Guyana is a relatively poor developing country that is undergoing a transition of infrastructure development financed by a recent spurt in revenues coming from energy investment and oil production by Exxon. Without the injection of such massive revenues or sudden wealth, the country would have remained stagnant in its development, a regular backwater country that it has been since independence in 1966, the second poorest country in the Americas behind Haiti. The energy company, Exxon in particular, is responsible for the new found wealth that has financed the development that is underway.
Guyana is a new producer of oil and gas on a large scale meaning hundreds of thousands of barrels daily. Exxon is the major investor in energy and the country has received over five billion American dollars in oil revenues over the last five years that has been used to transform infrastructure and all aspects of life. No company ever invested so much money, tens of billions of American dollars, in Guyana and no company took the kind of high end risk as Exxon for a project. The risk and investment has paid dividends for both the investor and Guyana. Without Exxon, the hydrocarbons would have remained beneath the ocean floor and Guyana would have remained poor with the second lowest GDP in the Americas.
Guyana started producing oil just five years ago as a result of Exxon. But it has faced a number of challenges, the least being cost or capital for oil production which it cannot afford and relevant expert personnel and capacity (technology) which it lacks to develop oil wells some three miles below ocean water. Both are imported in terms of foreign direct investment to explore for energy, develop oil wells or gas reservoirs, and production (extraction) of the fossil fuels.
Only a couple large multinational energy companies have the technical capability to extract oil or gas from such depth. Exxon has the capacity and as demonstrated in several explorations as well as oil wells in African waters and has won the contract to explore and develop the oil wells in Guyana waters. With Exxon’s presence, more energy companies have been attracted to Guyana and are pumping investments. The country is earning all around from these investments in addition to benefiting from jobs creation for its large pool unemployed.
Thus, care must be taken in the country’s handling of business relations with Exxon so it remains an investor and a presence in Guyana enabling government to maximize revenue collection to finance planned national development projects.
Guyana should learn from the experience of recent new producers of oil and gas, and there are several in Africa and Latin America with which to compare and contrast although not all of them have wells at great depth as Guyana. Extracting oil from huge ocean depth is not the same as extracting oil from shallow waters or land. Expenses or costs for same in huge depth of water are prohibitive. Risks are huge with no guarantee of a find. Once a find is made and wells developed with production, any investor would want to recover costs quickly as long term production is not guaranteed. And the prospects for oil and gas revenues are uncertain due to volatility in world market prices. Thus, government, oil or energy nationalists (those who advocate for higher royalties and profit sharing), and the public must avoid inflated demands from investors of high risks investment as well as of expectations of revenues. Pressure for more royalties and or profit sharing could backfire as it was the case for a few countries in Africa. Exxon sold its holdings and left a few places, leaving countries short of development revenues. Exxon and other companies have focused on Guyana where the terms on investment are more attractive than say in other countries. Capital is known to go where the return is higher or better. If pressured to provide higher revenues to the state and the return is not worthwhile, then Exxon or any oil company could close shop, cap the wells, and move on. In such a situation, everyone loses. It is necessary, therefore, to retain Exxon as a partner, the main investor, in oil exploration and production so as to increase revenues to finance development. Thus, all stakeholders have a role to play in contributing to informed public debate on the costs and risks associated with production of or extracting oil and gas from under the ocean floor.
With significant reserves of oil, and by extension gas, Guyana appears to be on the verge of becoming a significant hydrocarbon producer and a very wealthy country to transition into a relatively developed nation. The country cannot afford to screw up or err in its dealing or negotiation with Exxon or other energy company that is exploring for oil and gas and their development.
This emerging fossil fuel wealth presents the country with great opportunities if handled properly. Guyana must maximize production of its hydrocarbon resources, taking into account the global pressure from climatologists to reduce oil and gas production as well as their use and for countries to transition to renewable energy like hydro, solar, wind, thermal, and nuclear. It must ramp up production quickly to benefit from global demand of fossil fuel and relatively high prices that are expected to remain high and stable only for the next few years.