Spotlight on Guyana’s impending oil wealth
As ExxonMobil ramps up production from the Liza project, election buzz has caused murmurings that contracts should be renegotiated
Guyana will head to the polls in March for an election expected to determine whether the fledgling oil producer will renegotiate its share of offshore oil revenues, and, importantly, how best to employ its newly found prosperity.
The election is the first in Guyana since 2015 and pits incumbent president , who leads the APNU-AFC coalition (A Partnership for National Unity / Alliance for Change), against Irfaan Ali of the PPP (People’s Progressive Party).
Since the last election, a string of discoveries in Guyana’s waters have transformed the financial prospects of the small Latin American nation. In January, ExxonMobil added another discovery to its catalogue of finds in the Stabroek block—split between it as operator (with a 45pc stake), US independent Hess (30pc) and China’s Cnooc (25pc)—raising its estimates of recoverable oil and gas in the block to 8bn bl oe.
According to consultancy Rystad Energy, oil production could reach an estimated 1.2mn bl/d by 2030, increasing government income to $120bn over the next decade—a substantial windfall for a country of less than 800,000 and regularly ranked as one of the poorest in the Western hemisphere.
“Everyone agrees on the need for private investment, no-one claims that Guyana will do a better job on its own,” Christian Wagner, an Americas analyst for political risk consultancy Verisk Maplecroft, tells Petroleum Economist. “[That is just a function] of the numbers and expertise required.”
Back against the wall
Incumbent Granger faces a stern electoral test. In December 2018, his administration suffered a vote of no confidence which triggered the election—delayed by months of court cases until Granger finally named a date. In February, the government’s handling of its resource boom was also fiercely criticised in a report by NGO Global Witness. It claimed that ExxonMobil aggressively negotiated a new licensing deal in 2016 with inexperienced Guyanese government officials just three days before the company announced an estimated 1.4bn bl discovery in the Stabroek block, prompting Guyana to lose out on $55bn worth of revenue.
“Whoever wins [the election], the first thing they should do is publish the contracts” Wagner, Verisk Maplecroft
The opposition quickly jumped on the report. Ali called Granger incompetent and said that “production contracts post-ExxonMobil must be and will be renegotiated”. While Ali is prepared to concede that ExxonMobil may be a special case “as a pioneer in the sector”, he promises that its contract would nonetheless be reviewed to ensure “[it] brings greater benefit to Guyana”.
According to Wagner, the problem is less with a particular political party than with a systemic lack of transparency in publishing contracts, which limits openness around Guyana’s oil sector and creates corruption possibilities.
“The [Exxon] Stabroek contract was only published after a strong civil and media campaign,” says Wagner, adding that the only other contract that is easily accessible had been published—voluntarily—by Anglo-Irish independent Tullow Oil after its discoveries on the Orinduik block, not by the Guyanese government.
“No laws are being broken, the government is not obliged to publish the contracts, but it falls short of international best practices in terms of transparency and anticorruption policy”, says Wagner. “Whoever wins [the election], the first thing they should do is publish the contracts and say we are open to dialogue.”
Lavish promises of free education and improved infrastructure form the backbone of both Granger and Ali’s campaigns. But a focus on transparency, anti-corruption measures and reinforcing political institutions will be vital to ensure Guyana is able to effectively manage its new-found wealth.
8bn bl oe – Stabroek recoverable reserves
“Guyana needs a strong legal framework for the hydrocarbons sector, leveraging on a well-structured state oil company with clear rules of the game [and] a tight grip on corruption” Jose Chaloub, an independent geopolitical risk analyst based in Caracas, tells Petroleum Economist. “Most importantly it should keep politics and ideologies aside from the dynamics of the oil sector and promote a correct wealth distribution from oil revenues.”
Chaloub adds that, regardless of the eventual electoral winner, Guyana should pursue long-term strategic planning when it comes to its oil reserves, which include establishing a sovereign wealth fund and pursuing further regional cooperation.
Click to enlarge