–but interest in Guyana remains
AFTER hitting historic lows at the height of the COVID-19 pandemic, international oil prices have stabilised at around $40 per barrel in recent months. But a $40 per barrel price level squeezes even the largest oil companies’ profit margins. Even in areas with the most efficient production and lowest costs, publicly-traded firms, small private drillers and national oil companies are all grappling with the most difficult energy market in nearly a decade.
Depressed demand and lower-than-usual oil prices have increased pressure on oil companies to trim their costs across the board. With falling profits, spending budgets for new exploration and development tend to be the first to be cut. Companies across the world are calling off investments in expensive projects like offshore exploration, and pausing or cancelling other projects where the financial gains no longer outweigh the costs, or the risks presented by a cloudy economic outlook. Many are turning their focus away from higher cost, and technologically-challenging projects in offshore production towards cheaper and less risky alternatives.
Due to the ongoing crisis, even large companies like those operating in the Stabroek Block are suffering. On October 28, Hess Corporation announced a wider-than-expected loss, and lowered its full 2020 production forecast. The company also decreased its exploration and production budget for 2020 from US$3 billion to $1.8 billion. ExxonMobil is also facing challenges due to international market pressures. On October 30, the company announced a third-quarter loss of US$680 million, as spending on capital investments and exploration dropped by US$6 billion in the first three quarters of the year, compared to the same period in 2019.
Despite these announcements, Guyana remains a bright spot for both. Hess’s production grew 10.7% since 2019, because of the new Liza field coming online in the Stabroek block. Meanwhile, Exxon CEO Darren Woods used the company’s recent earnings call to reaffirm its commitment to Guyana, even as it pulls back on investment in other markets. The company recently announced an extensive new drilling plan that will include 41 new wells in the Stabroek Block, with first oil expected by 2024. Woods had previously expressed worries about the company’s long-term investment in Guyana, after approvals for the Payara project lagged months behind schedule.
While Guyana appears to be weathering an extremely tough market well, we cannot take anything for granted. And we cannot be so bold as to think we can dictate terms, or change the rules in the middle of the game, considering investment decisions are often made years before first oil is achieved.
President Irfaan Ali and his team have worked hard to reassure investors that Guyana is “open for business”, in the hopes of creating more stability and trust for new businesses investing in the country, especially as Suriname is increasingly competing for the same investment dollars with its own offshore blocks. The Government’s pro-business approach, and Guyana’s relatively low costs seem to have been successful so far in retaining investor confidence.
The government’s efforts to preserve the fiscal terms that originally helped to attract companies to drill has also played a role in reassuring businesses that Guyana has both high-quality resources, and a stable political outlook. This gives Guyana the competitive edge in the international oil market, and ensures that the country retains investment moving forward.
The government’s continued efforts to work with oil companies, and not against them, have proven fruitful. Guyana is expected to be the only country in Latin America and the Caribbean to experience GDP growth in 2020. Although it faced downward revisions due to the economic impacts of COVID-19, Guyana’s economy is still expected to expand by more than 26% in 2020.
Despite market conditions, it is clear that oil companies are here to stay in Guyana. While the global conditions are likely to remain challenging for the near future, Guyana’s emerging position as an oil power still looks solid.