize when necessary for the good of the private sector and by extension the Guyanese workers.

Indar commended Minister Trotman in his absence for his outreach with respect to consultation on the oil refinery prospects for Guyana, local content policy and the Petroleum Commission Bill.
He then expressed hope that Trotman can make a few things clear to the members of the Chamber who were present at that forum.
“Minister, in your delivery, I would like to first charge you to give this gathering of great minds here your thinking and intention on the local content policy that is currently in its draft stage, in terms of: the date we should expect an approved policy? And, what model was used as a framework to develop the current draft policy?”

With respect to the Petroleum Commission Bill that is before a parliamentary select Committee; Indar said that the GCCI is very interested in knowing, “What external model was considered in the drafting of the bill? And, was it Newfoundland, Norwegian, Australian, Alaskan?”

Photo; President of GCCI Deodat Indar

Also, Indar expressed hope that the Minister would explain the proposed Petroleum Commission Board and its makeup, independence, appointment, remuneration and removal of Board members.
Further, the GCCI president wanted to know how the bill meshes with good governance, transparency and being Bi-partisan.
“We see from many parts of the daily media and on social media that we have the potential to be a wealthy nation with flow of oil money. Guyana can witness an economic explosion with the Gross Domestic Product (GBP) growing between 400 to 2000% in the next two decades.”

He continued, “We also know as seasoned business people that basic management principles dictate a company with a diversified base of products and services are likely to be healthy and sustainable, these same principles apply to running a country.”

The businessman said that it is imperative that Guyana learns from the mistakes of others and recognizes that any country that has its economy dependent on one or two sectors will be doomed by it in the long term. He pointed to what is going on in Venezuela where 95.6 percent of its economy is dependent on oil which among other things has fractured its society. Indar said that a diversified economy will lead to a sustainable economy.

With that being said, Indar expressed hope that Trotman can shed light on government’s plan to ensure a diversified economy.
Indar said too that the GCCI hopes that the government is already working on strategies for the most effective use of oil revenues. He said, “We would like to see expenditure in the area of; education, healthcare, infrastructure such as bridges, roads, ports, ICT, quality infrastructure and programs for the alleviation of the poor.”

Finally, Indar turned his attention to the outstanding Sovereign Wealth Fund policy.
He noted that the Sovereign Wealth Fund is supposed to be a rainy day fund. He said however that the GCCI found that some countries use monies from their Sovereign Wealth Fund for current year running expenditure that are supposed to be funded from normal revenue cycles of government. Indar expressed his opinion that, “this is not what a SWF should be; I have just describe what would be tantamount to putting your money in a bag with holes if government is to take this approach. I warn against it.”

The President of the Chamber said that it would be welcomed if Trotman can give explanations on “What model was used to develop the framework for the SWF and when would we expect a first draft to be release so we can provide commentary?”
While all those answered requested by Indar remain outstanding, a few questions were answered by ExxonMobil’s Operations Manager, Dough Mc Gehee.

He gave those who gathered a detailed run down on the operations. Mc Gehee noted that the overall estimation of oil already discovered in Guyana is now between 2.25 billion and 2.75 billion oil equivalent barrels. This, according to Mc Gehee, represents oil bearing rocks found in Liza one, two, three and four wells, Liza deep, Payara and Snoek. He reminded that oil was not found in commercial quantities at the Skipjack well.

Mc Gehee even joked that when Skipjack was found empty, they decided that the luck was with Liza so they named the others Liza three, Liza four and Liza deep.
The Operations Manager said that ExxonMobil is committed to exploiting the full potential of the Stabroek Block and “so we will keep drilling.”
He said that about 120 barrels of oil will be produced a day for the first 20 years in Guyana.

4)

 

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