Coverage and Timing: Improving Guyana’s Report on Petroleum Production and Revenues
Introduction
Last week’s column had addressed the seeming rationale behind the publication of Guyana’s first Report on Petroleum Production and Revenues (RPPR) by the Ministry of Finance on February 19, 2020. That Report basically covers the period between Guyana’s First Oil (December 20, 2019) and the end of 2019 — a matter of days. Nevertheless, the Report is significant in that it provides an indicator of the sorts of information, which can be expected from future Reports. Therefore, while the first Report is limited in coverage, it is still welcome.
As indicated also in last week’s column, the RPPR has been produced to “bridge the informational gap” between the several reports that are required to be prepared, under the Natural Resources Fund Act, (dealing particularly with deposits and withdrawals from the Fund) and the determination/calculation of Government revenues.
As regards the latter, readers would recall that the PSA (at Article 11.2) for the Stabroek Block, requires in any given month during which Guyana crude is produced and sold that, a maximum of 75 percent of the actual amount produced and sold, net of any losses and operations, can be allotted to “permissible recovery costs incurred”, by ExxonMobil and partners (XOM). This amount is treated as “cost oil”. And, the remainder is treated as “profit oil”. The profit oil amount is split 50:50 between the Government of Guyana (GoG) and XOM.
Further, the working arrangement is that, crude oil cargoes are “lifted” in quantities of one million barrels at a time, for any given month. The parties may very well find that, each and every month does not allow for the literal application of this feature. Therefore, the entitlements of the parties would have to be reconciled with their actual lifts. To effect this, the quantities are tolled-over (brought forward) on a month by month cycle. This is straightforward.
To conclude this discussion on the first RPPR, in what follows, I offer a few suggestions, which may enhance the contribution of future RPPRs to its goal of “transparency and accountability” in Guyana’s infant oil and gas sector. These focus on the coverage and timing of the publication of the RPPR.
Coverage
An important informational gap that I believe the RPPR should cover is data on technical assistance (TA), provided to the GoG. I know it is the standard practice to supply GoG press releases when such arrangements are scheduled to commence, implying therefore that, the information is public. However, publishing such TA in the RPPR would aid in keeping track with what is occurring in the area of governance of Guyana’s infant petroleum industry. Consider two examples of TA that recently came into force.
One is, the Inter-American Development Bank’s (IADB) loan of G$120 million directed at “strengthening the technical functions of the Department of Energy, DoE, in three vital areas”. These are: 1) support in operationalizing petroleum management for the Stabroek Block’s Petroleum Sharing Agreement, PSA and other contracts; 2) increasing the organizational, managerial and institutional capacity of the DoE, including training; and 3) enhancing the promotion of the public interest and improving transparency in Guyana’s infant oil and gas sector. The second example is the World Bank’s TA (US$20 million) for Petroleum Resource Governance. This project also should have been included in the RPPR, as it would have strengthened it. The goal of the Project is to support the “enhancement of the legal and institutional framework”, along with the capacity of key stakeholders in Guyana’s infant oil and gas sector.
The examples cited above clearly reveal that the TA seeks to impact the efficiency, productivity and governance of Guyana’s oil and gas sector! As such, they will directly impact crude production, marketing, and government revenue yield. Given this, they should find a place in the regular official reporting on Guyana’s infant oil and gas sector.
Timing
The second recommendation focuses on timing. It follows from the recognition that as Guyana becomes a bigger and bigger player in the global crude oil market, it will find that availability of data is the lifeline for the global petroleum sector’s continued efficiency. Reporting such data in
Guyana’s RPPR, will, I am sure, become a standard expectation for intelligence gathering and analytics of Guyana’s petroleum sector. With that in mind, it follows that certainty, accuracy, timeliness and credibility of the data provided in the RPPR will constitute a “required data point/information reference” subset, serving the sterner disciplines of an efficient global marketplace.
To my mind this indicates that the RPPR should be released on a fixed predetermined date and time. I recommend three month intervals to start with, as the data/standard coverage period; and publicly released at 2 PM Guyana time on the 15th day following every three month interval. Thus for example, in any standard calendar year the publication release dates are April 15, July 15, October 15 and January 15 at 2 PM. These dates cover the preceding three months, namely (January March; April - June, July - September and October to December).
Price and Quality
Thirdly, I believe the area of coverage, where perhaps the biggest gap in up-todate information will be found, is in fixing the quality of Guyana’s crude. And, based on that, the spot and future price, which obtains for it in the crude oil market.
In early February, the GoG was reported to have completed discussions with XOM over its crude pricing, lifting costs and scheduling for its exports. It was also widely reported that the GoG’s lifting would commence with the third cargo of Liza crude. Royal Dutch Shell has won the contract for selling the first year’s supply. However, in order to fortify its long-term arrangements, the GoG is now “searching” for an “oil trader” to sell its share of Guyana’s crude. It has since placed in the market place a request for Expressions of Interest for suppliers of this service.
In terms of information coverage, two variables for which standard data should be provided in the RPPR are: 1) how Guyana’s crude oil behaves in the global market place; and 2) what premia/ discounts apply in its trading and the reference price that is used.
Conclusion
Next week I start to address the recently erupted “global crisis” and its likely impact on Guyana’s petroleum sector.
LUCAS STOCK INDEX
The Lucas Stock Index (LSI) fell 0.48% during the second period of trading in March, 2020. The stocks of four companies were traded, with 68,198 shares changing hands. There were two Climbers and one Tumbler. The stocks of Demerara Distillers Limited (DDL) rose 1.06% on the sale of 15,789 shares, while the stocks of Republic Bank Limited (RBL) rose 0.03% on the sale of 10,206 shares. At the same time, the stocks of Banks DIH (DIH) fell 3.03% on the sale of 41,898 shares. In the meanwhile, the stocks of Demerara Tobacco Company (DTC) remained unchanged on the sale of 305 shares. The LSI closed at 624.29.