The deeply impoverished South American country of Guyana in recent years was heralded as the hottest new oil boom in the Americas. A series of large offshore oil discoveries by integrated global energy major ExxonMobil catapulted Guyana into the spotlight. Earlier this year Exxon made its 16th oil discovery in the offshore Stabroek Block. The oil giant also revised upward its estimated recoverable resources in Guyana to more than 8 million barrels of oil equivalent, highlighting the country’s considerable hydrocarbon potential. There was further good news at the end of July 2020 with Hess, which is partnered with Exxon and CNOOC to develop the Stabroek Block, reporting that appraisal drilling of the Yellowtail well had identified two more reservoirs. The low breakeven costs associated with operating in Guyana’s offshore oil fields, with Hess estimating they are an industry-low $35 per barrel, coupled with the considerable exploration upside is attracting significant interest from energy majors around the globe.
These factors underscore the tremendous potential held by the Stabroek Block and the considerable revenue it will generate for Guyana’s impoverished economy.
While those elements point to a prosperous future for Guyana, bitterly disputed March 2020 elections and an ensuing political crisis indicate that the poverty-stricken former British colony may not be able to fully realize its petroleum wealth. A political impasse arose after the March elections with Guyana’s two major political parties claiming victory. The post-election dispute triggered a ballot recount, allegations of electoral fraud against both political parties, and numerous court cases.
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The ongoing crisis amplified existing ethnic tensions worsening the political wrangling and battle for control of Guyana’s substantial oil wealth. The deepening political dilemma saw the U.S. impose sanctions comprised of visa restrictions for any citizens of Guyana Washington believed were undermining democracy.
Earlier this month, Guyana’s opposition The People’s Progressive Party was found to have won the bitterly contested election bringing an end to months of dispute which was crippling investment in the country’s burgeoning oil industry. The former British colony’s vast oil wealth has already transformed it into the world’s fastest-growing economy, despite the COVID-19 pandemic. The IMF predicts that Guyana’s gross domestic product will expand 53% this year alone and by another 6% in 2021.
Key to maintaining this growth and the development of what is considered the second poorest country in South America is attracting the substantial foreign investment needed to develop Guyana’s vast oil wealth. The appointment of opposition leader Mohamed Irfaan Ali earlier this month as president has resolved, for the time being, the political impasse which existed since March. That is an important step to realizing Guyana’s vast oil wealth.
Nonetheless, outgoing incumbent David Granger made it clear that he will keep contesting the election results, meaning that the current peace may be short-lived. The exploitation of Guyana’s vast hydrocarbon wealth is further complicated by claims of irregularities in the contracting process with Exxon.
Considerable concerns were raised that the agreement, made by former President Granger’s government, was sealed on terms that are disadvantageous to deeply impoverished Guyana. Exxon, it is alleged, used rushed negotiating tactics with inexperienced Guyanan officials to obtain very favorable terms. According to analysis from industry consultant Open Oil, the Stabroek deal could cost Guyana up to $55 billion.
In response to the controversy, the newly appointed Minister of Natural Resources Vickram Bharrat initiated a review of Exxon’s 2016 Payara production sharing agreement. Exxon made the Payara oil discovery in 2016 and is in the process of developing the project’s 45 wells, which on completion will have the capacity to produce 220,000 barrels of crude daily. A key gripe expressed in local media is that the set 2% royalty rate is too low and significantly less than the royalties charged in other South American jurisdictions. The ministry has established a team of international experts including Former Alberta premier and Canadian Queen’s Counsel Alison Redford to review the development plans for the Payara asset.
These latest developments are amplifying concerns that Exxon’s plans to develop its offshore oil assets in Guyana will be delayed. According to industry consultants Rystad Energy, if the 2023 start-up date of the Payara project is delayed by one year, around $1.5 billion in oil revenues for Guyana, Exxon, and the project partners will be lost. President Ali’s administration is also in the process of formulating a policy on local content requirements for foreign oil companies operating in Guyana. That could further complicate the government’s review of the Payara project and create an additional burden for Exxon.
Any delays could seriously impact the projected growth of Guyana’s oil industry, revenues, and production. Earlier this year before the March elections and resultant political crisis, Rystad estimated Guyana’s production would reach 1.2 million barrels of crude daily by 2030, making it the third-largest producer in Latin America, generating around $30 billion of revenue annually. That would be transformative for one of the region’s poorest countries.
There are fears that Latin American resource nationalism could be taking root in President Ali’s government as it moves to review existing contracts and push for more favorable terms. If oil nationalism emerges, it would be a significant deterrent for foreign energy majors, driving away the urgently required investment and technology needed to tap Guyana’s offshore oil resources. This would derail projected economic growth and development in the deeply impoverished former British colony.
By Matthew Smith for Oilprice.com
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