The Lure of Guyana

When representatives of ExxonMobil announced on June 30, 2016 the successful discovery of high-quality oil at the Liza-2 exploration well in the Stabroek deposit located 193 kilometres off the coast of Guyana at a depth of 1750 metres, this small Latin American country suddenly found itself on the verge of joining the club of the continent’s leading oil and gas states. The Stabroek deposit is thought to have reserves of up to 1.4 billion oil-equivalent barrels (around 200 million tonnes of oil equivalent). While this is not a record amount – the Ghawar Field in Saudi Arabia produces more oil per year than the total amount of reserves in the Stabroek block – it is extremely significant for Guyana, which has no experience whatsoever in the production of hydrocarbons, as it has the potential to reinvigorate one of the most backward economies in Latin America.

Guyana was first suspected of having large oil reserves when its neighbour Venezuela started to develop the giant Mene-Grande and Barroso fields. The geological structure of Guyana is very similar to Venezuela’s in terms of shape and composition, so carrying out exploratory work seemed to be a logical next step. The first exploratory works were carried out on the surface of Guyana exactly 100 years ago, in 1916, although they brought no success. By the 1960s–1970s, works had moved to coastal and offshore areas, although the reserves discovered there were never developed because they were not seen as sufficiently commercially viable. In the early 2000s, exploration work was carried out further from the coast and deeper than before, and this is where the first, long-awaited breakthrough was made.       

Photo: caribbeannationalweekly.com

According to the license issued in 1999, the Stabroek deposit will be developed on the basis of a production sharing contract (50–50), and the state will compensate the main part of the capital and operating costs. The state was planning on placing these financial resources in a state investment fund that would contribute to the economic development of the country, while the oil companies would be allowed to use the extracted as they see fit. However, in early July the Guyanese government announced that the license for the Stabroek block had to be revised.  

The government’s goal is to involve as many Guyanese citizens as possible in the development of the project, as well as training them and implementing local content requirements. Building specialized educational institutions for training young experts is within reach, but using locally produced components, goods and services is doubtful given the extremely primitive nature of Guyana’s economy. Guyana’s GDP in 2015 was $3.16 billion, with its major exports being gold, sugar, bauxite, rice and shrimp. The government will thus have to weigh its requirements very carefully; the task is to achieve the best possible social benefit from oil extraction activities for the country’s population while at the same time not scaring off foreign investors.   

The discovery of the oil deposit could serve as a springboard to overcoming the vicious circle of poverty in Guyana. However, there are a number of factors that could make achieving this goal difficult. The level of corruption in the country, including within Guyana Oil Company (GUYOIL), is off the charts (Guyana ranks 137^th in the World Bank Group’s Doing Business index). Political parties in the country are divided along ethnic lines. The People’s Progressive Party (PPP) that ran the country until recently represents the interests of the Indo-Guyanese population, while the ruling A Partnership for National Unity (APNU) coalition enjoys the support of the Afro-Guyanese community. The PPP routinely threatens to review any and all decisions of the APNU should it emerge victorious in the 2019 parliamentary elections, and the “oil question” is no exception. Nevertheless, political confrontation will only slow down the development of offshore projects in Guyana, as the country cannot risk losing such a serious partner as ExxonMobil as a result of ethnic strife.    

The unsettled territorial dispute with Venezuela has far greater potential for derailing the project. Guyana’s most promising oil deposits, including the Stabroek block, are located on the shores of the Essequibo Region, which, according to Caracas, belongs to Venezuela. No sooner had the first successful drilling been carried out at Stabroek block than Nicolás Maduro approved Presidential Decree No. 1787, which includes claims to the disputed region.

The history of the dispute goes back to the Paris Arbitration decision of 1899, which awarded the territory to the United Kingdom. In 1966, the sides signed the Geneva Agreement granting Guyana independence. The agreement also postponed the settlement of the Essequibo dispute indefinitely. Venezuela has never renounced its claims to the region and reiterated its position that Essequibo is Venezuelan territory when Guyana first started offering concessions to oil companies. A United Nations technical mission is to act as a mediator in the dispute, although Venezuela is under no obligation to accept a resolution that is not to its liking as the country is not a party to the United Nations Convention on the Law of the Sea (UNCLOS) and, consequently, does not recognize the jurisdiction of the International Tribunal on the allocation of territorial waters and exclusive economic zones.

In general, Guyana needs an initial push to stimulate economic growth. Being a small country with a population of just 800,000, Guyana – a centre of the Latin American drugs trade – has the highest suicide rate in the world, as well as the highest level of labour migration in South America. It would be the most heinous of crimes to not take full advantage of this opportunity.