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Guyana Nears Oil and Gas Turning Point

A developing English-speaking country on South America’s Atlantic coast, Guyana is about to become a major oil producer.

In August the Liza Destiny floating, production, storage and offloading (FPSO) vessel reached the Exxon Mobil Corp.-operated Stabroek Block offshore Guyana. The FPSO will tie back to eight production wells and yield up to 120,000 gross barrels of oil per day starting next year. After Liza Destiny, ExxonMobil may deploy four more FPSOs to Stabroek and produce more than 750,000 bpd of crude by 2025. Besides ExxonMobil, international firms that are also active offshore Guyana include Tullow Oil plc, Total S.A., Hess Corp., Qatar Petroleum and others.

Revenues from oil production could dramatically enhance Guyana’s economic fortunes and the lives of its nearly 800,000 people. For starters, the World Bank has reported that the country’s annual gross domestic product growth rate is expected to rise from 4.6 percent this year to 34 percent in 2020.

“Well managed oil revenues can have a transformative and sustainable impact on a country’s development,” Tahseen Sayed, World Bank Country Director for the Caribbean, said in an April 2, 2019, written statement. “Guyana today has an extraordinary opportunity to reduce poverty and bring long-term benefits to its people.”

Through its Guyana Petroleum Resources Governance and Management Project, the World Bank is providing technical assistance to help Guyana’s government develop a legal and regulatory framework to properly manage the pending influx of oil revenues. In effect, the initiative is aimed at helping Guyana to avoid the “resource curse.”

Anish Kapadia, UK-based oil and gas analyst with Akap Energy Ltd., told Rigzone that a common pattern has historically played out when abundant volumes of a recoverable natural resource have been discovered in poor countries:

The country’s government spends what it expects to earn in the future, taking on debt.
Inflation can rise, impeding the development of other industries.
Companies operating in the countries struggle to get things done because there is no clear regulatory framework.
Local citizens become frustrated at the lack of any tangible benefits they initially see from the resource finds.

Kapadia points out the speed at which ExxonMobil and its partners have been able to develop the Liza field proves that offshore projects can be executed efficiently in Guyana. Moreover, he said that Guyana’s government so far has placed no significant hurdles to stymie companies’ progress.

“Exploration licenses have been renewed by the government rather than the government letting them lapse,” said Kapadia, adding that the government has been open to renegotiating license commitments.

Furthermore, he noted offshore industry players have enjoyed “very attractive” fiscal terms in Guyana that have provided high returns to the investors. In addition, he said the government “has been vocal so far” about not changing the terms of past signed contracts and that no significant local content is required.

To be sure, Kapadia said the country still needs to act on various fronts as its oil industry develops. He cites the following as ongoing needs:

A clear plan for managing its role as a significant oil producer, including setting up a sovereign wealth fund to manage its wealth and implementing a plan to invest in other industries – particularly sectors complementary to oil and gas
Finding a use for associated gas – some options include domestic power, fertilizer production and liquefied natural gas exports
Managing competing oil developments and creating a domestic oil services sector.

The experiences of two resource-rich African countries might be instructive for Guyana, said Kapadia.

“A positive example over the last decade or so is Ghana, which has grown into a significant oil and gas producer,” he said. “It saw one of the record developments in terms of time from discovery to first oil and since then has seen a number further developments and gas being developed, too.”

At the other end of the spectrum is Uganda, which boasts a lower-risk onshore commercial discovery that precedes the major find in Ghana but has not even been sanctioned yet, noted Kapadia.

“This is very much due to the government, which has looked to squeeze out as much economic rent with disregard to the overall negative impact of delaying production and cash flows,” he explained.

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