Ten billion and counting

Coupled with the imminent arrival in Guyana’s waters of the second Floating, Production, Storage and Offloading (FPSO) platform which is projected to extract 220,000 barrels of oil daily, the announcement by ExxonMobil that it has upped its estimate of the recoverable resource in the Stabroek Block to ten billion has triggered ululations in the halls of the government, the private sector and the select others who have begun to benefit immensely from the petroleum industry. The news of the 10% upgrade in the number of barrels of oil equivalent and the heightened revenues that will accrue from the operations of a second FPSO has also evoked the usual recitations of how much GDP will climb by, how much money will be rolling into the country’s coffers and promises of a number of big-ticket projects.

There should, however, be a different type of examination, an introspection of sorts as to how we can reconcile where we are today with what we have actually done to get here and the grave risks the country now faces. That Exxon’s subsidiary and its partners have been able to find oil is attributable to then President Janet Jagan’s decision in 1998 to authorise offshore acreage far in excess of what was legally permissible for exploration. The US oil major would then hang on for 17 years to the massive expanse it had been allocated before serious exploration began, culminating in the first of what would be over 20 significant hydrocarbon finds. Since its confirmation of its first big find in May 2015, Exxon and its partners and the Guyana Government have presided over swift well development which saw production beginning in December 2019 with another well set to produce next year.

Six years on, neither this government nor its predecessor can claim ownership of any positive action to sensibly secure the future of the country and its people as it relates to oil and gas. The 2015-2020 APNU+AFC administration will go down in the country’s benighted history as having presided over the single biggest giveaway of the country’s patrimony by virtue of the shocking 2016 Production Sharing Agreement (PSA) that ExxonMobil and its partners managed to inveigle from it. Whereas former President Jagan could be faulted for an unduly generous pre-oil PSA, former President Granger’s government surrendered appalling terms in a postoil contract which now appear to be indelibly engraved as the current government has also apparently come under the spell of the US oil major. There is nothing else in APNU+AFC’s tenure of note in relation to oil and gas. It failed to deliver the regulatory body, the Petroleum Commission and was unable to have the Natural Resource Fund Act activated so that scaffolding for the protection of oil revenues could lead to a

solid foundation. The governing PPP/C is exceedingly lucky to be presiding over an oil revenue bonanza. Having been voted out of office in 2015 after nearly 23 consecutive years it bequeathed an economy in dire straits. Sugar was in terminal decline and no other major economic activity was on the horizon. Gold was as gold was. Extraction was occurring at varying levels in tandem with the international price for the metal but returns to the economy were uneven and there was unrelenting smuggling as highlighted by the 2012 heist in Curacao of 476 pounds of Guyanese ore which to this day remains uninvestigated.

Having failed to deliver an economic lifeline to the country at the end of its 22-year tenure, the PPP/C has been ushered back into office and has taken to the role as if it could be credited with any part of the harvesting of oil resources. After a year in office, it has already failed as a steward of the country’s resources, to protect the environment, manage its revenues and ensure climate change isn’t worsened.

Despite having good grounds to pursue a renegotiation of the abominable 2016 PSA, President Ali’s government has found every opportunity to deflect when it should have sought international support to underline the injustice that had been done to the country via the paltry royalty rate and the lack of protection such as ring-fencing of costs.

Of interest last week, it was reported that a draft Extractive Industries Transparency Initiative (EITI) report has stated that the Democratic Republic of Congo should renegotiate its US$6 billion infrastructure-for-minerals deal with Chinese investors.

The draft, seen by Reuters, described the deal that was first signed in 2008 as “unconscionable” and urged Congo’s government to cancel an amendment signed secretly in 2017 that sped up payments to Chinese mining investors and slowed reimbursements of investment in infrastructure.

The final report is expected to be released this month. The deal was struck by the then Kabila administration with two Chinese companies that have had extensive interactions with Guyana: Sinohydro Corp and China Railway Group Limited.

What if Guyana were to ask EITI to review the terms of its 2016 deal with ExxonMobil and its partners? What is there to lose?

Aside from the PSA, the PPP/C government has failed to deliver on a regulatory framework for oil and gas and the management of revenues. Fourteen months after taking office, the Petroleum Commission is still to be established and the Natural Resource Fund which would set a spending framework for the economy is still to be introduced despite the broad understanding of how pivotal such legislation is for a new oil producer particularly one prone to the Dutch disease. The administration also continues to prevaricate on a local content law which it itself had committed to introduce.

On the environmental front, the Ali administration has made no substantial effort to expand Guyana’s ability to fight oil spills neither has it made it clear to ExxonMobil that it must be fully insured for this purpose and that any clean-up costs should be extracted from its share of profit oil. Far from protecting the environment, the government has actually approved the decimation of protected mangroves to enable the creation of oil and gas shore bases that have begun to pollute the landscape and will undoubtedly scar the coastline for decades to come. Moreover, the statutory agency meant to protect the environment, the EPA operates mostly as an adjunct to the runaway oil extraction plans as evidenced by its decisions not to require Environmental Impact Assessments for key projects.

Despite the dire warnings each week from the UN and credible international agencies and experts that more investment in fossil fuel extraction and combustion will imperil the planet, the government remains unmoved about requiring a depletion policy that will strike a balance between production and Guyana’s obligation to help ease the climate change crisis. To literally add fuel to the fire, the government is proceeding with a gas-to-energy project that has not been properly studied, reviewed, costed and weighed in the context of the climate burden. The public is still waiting for the Ali administration to make a cogent case for this project.

The fanfare over the 10 billion barrels and counting should be tempered by the stark reality that 55 years of independence has not delivered an economy to the people that could assure and sustain their development. This is entirely the fault of all of the governments that have held office since 1966. The people now have to pin their hopes on oil fortuitously discovered by a US oil major whose only interest is the bottom line and a governing party that has not historically shown the ability to imaginatively manage what is before it, diversify the economy and create jobs. The odds are not impressive.