By Caribbean News Now Contributor
GEORGETOWN, Guyana — As Bloomberg News recently reported, Guyana could see substantial oil revenues from its Stabroek Block as early as 2020, thanks to a rapid production timeline being pursued by driller ExxonMobil.
According to earlier International Monetary Fund (IMF) reports, those payouts for Guyana could be in the hundreds of millions of US dollars in the first year if drilling proceeds on schedule and potentially rise into the billions annually by the mid-2020s under the terms of the current production sharing agreement.
That would mean huge benefits for Guyana’s small population in terms of social spending and better infrastructure.
Bloomberg’s reporting included a look at the terms of the 1999 production sharing agreement and 2016 updates that established Exxon’s relationship with Guyana and the Stabroek oil field. At the time of the contract Guyana was an unproven “frontier” in the oil industry, with a risky territorial dispute raging with Venezuela and no proven history as an oil producer.
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“You can say whatever you want but the experts are saying there’s nothing unusual or strange about the 2016 contract,” Erik Oswald, Exxon’s vice president for exploration in the Americas told Bloomberg, citing recent studies by energy research firms Wood Mackenzie and Rystad Energy that found the contract terms and revenue split was about average for an emerging oil producer.
The analysts at Norway-based Rystad went on to note in their report that the contract, as it stands, will give Guyana around 60 percent of realized profits from the operation which is “indeed favorable when compared to other large offshore producers.”
Guyana also bears no financial risk in the deal.
Unlike some countries that borrow substantially to buy a stake in operations, Guyana will receive a majority of profits without risking money on an investment or having to pay for any drilling costs.
But there is ongoing concern that a renegotiation of the contract could set back or cancel those oil production timelines. As reported by Bloomberg, the IMF counseled Guyana against going back on its word and cancelling the contract in its current form.
Given the risky geopolitical issues surrounding the Stabroek Block and Venezuela’s claims to it, only a few major oil companies, including Exxon, expressed interest in developing it over the last decade. Forcing a renegotiation could call into question Guyana’s investment climate and might scare off current drillers without attracting replacements.
That’s likely why natural resources minister, Raphael Trotman, and business minister, Dominic Gaskin, told Bloomberg that they planned to stick by the contract and its terms.
The ministers’ statement seemed to echo the dominant line of thinking among Guyanese government officials at this time – that ensuring the sanctity of the existing contract is the way to get oil (and money) flowing as quickly as possible.
That’s widely seen as a worthy goal in a country that has long depended on the charity of international organizations and foreign states to fund basic infrastructure, but now sees a way to pay for most of its top-priority projects like a paved road to Brazil, a new bridge across the Demerara River, and a deep-water port with just a year or two of oil revenues.
That kind of wealth brings substantial challenges. International development groups like the IMF and the Commonwealth are advising Guyana, touting best practices learned from decades of oil exploration in other countries.
These ideas, many of which are under consideration or being implemented by the Guyanese government already, include establishing a sovereign wealth fund to invest oil revenues safely and preserve this wealth for generations even after oil reserves are exhausted.
This is the kind of fund that Norway established decades ago to protect its economy from inflation and preserve its oil wealth and it is now valued at more than US$1 trillion.
Other advice includes building capacity at the Guyana Revenue Authority to expertly handle huge new revenues, creating training programs to ensure Guyanese have the skills to be hired to work on oil rigs and drilling ships, and hiring technical experts to forecast oil revenues down the road.
Draft versions of the bill to create a sovereign wealth fund and other oil related legislation will likely be a focal point for Guyana’s parliament over the next year and the question of what to do with this unprecedented flood of revenue will almost certainly be at the forefront of the country’s 2020 elections.
