In 2000, the U.S. Geological Survey highlighted the huge potential of the Guyana-Suriname Basin. It estimated the region had recoverable reserves of more than 13.6 billion barrels of oil and 32 trillion cubic feet of gas – the second highest resource potential among unexplored oil basins in the world.


Despite these estimations, offshore Guyana remained frontier territory for over a decade. In 2015, ExxonMobil made a major discovery at the Liza-1 well in the offshore Stabroek Block and further drilling confirmed a huge commercial play, comprising 13 oil finds and more than 5.5 billion barrels of confirmed oil and gas reserves.

The discovery thrust Guyana into the headlines. But the country didn’t fully shed its frontier status until September 2019 when ExxonMobil announced another major discovery at Stabroek at the Tripletail-1 well. This new find takes the oil total in the block, which comprises 6.6 million acres, to over six billion barrels.

In the same month, Tullow Oil plc said it had found yet another large oil discovery in the Joe-1 well of the Upper Tertiary oil play, firmly cementing the region as an oil and gas hot spot. Rystad Energy predict the Joe-1 well discovery to hold 40 to 50 million barrels of oil.

No longer frontier country

ExxonMobil’s discoveries shed any doubt of Guyana’s resource potential. But Tullow’s first find is even more important, says Luiz Hayum, upstream research senior analyst, Latin America at Wood Mackenzie.

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“Tullow Oil’s discovery is almost more important that Stabroek because it proves there is oil beyond that one block and helps to set up a multi-operator environment in Guyana – this was the bigger news,” he says.

The oil industry is also watching closely to see if Repsol’s ongoing exploration in the offshore Kanuku block bears any finds. Repsol is the operator of the block, which covers 1,937 km2 in the Atlantic Ocean, with Tullow Oil and Total also holding interests.

According to reports, Guyana, which has a population of just under 800,000 people, is expected to earn $300m annually just from the Exxon Liza Phase 1’s daily production of 120,000 barrels of oil.

Production has moved forward from early 2020 to December 2019. Production from the Liza Phase 2 startup is expected in mid-2022 and will develop approximately 600 million barrels of oil a year, 220,000 barrels of oil per day.

Given the recent incredible offshore activity, international focus is now on how Guyana will manage and develop its new-found resource wealth.

Renegotiating contracts

Imminent oil revenue has also been high on politician’s agenda as elections loom in 2020. Some opposition leaders have even suggested renegotiating oil contracts, stating that the government, which lost a no confidence vote in 2018, gave too generous terms to oil companies.

Revenue sharing agreements between the consortium and the government were entered into decades ago when offshore Guyana was a pure frontier.

The terms – a 2% royalty and a 50% profit oil levy – are favourable says Hayum, but reflected the risk profile of the block at the time.

“Exxon got the advantage as the first investor, but future contracts will have a much larger government take on them,” he says.

Rystad Energy state that on average the government take for all offshore projects is around 75%, while rates in major producing countries such as Nigeria, Norway, Mexico, Indonesia and Trinidad are all above 80%.

A new political party, Change Guyana, has vowed to renegotiate all existing contracts with oil companies to get higher royalties if elected and suspend the award of new concessions pending those talks. The leader, Nigel Hinds, said Guyana also “urgently” needs a local content policy for the emerging oil and gas sector.

A change in the ExxonMobil contract, however, could have the impact of stopping future discoveries moving into development and therefore halt revenue generation, which is the main objective to the government, says Hayum.

“They [politicians], however, seem to understand the huge benefit of collecting the oil revenues rather than trying to get more out of them or trying to develop a refining business within Guyana – they understand it’s more important to collect revenues and to invest in development of the country rather than turning into a pure oil economy,” he adds.

Further challenges

According to Sam Benstead of Verisk Maplecroft, the main area of concern for investors in Guyana are ‘above ground risks’, which could dampen an ‘otherwise extremely positive outlook.”

“Guyana is jumping into the deep end…with underdeveloped government institutions, the region’s fourth poorest country will face considerable hurdles to manage the newfound wealth effectively,” he writes.

In 2018, Verisk ranked the government stability as favourable but warned that the upcoming elections create a ‘winner-takes-all situation’ increasing the risk of social unrest and reducing government dependability.

However, it notes, both the main parties support foreign investment and a rise in resource nationalism is unlikely.

But Hayum says poorly run government institutions and lack of infrastructure could present a considerable barrier to development if not addressed soon.

“The government institutions need to develop to manage the related contracts and this is something we see as not happening as it should,” says Hayum.

“Issuing of exploration plans or environmental licences could get bottlenecked, especially because now we have multiple operators in the country.”

The future of offshore oil in Guyana

According to Rysand Energy Guyana’s total oil production is set to surpass 600,000 barrels per day by the end of the next decade. These volumes could generate total annual revenue of $15bn from the oil and gas industry, according to the firm. After all costs are paid, around $10bn of profit could be split between the companies and the government.

And beyond just the numbers there are others positives for the development of Guyana’s oil resources. The oil is light, much so compared to neighbouring Venezuela, and so easy to shift in international markets and there are no major technical challenges to extraction.

But there remains an underlying fear that Guyana could become yet another petrostate that fails to develop its industry for longevity and manage its wealth wisely.

Though the current government has shown signs of taking steps towards mitigating the short and long-term challenges of its newfound oil wealth. It has established a sovereign wealth fund and is joining the EITI.

However, Verisk Maplecroft warns it has a way to go, and the upcoming 2020 elections will be a test of these processes.

“The challenge beyond 2020 is for the next government to adhere to and further develop the country’s institutional capacity to manage this wealth, and to implement a balanced economic policy programme ensuring equitable development for the entire country, irrespective of ethnic divisions,” it notes.