LAST year was undeniably a tough one for Guyana. But despite an extended election process, the COVID-19 pandemic and corresponding economic disruption across the world, Guyana’s oil and gas sector proved to be strong during a challenging time. Over the past year, Guyana’s growth rate has surged to over 26 percent, making it the only country in Latin America and the Caribbean to experience any GDP growth in 2020.
In a recent interview, Vice President Bharrat Jagdeo said that Guyana could continue to attract major new investments through “incentives” despite the challenging times. Stability and the right incentives to balance the inherent risks associated with frontier exploration and development are crucial. Now Guyana is even being used as an example for other Latin American oil producers looking to replicate its success.
According to a recent S&P Global article, Guyana has become a fierce competitor and a model for others in just five years. “Brazil now faces competition for oil investments from countries around the globe, including neighbours such as Guyana and Uruguay,” officials at Brazil’s National Petroleum Agency told reporters. Guyana has emerged as a major player when it comes to investment in oil and gas.
After a series of disappointing auctions for offshore blocks in Brazil that attracted no international bids, Latin America’s largest producer is increasingly concerned that its challenging contract terms won’t generate investor dollars. The rapid success of Guyana and new discoveries in Suriname have caused Brazil to make significant changes to its production sharing regime in 2021.
Meanwhile, even as global oil prices reached historic lows in the second quarter of 2020, Guyana continued to rake in revenues and attract major new investments. The country received revenues from four oil lifts in 2020, bringing the total in Guyana’s Natural Resources Fund to nearly USD$200 million after just one year of production from the Liza Destiny.
Exxon, the operator of the Stabroek Block, estimates that Guyana’s government could receive five to six lifts of oil in 2021, each valued at more than USD$50 million or more if prices continue to rebound. And when the larger Liza Phase 2 and Payara projects start production, overall revenues and Guyana’s share will increase dramatically.
Guyana’s globally competitive contract terms are responsible for the new projects underway. While other oil and gas projects around the world were put on pause or cancelled altogether, Guyana secured a USD$9 billion investment, the Payara project, in September 2020. According to international consultancy Rystad Energy, Payara was one of only a few major offshore projects to move forward globally as investments in the offshore oil and gas sector declined by nearly 70 percent.
While Guyana has had great success relative to other global oil producers in 2020, the country must remain globally competitive and continue to attract new investment to stay on a development trajectory. As Vice President Jagdeo noted, the money being invested to develop the current three projects is about “eight times more than we have in all of our bank accounts.” This scale means that active engagement with foreign investors is necessary for Guyana.
While the oil and gas sector drove economic growth in 2020, an attractive business climate will help Guyana’s other industries generate new investment, jobs and revenues as well. Vice President Jagdeo mentioned in the same interview that Guyana now has 29 hotel development proposals and predicted at least seven or eight would lead to new hotels in Georgetown, creating hundreds of jobs due to the demand from the energy industry. A rising tide of investment can lift boats in several sectors.
Guyana’s newfound oil investments, however, should not be taken lightly. Valerie Marcel, an associate fellow at the think tank Chatham House said, in an interview last week, that Guyana must be careful with its new oil revenues because “Guyanese haven’t had the experience with this type of windfall, and it is coming so suddenly.” But she did highlight how Guyana has already implemented several mechanisms to ensure that the country reaps the benefits of the growing oil sector.
Guyana’s future appears bright, even though the economic climate is likely to remain tough for oil producers and regional competition for investment will continue. In neighboring Suriname, Apache is expected to drill a fifth well in the Bonboni prospect in 2021, and an upcoming oil block auction is also expected to catch international attention. Offshore exploration in Guyana will continue in 2021 despite cutbacks elsewhere. Exxon and its partners recently began drilling the first well in the Canje Block at the Bulletwood prospect, and more wells in the block could be drilled in 2021.