By David Blackmon (Senior Contributor, Forbes)
As I wrote earlier this month, the future of the nascent oil and gas industry in the South American nation of Guyana is standing on shaky ground amid the ongoing controversy related to this year’s national elections. The situation only grew worse this week as US Secretary of State Mike Pompeo urged Guyanese President David Granger to “step aside” and respect the results of the election that took place on March 2 and has remained unresolved for more than four months now.
At the same time, Secretary Pompeo also announced that the United States would place “visa restrictions on individuals responsible for or complicit in undermining democracy in Guyana.” It is clear that the American Government believes those individuals include President Granger and members of his A Partnership for National Unity coalition that continues to rule the country despite election results that appear to indicate that the opposing People’s Progressive Party/Civic (PPP/C) was the actual winner.
As reported by the Trinidad Saturday Express, former Trinidad Energy Minister Kevin Ramnarine is now warning that the nation’s oil industry and economy are at risk, especially if the US follows its usual pattern of gradual escalation of sanctions. “As we have seen with Venezuela, the United States’ application of sanctions usually follows a gradual and incremental pattern. This might, therefore, be the first wave of sanctions. Should the US see no improvement in the situation in Guyana, the sanctions might be ramped up to include economic sanctions such as sanctions on shipping, on senior Guyanese Government officials doing business with American companies and on the payments of goods and services for the oil industry,” he said.
Many billions of dollars of potential economic impact from the development of the nation’s rich offshore oil and gas assets stand at risk. Indeed, according to a new report from Rystad Energy, the delays in permitting caused by this ongoing election dispute have already cost the people of Guyana millions and lowered the net present value (NPV) of the entire development.
Rystad ran four different scenarios in its analysis, assuming further permitting delays ranging from 3 months to 24 months in duration. The firm finds that delays that have taken place to this point have already removed more than 50 million barrels of oil that could have been produced by 2030, along with a loss of $300 million. Their various scenarios show that the country will lose an additional 10 to 75 million barrels, depending on the length of further delays.
The firm projects a current NPV to the Government of the offshore development – most of which would be operated by a consortium led by ExxonMobil XOM -1.7 per cent, with partners Hess Corp HES -1.6 per cent and CNOOC – through 2028 of $4.4 billion. However, another 12-month delay in permitting would reduce that number by $1.6 billion, a huge loss of wealth to a nation of just 800,000 people.
Ramnarine understands the severity of this situation: “I am certain that what is happening in Guyana is of concern to ExxonMobil and Hess given that they are American companies. This makes the situation in Guyana even more complicated. Prior to these sanctions, ExxonMobil said the political impasse was responsible for the slippage in the start-up of the Payara project which is the third development project by ExxonMobil in Guyana following on Liza 1 and Liza 2,” he said.
As I pointed out in that July 2 piece, Guyana is in competition with other high-potential projects around the world for the massive capital investments these companies and other developers must deploy to find and produce these oil and gas resources. For companies like ExxonMobil, stability and predictability are big considerations when determining where to deploy their capital dollars, since those factors have a tremendous impact on the anticipated rate of return on those investments.
Right now, Guyana is losing stability and predictability – two precious assets for any Government wishing to benefit from minerals development by international operators – due to this ongoing election controversy. The intervention by the United States in the form of sanctions that are likely to escalate only serves to exacerbate that situation.
Whether he wants it or not, the duty to work to restore stability for the Government falls to President Granger. The international community appears to believe that his coalition did in fact lose the March election. If that is the case, he should do what Secretary Pompeo advises and step aside for the good of his country and the future of its economy. (Forbes)