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Suriname’s election setback

Development of the country’s oil sector faces a slowdown in the face of political instability and dire economic conditions

National elections in Suriname were supposed to bring much-needed stability to the country following a string of political scandals and an economy poised to suffer significant recession. The landmark offshore oil discoveries announced by French operator Total in the first quarter offered a rare reprieve from the sense of gloom.

But the fallout from the election has highlighted Suriname’s fractious political scene and the potential risks of investing in the country. President Desi Bouterse, who was standing for a third term in office, demanded a recount ahead of the official result, and international observers fear a lengthy dispute.

“The risk of political violence and civil unrest is concerning for IOCs and foreign investors” Wagner, Verisk Maplecroft

Initial reports suggested that, with 99.5pc of the vote tallied, the opposition United Reform Party had successfully won enough seats to head a coalition government with the backing of three smaller parties. If confirmed, this would unseat Bouterse after 10 years as president. The strongman leader has been an inveterate figure in Suriname’s politics. Before the return of democracy, Bouterse led the military forces that seized power in 1980 and ruled for over a decade.

Making matters worse

Political backbiting and failure to accept the election result risks Suriname following the path of its neighbour Guyana. Latin America’s newest oil producer held an election in March, but accusations of voting irregularities muddied the result and the outcome is still unresolved.

Both countries also headed to the polls with doubts over the legitimacy of their presidential candidates. Guyanese president David Granger suffered a vote of no-confidence in December 2018 but appealed against it, further delaying the poll. He stood for re-election and continues to lead the caretaker government.

Suriname headed to the polls after months of political scandals. Bouterse was convicted of murder in November, accused of orchestrating the killings of political opponent during the military dictatorship. He was sentenced to 20 years in prison but is appealing against the verdict. He was also convicted in absentia on drugs trafficking charges in the Netherlands in 1999, while his son Dino Bouterse is serving time in the US having been convicted of drug smuggling and aiding a terrorist organisation.

More recently, the disappearance of more than $100mn from the Central Bank of Suriname, and the dismissal of the bank’s governor, Robert van Trikt, have reinforced the country’s reputation for corruption and mismanagement.

Guyana achieved first oil ahead of schedule in December, but Suriname has yet to reach that milestone. Political turmoil is likely to further damage its reputation and deter foreign investment. “The risk of political violence and civil unrest is concerning for IOCs and foreign investors,” says Christian Wagner, Americas analyst at political research consultancy Verisk Maplecroft. “Political uncertainty increases the risk of inconsistent regulatory enforcement and corruption and delays potential regulatory improvements.”

Uphill climb

Suriname’s progress towards offshore oil production will likely be affected anyway by current market conditions. The IEA estimates that global GDP will decline by 6pc this year, with economies reopening only gradually after the coronavirus pandemic.

And with the world facing recession, the uncertain recovery of energy demand and a glut in oil supply, projects that require large capex are likely to be shelved until oil prices significantly improve. “Planned investments in exploration and production are likely to be delayed as the lower oil price and demand are decreasing the potential profitability of finds and increasing costs,” says Wagner. “We estimate a delay of between 18-24 months in upstream activities.”

Suriname has little oil sector infrastructure, so commercial discoveries will most likely require floating production storage and offloading vessels—a significant expense.

Better late than never

But despite the likely bottlenecks, companies are still showing interest in Suriname’s oil potential. In May, US firm ExxonMobil farmed into 50pc of Malaysian NOC Petronas’ block 52. The block sits adjacent to block 58, where French operator Total announced two major oil discoveries in Q1.

The block 58 consortium are also drilling a third well at the Kwaskwasi prospect and appraising their first discovery at Maka. After the third prospect has been spudded, the Keskesi prospect will be drilled. Anglo-Irish independent Tullow Oil has also set a Q4 deadline to drill a well in block 47.

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