Guyana eyes a wealth of new oil but could Venezuela spoil the party?
In June, ExxonMobil confirmed the discovery of up to 1.4bn barrels of oil in the Stabroek Block offshore Guyana, a find which if developed could see the country emerge as a major drilling target. Rod James looks at the nature of the discovery, how the country is preparing for the boom, and whether its neighbour Venezuela might step in to spoil the party.
At the top of the map of South America, just north of the Brazilian Amazon, are three small territories that not many people can name (congratulations if you are the exception). In a continent of vast countries spanning multiple time zones, it’s natural to wonder what these places are like and how they came to be.
Furthest east is French Guiana, a department of France and the richest per capita territory in South America, in part due to the presence of the Guiana Space Centre, a European Space Agency launch site. Neighbouring it to the west is Suriname, a former Dutch colony famed for its vast nature reserves and rare flora and fauna. Furthest west, and the largest of the three, is Guyana. In the past year or so, the former British colony with a tumultuous history has found itself on the cusp of potentially dramatic change.
Oil could transform small economy
In 2012, the United States Geological Survey ranked Guyana as having the second most attractive under-explored basin in the world. In May last year, this potential was confirmed, as supermajor ExxonMobil announced the finding of a “world-class discovery” at its Liza prospect on the 6.6-million-acre Stabroek Block, around 120 miles offshore Guyana. The drilling team encountered 90m of high-quality oil-bearing sandstone reservoirs in the Liza-1 appraisal well.
In June Exxon followed up with Liza-2, around two miles from the original discovery, and found 58m of oil-bearing sandstone. Altogether, this equates to between 800 million and 1.4 billion barrels of oil equivalent.
“To put this in perspective, this is the equivalent of 1,400 Gulf of Mexico blocks,” said Rex Tillerson, Exxon’s CEO.
In July approval was given for the drilling of another ‘lookalike’ well and a fourth may be drilled before the end of the year. Esso Exploration and Production Guyana is operator with a 45% stake, with Hess Guyana Exploration Limited (30%) and CNOOC Nexen Petroleum Guyana Limited (25%) minority partners.
Guyana, for its size, is a resource-rich nation. Around 60% of its GDP is based on the extraction of sugar, gold, bauxite, shrimp, timber and rice, according to the CIA Factbook. Yet it remains a poor nation, with the second-lowest GDP per capita in South America after Bolivia, so understandably the discovery has generated hope that it could represent a significant change in fortunes. On announcement of results from the second appraisal well, the country’s natural resources minister Raphael Trotman declared, “the future of Guyana has now been written and I think that it is going send ripples through the world.”
Guyana tries to dodge natural resource curse
Many countries, however, have been in similar situations to Guyana and failed to reap the benefits due to corruption, mismanagement or both. There is a notable social divide between the country’s slave-descended Afro-Guyanese population, which held political control in the years after independence in 1966, and the Indo-Guyanese, brought in by the British in the 1800s to work on sugar plantations and the main political power in recent decades. A quick look at the comments sections in local newspapers suggests that some from the Afro-Guyanese community are worried about being frozen out.
To assuage fears, the government has agreed to apply for membership to the Extractive Industries Transparency Initiative (EITI), a 51-member group that promotes good governance, transparency and accountability in the extractive industries. The Ministry of Natural Resources aims to submit its application to the Norway-based organisation in November. In preparation, a civil society group has been formed called Policy Forum Guyana, which has formed a “multi-stakeholder group” to create a roadmap that takes everyone’s views into account.
“The winner-take-all politics to which we are accustomed means that you are either in or you are out,” said Mike McCormack, a representative of Policy Forum Guyana at a June meeting, in comments reported by local business paper Demerara Waves. “The EITI arrangement is bringing together three centres in which the government has to argue its case, rather than the normal arrangement where you have a statutory body that invites people to a whole lot of discussion and at the end of the day the government says ‘now here’s what we are going to do.’”
Venezuela dispute casts dark shadow
Before any oil is monetised, a big obstacle exists in the form of neighbour Venezuela, which for more than a century has laid claim to two thirds of Guyanese territory. The dispute dates back to the 1890s when Britain was looking to aggressively expand its colony by claiming territory in Venezuela. The case was brought before an arbitration panel where four judges, two each from the US (which backed Venezuela) and Britain and a fifth from Russia, decided that Britain’s claims were valid. In 1899 Venezuelan officials declared the outcome invalid, claiming skullduggery among the British and Russian judges. Animosity has existed ever since, peaking once more with the start of oil exploration in 2013.
In October 2013 the Venezuelan navy seized the Teknik Perdana, a Panamanian-flagged oil exploration ship being operated by oil services company Anadarko, claiming it was “carrying out illegal activities” in Venezuela’s exclusive economic zone (EEZ). Guyana shot back that in fact the seismic survey was being carried out in Guyana’s EEZ, which is technically correct in light of the century-old arbitration ruling. The dispute shows no sign of resolution in the near term.
“Guyana's oil offshore exploration will continue to be affected and companies face heightened contract frustration risks until a long-term solution of the maritime border delimitation with Venezuela is reached,” says Diego Moya-Ocampos, senior analyst, Americas, at IHS Country Risk. “An armed conflict between the two countries is highly unlikely. Nevertheless, the Venezuelan navy is likely to continue patrolling the Venezuela EEZ, deterring ships from conducting oil exploration activities close to the maritime border with Guyana. This increases the risk of other ships being harassed and detained in disputed waters. A maritime border delimitation between Venezuela and Guyana is unlikely to be solved in the three-year outlook.”
For the time being, Guyanese spirits are high. The oil is high-grade, relatively easy to extract and it seems as if the government is willing to engage the population on how to make the discovery work for everyone. The question is whether it will be able to move towards this bright future unhindered.