An­tho­ny T Bryan

Guyana’s oil re­serves, on­ly dis­cov­ered in 2015, are vast. They are es­ti­mat­ed at 11 bil­lion bar­rels of re­cov­er­able oil — one of the high­est lev­els per capi­ta world­wide.

The coun­try’s cur­rent dai­ly pro­duc­tion of 400,000 (b/d) is pro­ject­ed to be more than one mil­lion b/d of oil equiv­a­lent (boe) by 2027. Al­though Guyana on­ly pro­duced its first bar­rels of oil in De­cem­ber 2019, it record­ed the globe’s high­est GDP growth rate of 2022, a re­mark­able 57.8 per cent. Its an­nu­al earn­ings from the sec­tor could be US$10 bil­lion by 2030. How­ev­er, the glob­al me­dia hy­per­bole that is ac­com­pa­ny­ing the boom is bois­ter­ous and over­whelm­ing, and rais­ing Guyanese pub­lic ex­pec­ta­tions to an un­com­fort­able lev­el. So per­haps it is time for ret­ro­spec­tion, a re­al­i­ty check, and a cau­tion­ary note.

Deal­ing with this wind­fall is a new ex­pe­ri­ence for the Guyanese gov­ern­ment and its peo­ple. There is a race to pro­vide the nec­es­sary leg­is­la­tion, to cre­ate the in­sti­tu­tion­al struc­tures, and to de­vise strate­gies to man­age an oil econ­o­my.

Ob­vi­ous­ly, one dan­ger is the on­set of the dread­ed ail­ment known var­i­ous­ly as the ‘re­source curse,’ the ‘para­dox of plen­ty,’ or the “Dutch Dis­ease,” where desta­bil­i­sa­tion of tra­di­tion­al eco­nom­ic sec­tors oc­curs as the re­source rich coun­try be­comes over­ly de­pen­dent on ex­ports of a sin­gle com­mod­i­ty and suf­fers dras­tic in­fla­tion­ary con­se­quences.

On Au­gust 27, 2023, Vice Pres­i­dent, Dr Bhar­rat Jagdeo was re­port­ed in the en­er­gy pub­li­ca­tion Oil­NOW as say­ing “We are hell-bent on en­sur­ing that we do not make the same mis­takes that oth­er oil-pro­duc­ing coun­tries have made.”

It will be avoid­ed by Guyana’s care­ful fis­cal man­age­ment of the en­er­gy sec­tor, in­clud­ing its Lo­cal Con­tent Act, and a “ded­i­cat­ed pol­i­cy” to­wards di­ver­si­fi­ca­tion, he fur­ther stat­ed.

But most en­er­gy an­a­lysts would still agree on some cau­tion­ary notes for Guyana.

First, it is the gov­ern­ment’s re­spon­si­bil­i­ty to en­sure that the coun­try has all the con­trac­tu­al pro­vi­sions in place to earn and dis­trib­ute its fair share of the wind­fall. The pop­u­la­tion can be­come frus­trat­ed by the lack of any im­me­di­ate tan­gi­ble ben­e­fits that they may have ex­pect­ed from oil rev­enues. Man­ag­ing pub­lic ex­pec­ta­tions is crit­i­cal. Al­so, in mul­ti-eth­nic Guyana the pos­si­bil­i­ty of po­lit­i­cal and eth­nic strife is a con­stant threat if the ben­e­fits of the wind­fall are not dis­trib­uted even­ly among the var­i­ous eth­nic groups.

Sec­ond, al­though in­ter­na­tion­al cred­it agen­cies re­port that Guyana still has a low lev­el of cor­rup­tion, reg­u­la­tions must be de­vel­oped to con­trol that ele­phant in the room. En­er­gy ex­plo­ration and pro­duc­tion has a long sup­ply chain, and many op­por­tu­ni­ties ex­ist for di­ver­sion of rev­enue and prof­its. Third, the im­pact of the oil and gas wind­fall on Guyana’s econ­o­my can be con­vul­sive. Guyana may be­come one of the world’s rich­est na­tions per capi­ta. But at­tain­ing high-in­come sta­tus from nat­ur­al re­source wealth does not al­ways trans­late in­to im­proved hu­man de­vel­op­ment out­comes. Cit­i­zens must be shown that the wealth gen­er­at­ed from oil and gas will be used pru­dent­ly and trans­par­ent­ly and for the peo­ple’s wel­fare.

Now for a re­al­i­ty check. Guyana is not slow­ing down on its oil and gas ex­plo­ration and pro­duc­tion, nor should it do so. In fact, it is prepar­ing to auc­tion off 14 cov­et­ed oil blocks dur­ing 2023 in its first ever gov­ern­ment reg­u­lat­ed off­shore li­cens­ing round. But even with the new PSA signed with Exxon which split the rev­enue 50-50 with a 2 per cent roy­al­ty paid to the gov­ern­ment, Exxon has a sweet­heart deal---con­sid­er­ing that the glob­al av­er­age for a gov­ern­ment’s take in off­shore projects is 75 per cent.

The con­tract al­so in­cludes a strange pro­vi­sion that per­mits Exxon to im­me­di­ate­ly re­cov­er costs for ex­plorato­ry work with­in the lease area. Exxon ef­fec­tive­ly then pays it­self back for those costs out of the oil rev­enue that would oth­er­wise go to the gov­ern­ment. With an oil field lease this large (28,806 square kilo­me­tres), easy to drill, and high­ly pro­duc­tive, Guyana should have ne­go­ti­at­ed much bet­ter! Nev­er­the­less, the coun­try is go­ing to re­alise tremen­dous rev­enue from oil and gas for a na­tion of 800,000+ in­hab­i­tants.

The wind­fall presents many chal­lenges. Guyana can ac­crue more debt even with the sur­plus oil mon­ey. Both the IDB and the IMF are ad­vis­ing the gov­ern­ment to save for a rainy day and to ex­er­cise cau­tion in the way in which it goes about tak­ing on new loans. The IMF notes that while surg­ing oil out­put could help ad­dress de­vel­op­ment needs, buffer the econ­o­my, and re­tire ex­pen­sive out­stand­ing pub­lic debt, it al­so faces risks from volatile oil prices, a slow­ing glob­al econ­o­my, and pos­si­ble dif­fi­cul­ties man­ag­ing the re­source.

Guyana’s po­lit­i­cal lead­ers have em­pha­sised that cer­tain ser­vices should be re­served for Guyanese pro­cure­ment. The Lo­cal Con­tent Act seeks to pro­tect lo­cal Guyanese com­pa­nies. While this is a com­mend­able ob­jec­tive, just fill­ing per­cent­age work­force with na­tion­als in the name of ‘lo­cal con­tent’ or giv­ing pref­er­ence to lo­cal com­pa­nies that may not be up to the tasks, are mis­takes to be avoid­ed. This is not about num­bers; it’s about in­vest­ing in the long-term ben­e­fits for the coun­try and its peo­ple.

As Guyana moves for­ward there are very pos­i­tive signs that it is go­ing in the right di­rec­tion. Glob­al­ly, in­vest­ment is slow­ing down in new oil provinces, but Guyana’s light sweet crude is an ex­cep­tion to the trend. Its en­er­gy re­sources are at­tract­ing a lot of in­vest­ment, but there are lots of in­vest­ment op­por­tu­ni­ties in the non-oil sec­tors as well. Large in­vest­ment in agri­cul­ture for the ben­e­fit of Cari­com mem­bers is a ma­jor ob­jec­tive and re­gion­al mo­men­tum is un­der way. From a busi­ness per­spec­tive, the in­vest­ment op­por­tu­ni­ties in Guyana are as ex­ten­sive as one’s imag­i­na­tion or skill set, once there is a Guyanese mind­set that is open to for­eign in­vest­ment and to re­gion­al co­op­er­a­tion.

But there are con­cerns as well. De­spite with­drawals in 2022 and the first half of 2023, the Na­tion­al Re­sources Fund (NRF) had a mar­ket val­ue of US$1.72 bil­lion as of June 30, 2023. It is ex­pect­ed to close 2023 with about US$2.1 bil­lion. So, while Guyana may be im­mune from any se­ri­ous de­ple­tion of the NRF at this time, giv­en the mas­sive fi­nan­cial in­flows, tap­ping in­to it to meet bud­get deficits, un­fore­seen pro­duc­tion fail­ures or short­falls, sub­stan­tial de­clines in the glob­al prices and mar­kets for oil, econ­o­my crip­pling pan­demics, and se­ri­ous debt in­curred for rapid in­fra­struc­ture de­vel­op­ment that does not pro­duce rev­enue--can all im­pact on fu­ture draw­downs on the NRF.

When new provinces come in­to mas­sive oil wealth, the re­source is of­ten con­trolled and dom­i­nat­ed at an ear­ly stage by for­eign com­pa­nies in­ter­est­ed in de­vel­op­ing oil and re­turn­ing prof­it to their share­hold­ers. They are very rarely in­ter­est­ed in gen­er­al na­tion­al eco­nom­ic de­vel­op­ment. So far, the in­ter­na­tion­al oil com­pa­nies (IOCs) in Guyana, Exxon­Mo­bil and its part­ners, ap­pear to be in­vest­ing in sub­sec­tors of the econ­o­my that ad­vance their port­fo­lios with some ben­e­fit to the Guyanese econ­o­my. Even­tu­al­ly Guyana might find the T&T mod­el---where the state chose to be an ac­tive par­tic­i­pant and a leader in the first stage of the coun­try’s in­dus­tri­al­i­sa­tion by be­com­ing an eq­ui­ty in­vestor in most of the en­er­gy en­ter­pris­es---to be a use­ful ini­tia­tive. Guyana will have the mon­ey to do it!

Look­ing for­ward, Guyana has at­trib­ut­es that can make it a re­gion­al en­er­gy leader. Its forests have cre­at­ed en­vi­ron­men­tal space for si­mul­ta­ne­ous de­vel­op­ment of its oil re­sources and its net car­bon sink cre­den­tials.

While it may seem to be in a con­tra­dic­to­ry po­si­tion as a cur­rent vic­tim of cli­mate change and an ac­tor ex­ac­er­bat­ing the prob­lem, Guyana can be­come a ma­jor sup­pli­er of fos­sil fu­el that us­es the mon­ey from its oil and gas re­sources to in­vest in re­new­able en­er­gy and fa­cil­i­tate its tran­si­tion and that of the Cari­com re­gion to net-ze­ro sta­tus.