Being a relative latecomer to the oil party means Guyana can learn from past mistakes made by more established producers, such as falling into the ‘Dutch Disease’ trap or failing to take the importance of transparency or environmental protection into account from the get-go.
Industry insiders have long speculated on the possibility of the Guyana-Suriname Basin holding one of the largest of oil and gas deposits in Latin America. However, various exploration attempts over the past few decades have yielded disappointing results. So the announcement in May last year that ExxonMobil had discovered more than 295 feet of high-quality oil-bearing sandstone reservoirs while drilling its deepwater Liza-1 well in the Stabroek Block, around 120 miles offshore, has understandably become a landmark moment in advancing Guyana’s development and created a new future player in global energy markets.
Estimates of the Liza-1 well suggest there could be as much as 700 million barrels of oil recoverable, implying a value of US$35 billion (with an average oil price of US$50 per barrel, as of June 10, 2016.) But there could be more to discover. During ExxonMobil’s March 2016 Analyst Day presentation, it unveiled plans to drill multiple exploration wells in 2016/17, which could reveal further reserves. In fact, the US Geologic Survey ranks the Guyana-Suriname Basin as the second most prospective under-explored offshore oil basin in the world, estimating its undiscovered resources at 13.6 billion barrels of oil and 32 trillion cubic feet of natural gas yet to be tapped.
Sovereign wealth fund
This new kid on the energy block is determined to handle the extraction of its vast newfound petroleum resources responsibly from the start, and learn from the experience of more established players.
“Of first concern is to create a sovereign wealth fund to make sure that we will be very prudent in the use of oil revenues. Other countries as you know have made mistakes in their sudden inflow of money,” comments Guyana’s President David Granger, whose administration was sworn in on May 16, 2015, shortly after the oil find was announced. “We are now ensuring, even before the first barrel of oil is pumped, that the government fund is in place so that we don’t have a squander mania. We have already made plans to develop all energy sectors so we don’t become too reliant on petroleum and gas. We will also develop our infrastructure and in so doing make sure that there are proper roads and bridges so we could access our other mineral resources – gold, diamond, manganese, bauxite – and at the same time build a more balanced economy and not become too reliant on petroleum. We already have great agricultural potential. We will now be able to add other sectors.”
Subsequently, Guyana’s Minister of Governance Raphael G. C. Trotman attended a US State Department meeting on energy governance to get the ball rolling on gaining insight into responsibly managing its new windfall.
“The meeting was very important for us, because it took place within weeks of Guyana’s new government taking office,” says Mr Trotman. “The US has always been a close friend to Guyana and other countries in the region. Also, with ExxonMobil being an American company, we thought that we should speak to the US government. We did have, for all intents and purposes, an induction course on the policy side of the industry, management, and looking at environmental management, safety and energy governance. It was helpful; we were able to meet important people, get perspectives on fiscal regimes, taxation policies and so forth. So we value that meeting highly, because it was the first of its kind, immediately after taking government.”
Already highly experienced in mining its mineral wealth, Guyana has long aimed to become a member of the Extractive Industries Transparency Initiative (EITI). The Norway-based organization is an international watchdog that promotes the sustainable management and use of natural resources, such as oil, gold and forest areas. Guyana’s aspirations of becoming its newest member received a boost recently with the World Bank agreeing to help it prepare for the next major step in its application.
World Bank support
According to a statement from the Ministry of Natural Resources, “The (World) Bank agreed to make the services of a consultant, with experience in providing guidance towards EITI compliance, available to Guyana and also shared options for additional assistance once Guyana assumes membership. The consultant will facilitate the completion of the MSG (multi-stakeholder group) process which is the next pivotal step in qualifying for candidacy.”
The Ministry also added that Guyana has so far satisfied the necessary initial actions for EITI candidacy, but it had reached out to the World Bank for support to ensure it is better prepared for the next stage and ultimately the responsibilities of membership.
Although it could take seven or more years to see the first drops of oil pumped from the Liza-1 well to reach a refinery, it is reassuring to know that by that time, steps will have been taken to make sure they do so without a social or environmental price tag costing more than their monetized worth.