May 12, 2008

Oil drilling not likely soon

Stabroek News

Despite the euphoria prompted by a favourable tribunal ruling last year, it is unlikely that drilling for oil in Guyana’s waters will begin soon.

And the ever-climbing prices for petroleum may not necessarily spell windfall for Guyana should CGX Energy Inc., Repsol YPF and Exxon among other projects find oil, since the cost of production has also risen considerably.

But these companies are locked into production sharing agreements that would guarantee at least half of what comes in from the discoveries and the exploitation of petroleum resources going to Government coffers, according to Newell Dennison, Petroleum Manager at the Guyana Geology and Mines Commission (GGMC).

Speaking with this newspaper on Friday, Dennison said that Guyana has a policy which states that sharing of profits will be at least on a 50/50 basis between the companies and the country. But he pointed out that each of the three large explorers have varying ratios of profit sharing and it doesn’t matter whether or not the company is making a profit - Guyana gets its cut of at least half.

Dennison said that he isn’t aware that any of the companies was seeking to secure a better deal on the sharing of production gains.

But he said that during the earlier stages of the negotiations, if anyone had any inkling that oil would have reached US$120 per barrel, “we may have been able to structure something to cater for a windfall.”

He said however that even with the high cost of inputs and production, the arrangements with the companies should they strike ‘black gold’ “would still be equitable.”

The large oil exploration companies are still in the process of completing their seismic preparatory work subsequent to the decision by the United Nations Tribunal on the Law of the Sea in September 2007. Guyana’s claim was 93 per cent preserved in the decision.

And in addition to the seismic work, the companies are all working out intricate details with the Government and the Guyana Geology and Mines Commission (GGMC) in preparation for drilling like the price of oil and the difficulties in the acquisition of seismic and drilling equipment during this time.

Further, Dennison said that regardless what the United States Geological Survey (USGS) says, no one will know for sure whether there is oil until drilling starts. The USGS had in 2000 concluded that the Guyana-Suriname sedimentary basin contains 15 billion barrels of undiscovered oil.

Dennison said that if the companies cannot complete the seismic work that they need to justify spending millions of US dollars to drill, they just wouldn’t.

He said that the exploration process is a three-stage one and the companies at the end of each of the stages can pack their bags and leave if results are not promising.

With the difficulties in sourcing equipment, the possibility that there is no drilling come 2009 is very real, the official said.

Dennison explained that as the value for prospecting acreage goes up, Guyana will be able to take advantage of this increase when the next round of licensing comes.

President and CEO of CGX Energy Inc Kerry Sully in a recent comment to this newspaper said that the company is continuing to work on approvals and contracting for their 500 square kilometre 3D seismic programme, with a view to enhancing the 2D seismic shot in 1999.  The company has applied for an environmental permit to carry out its 3D seismic work by around the beginning of the third quarter this year.