Guyana's Game Changing Oil Discovery

Could this Country Become the Richest in the World?

Guyana's Game-Changing Oil Discovery

Guyana has struck oil. This small South American state, situated to the North of Brazil and the East of Venezuela has a bright future providing it can manage its coming explosive development properly. The extent of the oil discovery within the two hundred nautical miles exclusive economic zone off of the coast of Guyana will undoubtedly transform the country, with the estimated oil find dwarfing the state’s current $7 billion GDP.
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Oil exploration in Guyana began in the 1940s, however, things ramped up off the state’s coast in 2008 when oil companies such as ExxonMobil, Century Guyana and CGX began to undertake widespread oil exploration. In 2000, a US geological survey estimated the region had recoverable reserves of more than 13.6 billion barrels of oil and 32 trillion cubic feet of gas – the second highest resource potential among unexplored oil basins in the world.

The areas thought to contain oil within Guyana’s exclusive economic zone have been divided into blocks, as is standard in maritime oil drilling. In May 2015 Exxon Mobil announced that it had discovered oil-bearing sandstone reservoirs which could produce 700 million barrels of oil, with a total market value of 40 billion dollars within the Stabroek oil block situated 200 kilometres off of the Guyanese coastline. In the following three years, Exxon went on to discover a further four billion barrels of oil equivalent in the Stabroek Block, which has since been doubled to eight billion in 2020.

In the wake of the findings in 2015, in 2016 the Guyanese government signed a deal with ExxonMobil worth three hundred and twenty-five billion us dollars for a drilling license within Stabroek, giving it access to the now eight billion barrels of oil equivalent - the deal of a lifetime for Guyana, perhaps?

Well, this is not entirely the case.

International watchdog Global Witness has pointed out that ExxonMobil may have pressured the Guyanese government into a rushed deal which would deprive the country of 55 billion dollars. According to Global Witness, Guyanese authorities did not negotiate strongly with ExxonMobil which has a profit stake of 48%, while the Guyanese government has a profit stake of 50% and a royalty stake of 2%. This would be abnormally low when compared with other similar cases, where states normally receive sixty-five to eighty-five per cent of profits, meaning Guyana would receive one hundred and sixty-eight billion dollars instead of a potential two hundred and twenty-three billion dollars which would be considered fair in the view of Global Witness.

The issue of the oil deal has permeated Guyanese politics. A snap general election was held in March 2020, after a vote of no confidence in David Granger’s PNC government in 2018. The deal with ExxonMobil and terms it was agreed upon were at the heart of the election, with many in the press calling this latest election the most important since the state’s independence since 1966. In a controversial election, where it was initially thought that the PNC government which had signed that 2016 deal with Exxon had won, the People’s Progressive Party led by Ifraan Ali ultimately came out on top. The PPP victory earlier this year will most certainly have implications for oil deals, with the Ali led government expected to take a tougher negotiating position on behalf of Guyana.

Nonetheless, the size and extent of the oil fields found off the coast of Guyana are expected to be larger than those of Norway and Oman, and the potential yield per day could be seven hundred and fifty thousand barrels by 2025. Even with its current 52 per cent stake, the revenue generated from the oil found off of the state's coast will be life-changing for the Guyanese people. In late 2019, according to offshoretechnology.com Exxon has discovered yet more oil through its exploratory drilling, and the company is in the beginning stages of production. Additionally, exploration by other companies in blocks further offshore than Stabroek are beginning to look promising, upping the amount of cash Guyana can expect to receive.

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