Guyana’s deadlock chills the investment climate
A worsening political crisis risks slowing the pace of oil sector growth in the small Latin American nation
Any hope that Guyana’s recent election would settle the country’s broiling political turmoil always looked optimistic. And so it has proved. Four months on from the poll, neither of the two main parties has conceded defeat and the impasse threatens to stall Guyana’s nascent oil sector.
The election result has been dogged by accusations of voting irregularity, court injunctions and a national ballot recount. Incumbent president David Granger initially declared victory before the recount pointed to a win for opposition leader Irfaan Ali. The country’s electoral commission has yet to officially announce a result.
The controversy follows a 2018 vote of no-confidence in the Granger administration. Constitutionally, this triggered a fresh election, but the poll was repeatedly delayed. The parliamentary decision went to various appeal courts and the Granger administration managed to cling on until March.
The US has since called on Granger to respect the recount result, issuing sanctions on unnamed individuals in the caretaker government “responsible for, or complicit in, undermining democracy”. “International pressure is likely to be decisive in pushing Granger to step down,” says Christian Wagner, analyst at political risk consultancy Verisk Maplecroft.
Both sides of the political spectrum grasp the monumental scale of oil revenues projected to flow into the country over the next few years, and so far no-one is backing down. “The country has to think much beyond individual aspirations as the hydrocarbon revolution is certainly going to rewrite the country’s economic history,” says Palzor Shenga, senior upstream research analyst at consultancy Rystad Energy.
The turmoil significantly risks slowing Guyana’s oil sector growth. “The ongoing political impasse prevents legal and regulatory reforms from being enacted, limiting Guyana’s potential to improve the country’s attractiveness to investors,” says Wagner.
While the ExxonMobil-led Liza project started producing oil last year, targeting production ramp-up to a mid-2022 plateau, the US major’s Payara project in the Stabroek block has yet to be sanctioned.
“International pressure is likely to be decisive in pushing Granger to step down” Wagner, Verisk Maplecroft
Partners initially expected the government to approve the project by 2019, with startup in 2023 adding another 220,000bl/d to national output. Five floating production, storage and offloading units in the region were expected to contribute 750,000bl/d in total output by 2025.
Rystad estimates that delays due to the political infighting have already wiped 50mn bl of production that could have been reached by 2030 if the project had been sanctioned last year, as well as $300mn in net present value (NPV). The NPV take for the government could fall from $4.75bn at present to $4.45bn if delays persist for another year and $4.2bn if they go on for 24 months.
If the Payara project does achieve governmental approval and starts up by 2028, Rystad forecasts government revenues on the project at $4.4bn. But a six-month delay would wipe $800mn from the venture, a figure that would double to $1.6bn if the political impasse adds another year of delays. This would result in a loss of $300mn to the partners’ NPV, illustrating the ongoing investor risk from the uncertainty.
But further offshore exploration is set to continue. ExxonMobil plans to drill three wells in the Canje block, first at the Bulletwood prospect by the end of the year, followed by drilling at Jabillo and Sapote. The major is also scheduled to drill its Tanager prospect in the adjacent Kaieteur block before the end of 2020.
Last year, Anglo-Irish independent Tullow Oil proved the presence of oil in the shallow tertiary layer of its Orinduik block. The firm is integrating the data and plans to test the deeper reservoirs, but no further dates have been given. In the fourth quarter, the explorer is also scheduled to spud a well at its Goliathberg-Voltzberg North prospect in neighbouring Suriname.
In January, the first discovery of oil in the Dutch-speaking South American country raised hopes of it replicating Guyana’s exploration success. Since then, further finds—and the resolution of a similarly controversial election—have positioned Suriname on a path to compete with Guyana for future investment.