OIL drilling has slowed globally amid a prolonged oil price slump caused by the COVID-19 pandemic. While the Guyana Basin remains a bright spot for exploration, governments cannot take for granted that drillers will come here at any cost. The region was a key topic at last week’s Institute of the Americas La Jolla conference, a longstanding and highly respected meeting of academics who study the region and its energy development.

A panel on the Guyana Basin’s development included Kevin Ramnarine, former Minister of Energy for T&T; Thomas Singh, senior lecturer in the Department of Economics at the University of Guyana and Lisa Viscidi, director of energy, Climate Change & Extractive Industries at Inter-American Dialogue.

The panelists were generally of the view that Guyana’s oil development is in good shape despite the pandemic, but some took a more pessimistic view of the broader climate for energy development in Latin America and the Caribbean. All three panelists emphasized that countries need to be thinking extremely carefully about how to attract and retain investment during this difficult oil-price environment.

The panelists were also unanimous in their deep concern regarding the ongoing political risk in Guyana. With the election still undecided and many important regulatory decisions postponed, it’s likely that there could be a major impact on investment in Guyana.

Panelists had high hopes in the long run that a new auction round could be a profitable opportunity for the government given the exploration success of the Stabroek Block thus far. But Viscidi and others noted that, at the moment, the political situation is likely too toxic. “Guyana’s offshore breakeven costs are competitive globally [but] the political risk is a real issue…Companies are not going to bid on new blocks with this level of uncertainty,” she said.

She did note that Guyana has taken several positive steps to use the revenue it makes from oil prudently, specifically a sovereign wealth fund, rules on how the government can spend the money and the Green State Development Plan. She recommended that future efforts focus on building out more specifics such as funding allocation to regional governments, spending priorities for specific programmes and enhanced transparency and input processes for contracting projects.

Viscidi also cautioned that many countries in the region may have to alter their approach in terms of attracting investment. “Some countries in the region have to work on making their sectors more cost competitive by improving fiscal terms or improving infrastructure,” she said.

Ramnarine explained that Trinidad & Tobago could be one of those countries since exploration and new development have declined over time and reserves are dwindling as a result. “Survival will depend on changing fiscal regimes for upstream operations. The government must decide to take a smaller slice of the pie to survive long term, but that’s a very difficult thing for any government to do,” he said.

Trinidad & Tobago has long been hailed as a model in the region for managing oil and gas production and it has had substantial success in doing so. But it’s also an illustrative case study of how a higher government take can be popular when oil prices are high only to end up stifling development when prices are low. That leads to trouble down the road when oil and gas reserves aren’t replaced by new exploration.