"Can Guyana avoid the oil curse?"

" Can Guyana avoid the oil curse? \r\n\r\nTiny Guyana, a former British colony in South America of less than one million, is on the cusp of becoming a major global oil exporter. In as little as four years, the impoverished country, situated in the northeast of the Amazin, went from first discovery to first oil, an incredibly short time for the petroleum industry, and is now lifting an average of around 400,000 barrels per day. For this reason, Guyana\u2019s one-time flailing economy, which was hit hard by the 2020 pandemic, is booming. With more than\u00a0 11 billion barrels of exploitable oil resources identified \u00a0and over 35 discoveries to date, along with Exxon ramping up development of the\u00a0 offshore Stabroek Block , there are signs Guyana\u2019s oil industry and the economy will continue booming. This is provoking fears that Guyana will become vulnerable to the oil curse.\r\n\r\nThe oil curse is where a country becomes overwhelmed by the tremendous wealth generated by petroleum while ignoring other economic sectors in preference to maximizing the windfall delivered by oil. This typically leads to heightened political and economic dysfunction due to weak governance, rampant corruption, malfeasance and heightened conflict over control of the vast wealth that petroleum generates. It also makes countries extremely vulnerable to declines in the oil price, such as the oil shocks of the 1980s, as their economic dependence on the commodity grows. This leads to a phenomenon\u00a0 known as Dutch Disease , where all other sectors of the economy are ignored due to the tremendous wealth being generated by petroleum.\r\n\r\nExtreme political instability is a key result of the oil curse, and this is\u00a0 exemplified by Venezuela , a country considered the epitome of a ruined petrostate, where petroleum is the primary source of fiscal income and the main export. A series of political and economic crises erupted during the 1980s as international oil prices collapsed, which in turn fueled extensive civil unrest that ultimately led to Hugo Chavez winning the presidency and commencing his socialist Bolivarian revolution. As the rule of law decayed and power increasingly became concentrated in Chavez\u2019s hands, rampant corruption, as well as malfeasance, flourished. Those events, coupled with weak governance and an over-dependence on revenue generated by petroleum exports, left Venezuela especially vulnerable to weaker oil prices and capital flight.\r\n\r\nAfter Chavez embarked upon nationalizing Venezuela\u2019s oil industry by seizing assets from foreign energy majors, including Exxon, ConocoPhillips and Chevron, there was a massive flight of capital from the country\u2019s economically vital hydrocarbon sector. This caused oil investment to sharply decline, which weighed heavily on production and petroleum exports. When oil prices collapsed in late-2014, with the international Brent price plummeting from over $100 per barrel to less than $30 by early January 2016, Venezuela spiraled into a political and economic crisis.\r\n\r\nThe deepening economic catastrophe caused Caracas\u2019 revenue to plunge, leaving national oil company PDVSA incapable of undertaking crucial maintenance and refits of vital petroleum infrastructure. As critical\u00a0 oil infrastructure fell into decay \u00a0and exploration as well as development activities lapsed, oil production plummeted ever lower, compounding the fallout from weaker oil prices for a petroleum-dependent Caracas.\r\n\r\nThe impact of these events was magnified by\u00a0 ever-tighter U.S. sanctions , which by early 2019 had cut Venezuela off from global energy markets, exacerbating the massive economic and humanitarian catastrophe that has been unfolding since 2015. The situation is so severe that despite a slight improvement in conditions, Venezuela\u2019s vast oil reserves of around 303 billion barrels could\u00a0 become the world\u2019s largest stranded asset .\r\n\r\nThere are considerable fears that Guyana is facing a similar future. A long history of weak government institutions and poor governance means that corruption is rife in the former British colony. Global corruption watchdog\u00a0 Transparency International ranks Guyana \u00a085th out of the 180 countries globally that it evaluated in 2022. The lower the ranking, the higher the perceived degree of corruption. While the administration of President Irfaan Ali, who took office in August 2020, is focused on improving governance and significantly reducing corruption, there are fears that the massive financial windfall delivered by oil will derail those reforms.\r\n\r\nThe revenue petroleum exports are generating for Guyana is substantial. According to the Bank of Guyana, the country\u2019s central bank,\u00a0 the oil industry generated \u00a0$439 million in revenue for Georgetown during the second quarter of 2023. This was comprised of $11 million earned from industry royalties and $428 million generated by oil profits. Since oil production began in Guyana in 2019 until the end of the second quarter of 2023, the former British colony earned nearly $2.7 billion from 29 oil lifts comprised of $331 million from royalties and $2.3 billion from profit oil.\r\n\r\nAs a result of that vast offshore petroleum wealth, Guyana\u2019s gross domestic product between 2019 and 2022 grew nearly threefold to $14.5 billion. That sees the former British colony now ranked as the fastest growing economy in the world, with IMF data showing Guyana\u2019s GDP expanded by an eye-popping \u00a062% during 2022 . If China\u2019s Macao Special Administrative Region is excluded, Guyana will top the list again for 2023, with the IMF estimating the tiny South American country\u2019s economy will grow by 37%.\r\n\r\nGeorgetown is resolutely focused on rapidly expanding the former British colony\u2019s oil industry, including exploration drilling as well as petroleum production and exports, with Guyana expected to be\u00a0 pumping 1.2 million barrels per day \u00a0by 2027. While this will amplify the tremendous economic windfall being received by Guyana, it will make the tiny South American country of less than one million financially and economically dependent upon petroleum. This magnifies the risks of Guyan\u2019s economy being roiled by a sharp decline in oil prices while bolstering the potential for conflict over control of the vast petroleum profits and corruption to multiply significantly.\r\n\r\nA key part of Georgetown\u2019s oil industry reforms is updating Guyana\u2019s production sharing agreement. This is being performed by the Ministry of Natural Resources with a focus on boosting the state\u2019s cut from oil production and eliminating many of the overly favorable terms awarded to Exxon for the Stabroek Block. Essentially,\u00a0 the new PSA will \u00a0retain the existing 50:50 profit share, implement a 10% royalty regime compared to the 2% secured by Exxon, reduce the cap for cost recovery oil to 65% in contrast to 75% for the Stabroek Block and introduce a 10% petroleum tax. To ensure the new PSA is ready to be implemented when new oil blocks are awarded, Georgetown postponed its first offshore auction of 14 blocks until August 2023. Those amendments, while boosting Guyana\u2019s share of revenue, still leave the country as a profitable jurisdiction that is competitive when compared to its South American neighbors. When considered in conjunction with the light sweet oil discovered in Guyana, which has a relatively low carbon footprint to extract, foreign energy majors will continue to flock to the former British colony.\r\n\r\nWhile there is considerable good news surrounding Guyana\u2019s offshore petroleum potential, including\u00a0 CGX Energy and Frontera making two promising discoveries \u00a0in the Corentyne Block, there have also been some unfavorable developments. Tullow Oil which was roiled by a series of poor drilling results in offshore Guyana, has agreed to sell its Orinduik license to Eco Atlantic Oil & Gas for $700,000. Spanish oil major Repsol is also struggling to hit oil in Guyana\u2019s territorial waters. The driller has yet to make a commercial discovery in the Kanuku Block and, at the start of 2023, was reputedly\u00a0considering embarking on a large-scale field survey."

"Can Guyana avoid the oil curse?"

Ghana’s FDI Decline: A Silent CrisisAMP

President Ruto advocates for $25 billion replenishment of African Development FundAMP

Anglo American rejects BHP’s revised $43 billion proposalAMP

Profits over ESG as supermajors pivot back to their core businessAMP

GSE-CI opens week with 36.94 points rise closing at 3,683.48 points, posting 17.67% YTDAMP

Man City success not down to money – GuardiolaAMP

Emery the star of the show as Villa can taste dream finaleAMP

Aston Villa salvage draw with Liverpool after thrilling comebackAMP

Ghana secures $200 million financing support for SMEs – Prez Akufo-Addo revealsAMP

Ghana’s FDI Decline: A Silent CrisisAMP

President Ruto advocates for $25 billion replenishment of African Development FundAMP

Anglo American rejects BHP’s revised $43 billion proposalAMP

Profits over ESG as supermajors pivot back to their core businessAMP

GSE-CI opens week with 36.94 points rise closing at 3,683.48 points, posting 17.67% YTDAMP