Political turmoil causing lucrative Payara Project to be delayed; Guyana could lose billions – Rystad Energy

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The development of Guyana’s world-class deep-water oil resources in the Payara-Pacora project off its prolific Stabroek block is already plagued by delays due to the current political impasse following the March 2 General and Regional Elections.

It is now close to five months and the results of the elections are yet to be officially declared even after a national recount has confirmed that the PPP/C has convincingly won the polls.

Many development projects, especially those within the oil and gas sector, are on standstill due to absence of a democratic and functioning government in place.

The Payara Project, which was expected to rake in billions of dollars to Guyana’s GDP, is one such project which has been plagued with delays, and based on projections by experts, the country, and the company and its partners, could face tremendous financial loses as a result of these setbacks.

According to a recent report by Rystad Energy, if these delays are prolonged, it will result in a decrease of the country’s planned oil revenues, the asset’s net present value (NPV) and its expected production.

The Payara-Pacora development was envisaged to be sanctioned in 2019 and deliver first oil by 2023 but has faced challenges to securing approvals in recent months.

According to Rystad Energy, it is clear that the prolonged political uncertainty could further impact the next project offshore Guyana.

“The delays have already removed more than 50 million barrels of production that could have been achieved by 2030 if the project had been sanctioned in 2019. The development partners involved in the project are hoping to receive approval later this year, but in our updated base case scenario we assume the Payara-Pacora fields will not be sanctioned until the first half of 2021 and will achieve first oil by 2024,” Rystad Energy explained.

“We have looked at four potential scenarios with delays ranging from three to 24 months. Our analysis shows that Guyana may lose around 10 million barrels of oil that could be produced from the project by 2030 presuming just a three-month delay, a number which climbs to around 75 million barrels assuming a 24-month delay.”

However, Palzor Shenga, Rystad Energy’s senior upstream research analyst said that despite recent delays, the Payara-Pacora development is still in a position to produce more than half of its reserves by 2030 if it is able to commence production by 2024.

According to Rystad Energy, the Guyana government could generate around US$4.4 billion in oil revenues by 2028, meaning within five years of production start. “However, revenues diminish quite substantially if the project faces delays. With a six-month delay, the project would generate around US$800 million less than what it would in our base case, and around US$1.6 billion less with a 12-month delay.”

“Approval delays for Payara-Pacora could have a domino effect on numerous other projects in the Stabroek Block. This would in turn have a substantial impact on the investments made in Guyana, thereby also dragging down job creation and GDP generation in the country,” adds Shenga.

ExxonMobil has identified Payara as the third potential development project within the Stabroek block after Liza Phase 1 and 2. The Payara discovery was announced in January 2017.

The discovery well was drilled in a new reservoir, encountering more than 29 meters of high-quality oil-bearing sandstone reservoirs.

The Payara development plan includes a floating production, storage and offloading vessel (FPSO) named Prosperity. It is expected to produce 220,000 barrels per day supporting up to 45 wells, including production, water injection and gas injection wells.

The national recount has shown that the Irfaan Ali-led PPP/C has won the elections with 233,336 votes. But caretaker President David Granger and a few of his top aides, with the help of elements within the electoral machinery, are refusing to give up power.

The international community is mounting pressure on Granger and his APNU/AFC Coalition to concede defeat and “step aside” so that the duly elected government could take its place.