INTERNATIONAL oil investors are increasingly looking offshore for bigger development opportunities in less explored and potentially lucrative basins. The emerging oil region that includes Guyana, Trinidad and Tobago, and Suriname is one such place, and it was a major topic at last week’s Caribbean Oil-and-Gas Virtual Summit 2020.
Obviously given the fragile state of the oil market amidst a COVID-19 impact-demand downturn, contract terms that allow companies to economically develop resources are critical. Speakers at the conference, including Rystad Energy’s Sonya Boodoo, were quick to point out the critical importance of reasonable contract terms. It is good to know that, according to findings from energy analysts at Rystad, Guyana’s government income, including profit sharing and revenue, will be the highest of all three countries studied. Under three different oil-price scenarios — $40, $60 or $80 per barrel – the Stabroek Production Sharing Agreement (PSA) yielded more revenue for the government than either Trinidad and Tobago or Suriname. According to these price points, Guyana’s government will eventually see between US $96 billion and $310 billion in total oil income during the duration of the project.
Rystad Energy compared the three neighbours, since the international industry increasingly sees the “Guyana Basin” as a region worth watching. While Trinidad and Tobago and Suriname have a history of oil and gas production, and Guyana does not, it is helpful to understand their legacy in the oil and gas industry. It is also insightful to examine what lessons their paths offer for Guyana, about how to maximise revenues and benefits in the long-term.
Trinidad and Tobago is a long-time natural gas producer, and a model for other countries in the region that are looking to use natural resources as an avenue to jumpstart economic development. But the country is grappling with a long-term decline in oil-and-gas reserves, and is pinning its hopes on new gas fields to turn its economy around.
While Trinidad and Tobago is known for enforcing strict fiscal contract terms, this stance has, unfortunately, discouraged some investment in high-cost exploration areas, as the country’s former Energy Minister, Kevin Ramnarine has pointed out. While the country has an abundance of skilled workers and industrial and energy infrastructure, without new oil-and-gas discoveries, they can sit unused, leaving the future far from certain.
Meanwhile, Suriname is emerging from several decades of political instability that has made it difficult to attract investment, but is rapidly building on its legacy as a small but consistent onshore oil producer. Rystad Energy forecasts that the country could increase oil production 30-fold within two decades, almost entirely offshore.
Suriname’s new government is eagerly encouraging international investment in its burgeoning offshore region as a way to revitalise the economy. Three major discoveries have already been made by the international oil producer, Apache, at Block 58, which sits just across the maritime border from Guyana’s own Stabroek Block.
Now Suriname is attempting to lure international companies already interested in the Guyana Basin that may have been spooked by Guyana’s prolonged political battles, and the regulatory delays that have stalled the Payara project.
With these two cases in mind, it’s important to remember that drawing investment for development in the oil and gas sector can be a zero-sum game.
Delays in the Payara approval have already cost the Guyanese government dearly. According to research done by Rystad, the government has already lost about US$300 million in net project value, due to the delay in approvals for the Payara project. If the project is delayed further, several hundred million more may be at risk, due to a “domino effect” of subsequent delays. But the new government has made it clear that talks are progressing to get Payara approved.
Guyana seems to have gotten it right initially, with a contract that encourages exploration and facilitates game-changing discoveries. But accessing the full potential of resources will eventually require tens of billions of US dollars, and other countries like Trinidad and Tobago and Suriname are chasing those same funds. When one country makes investment and development too challenging or costly, there is all too often an alternative country eager to participate.
It’s important to note that if Guyana can sustain broader investor interest, there remains enormous potential beyond the Stabroek Block. Blocks like the Kaieteur and Canje areas are still being explored, and could offer significant sources of revenue. These sites will require substantial additional investments, however, and Guyana must maintain a business-friendly atmosphere to attract investors.
It is incumbent upon Guyana’s new government to sustain that kind of stable business environment, where investment can still flourish.