Oil and gas – The New Economic Horizon

As Guyana moves to First Oil – that long dreamt event with the possibility of transforming our country – it is hoped that this column will contribute to a better understanding of the vast opportunities and the unobtrusive pitfalls that await us. As historian Nigel Westmaas reminds us, more than 86 years ago, the headline in the British Guiana’s Daily Chronicle exhorted us: “Every Man, Woman and Child in British Guiana Must Become Oil-Minded!”.

Yet, the announcement by oil giant ExxonMobil on May 20, 2015 that it had struck oil in deep waters in Guyana’s territory took Guyanese by total surprise. We have simply had too many cases of hopes raised, only to be dashed, of traces of oil found in various places in Guyana. The unsuccessful search under the first petroleum licence issued in our colony in 1938 did not deter further attempts, particularly in the fifties, to find the black gold. In fact, Standard Oil, the progenitor of ExxonMobil was issued with a licence in 1958 to carry out offshore and coastal exploration.

While this column, courtesy of Stabroek News, is not about looking back, the paucity of legislation to regulate the exploration or production of oil in Guyana stands out in the country’s quest for oil. In fact, the first piece of petroleum legislation passed in 1930 was about the importation and regulation of the distribution of refined petroleum products. More than fifty years later, Deputy Prime Minister, Planning and Development, Haslyn Parris presented to the National Assembly the Petroleum (Exploration and Production) Bill 1986.

Parris noted among other things that Guyana had exploration data acquired over forty five years and, prophetically, that indications were that Guyana possesses three types of petroleum reserves – offshore, onshore in an area called the Takutu Basin where drilling had generated a flow of some four hundred barrels a day and on the coast. Against the background of an economy that had experienced several years of negative growth, a shortage of foreign currency, restrictions on the importation of basic food items, and the absence of success of a policy to feed, clothe and house the nation, Parris explained that the new legislation was to attempt “to operate against the background of knowledge, not mere projection that we have petroleum potentials offshore”.

Announcing that the time had come to develop our resources and inventorise Guyana’s petroleum potentials, Parris cautioned against Guyana becoming a one-horse economy based on a commodity “we cannot eat”, or forgetting or ignoring our agricultural and mining sectors. Speaking on the Bill in the National Assembly, then leader of the United Force Mr. Fielden Singh pleaded against scaring away investors. Noting that there was a glut in the oil market in 1986, Singh implored his colleagues to do “everything within [their] power to attract [oil companies] to Guyana, to make it attractive for them to come and explore in spite of the glut in the oil market.”

PPP General Secretary and Leader of the Opposition, Dr Cheddi Jagan led his party to rail against the Bill, as  the embodiment of capitulation to the capitalists, giving “them a blank cheque”, and “putting our country’s independence and its energy policies in the hands of the transnationals.” Yet, as so often happens, history demonstrated ironies and contradictions and it was the PPP Government that later signed a number of agreements with international oil companies which Guyanese are now criticising as being too generous.

This series of articles which is expected to run for approximately twenty-five weeks, will explore a range of topics relevant to the oil and gas sector. Here are some of the topics to be addressed:

  1. The legislative and regulatory framework  including the pro forma Production Sharing Agreement  .
  2. Geology and geophysics of oil
  3. Challenges of deepwater exploration
  4. Confronting catastrophe – coping with a spill
  5. An economic and financial outlook
  6. Sharing in the new wealth – local content requirements
  7. Preventing the Dutch Disease.
  8. Reconciling conflicting strategies of REDD Plus and fossil fuel exploitation
  9. Oil and Gas taxation
  10. Competing accounting principles – American
  11. International Standards
  12. Managing corruption
  13. Sovereign Wealth Fund
  14. Dispute Resolution
  15. Threats, if any, posed by the border controversy with neighbouring Venezuela.
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