THIS has been a tough year for the global energy industry. Investment collapsed in the second quarter of 2020 as lockdown measures spread across the globe and demand for oil and oil products severely declined due to the COVID-19 crisis. Many analysts worry that crisis conditions are unlikely to abate any time soon, especially since historic cuts by the Organization of Petroleum Exporting Countries (OPEC) have only managed to stabilise prices in the low $40s per barrel.

That prolonged slump has driven down stock prices for oil and gas companies across the globe and led to numerous bankruptcies.

Needless to say, it’s a tough time for any company to make a US$9 billion bet on a major offshore oil project. But that’s exactly what happened last week when the companies operating in Guyana’s Stabroek Block committed to make the largest single investment in the country’s history, after the Irfaan Ali government approved the Payara project.

Although analysts at Rystad Energy noted that the months of delays likely cost the government several hundred million US dollars in overall revenue from the project, the government was able to ensure new concessions on environmental rules and more transparency, including restrictions on flaring.

That investment decision is a major vote of confidence in Guyana at a critical time. Economic pressure caused by COVID-19 has created difficult market conditions for the entire energy industry value chain, but these conditions have hit costly mega-projects like offshore drilling particularly hard.

Guyana is one of few countries that have retained oil companies’ interest, in part through smart fiscal policies that have incentivised exploration and development even in low-price conditions. Some countries, like Trinidad and Tobago, have struggled to attract investment after implementing highly restrictive contract terms. Terms like these can net big gains for governments if oil prices are high, but at lower oil price levels, they can make exploration unprofitable. But Guyana has so far managed to avoid this trap, leading to an unprecedented series of finds with no sign of slowing down.

Hopefully, the government’s approval of the Payara development will be taken by investors as a sign that Guyana’s political and regulatory environment is finally stable, and that the Ali government intends to follow through on the promises it makes. That will be crucial for attracting the investment needed to extend the series of discoveries into deeper regions like the Kaieteur Block,that will be even more costly to explore and develop.

In the meantime, this approval clears the way for billions of US dollars in additional government revenues. Those funds will hopefully be translated into concrete gains for everyday people – through programmes and investments in social, economic, health, and education initiatives.

Despite this step forward, Guyana will still face some roadblocks. Despite economic reactivation and reopening measures, the global pandemic will continue to drag down global energy prices. As Guyana has experienced, it also creates a bottleneck for repairs on critical equipment, like the gas compressor on the Liza Destiny, that has caused recurring issues.

In any case, Payara’s approval is a historic step for the new administration that should open doors for additional investment in Guyana’s emerging oil future.