Without proper depletion policy, oil producing states could lose billions of dollars

With its discovery of over nine billion barrels of oil equivalent resources in the Stabroek Block, American oil giant, ExxonMobil, is hell-bent on turning these petroleum finds into billions of dollars for its shareholders via a suite of development projects. In fact, the company hopes to have as many as five floating production storage and offloading (FPSO) vessels operating offshore Guyana by 2026.
But is this explosion of development in Guyana’s interest? In the eyes of Trinidad and Tobago’s Energy Strategist, Anthony Paul, the answer is an emphatic “NO!”

The industry specialist was quick to highlight two examples to cement his argument. In one case, he showed how an oil producing country was able to save significantly by having the right depletion guidelines in place while another lost out substantially in the absence of proper rules.
In relation to the former, Paul noted the case of Ghana. He said, “This African country had two adjacent fields. Field A had a FPSO working round the clock, extracting the oil. Now, when it came to Field B, there were plans to bring in a second oil ship. But the country’s authorities told the oil companies, “No, let us wait and use the Field A FPSO on Field B instead of having to increase costs and shorten the lifespan of the sector.”

From this example, Paul said the question Guyana needs to ask itself is: What is the right pace of depletion for the Stabroek Block? And more importantly, what is the right order of depletion for the various fields? Also, how can this be done in a way that maximizes benefits for the country?
Turning his attention to his next case, Paul was keen to note that Trinidad holds some key lessons that Guyana should not ignore. He said that as a result of not having a proper policy in place for the development of natural gas, Trinidad and Tobago possibly left billions of dollars in gas resources behind in the ground which it cannot go back and remove.

Expounding further, Paul said, “In T&T, companies take out the gas from the ground at high pressure, put it in high pressure pipelines, and send it to shore. But once the pressure in the reservoir drops below a certain limit, the oil companies close up and move to another reservoir. By operating in this way, they leave a lot of gas in the ground.”

Paul continued, “…In reality, we should have had a policy in place which demanded that all the gas be produced. We didn’t have that and the oil companies knew that if we had forced them to do that, they would have had to put systems in place to ensure that is done. That would have meant spending more money. And more money means fewer profits for their shareholders…”

With the foregoing example in mind, Paul stressed that a country essentially loses significantly without a proper depletion policy. He said that Guyana needs to understand that managing these resources is technical business and would therefore require strong capacity to manage it and negotiate with the oil companies in the best interest of the country.
“You must have this big picture in mind and someone has to be looking at it because if you leave it to the companies, they will manage it in a way that yields the best results for them. So someone needs to defend Guyana’s case before it is too late,” the T&T Expert concluded.