Guyana: Oil expectations are high, but there is a ‘BUT’ – By Adam Harris

 Dec 15, 2019  Features / ColumnistsMy Column – Adam Harris

For the past few weeks I have been hearing about first oil before Christmas. Perhaps oil is being pumped as I write this column and the announcement would be made sooner rather than later.

I did mention that Guyana is extremely lucky to be the most talked-about oil-producing country at this time. For decades there was the search. Except for a small find by Hunt Oil in the Takutu region, there was nothing.

Wells were drilled almost all over the country but they proved to be dry, until the find offshore. Of course, there was the view that if there was oil all around Guyana, it was highly unlikely that Guyana would not have oil.   

A decision to drill one well before another made Guyana an oil-producing country. Otherwise, it might have been decades, or never would Guyana have been considered an oil producing nation.

The country did not have the money for the exploration, nor did it have the money for the drilling. The big oil companies came and put their money into things. Suddenly there were demands, because people saw the oil as Guyana’s wealth.

ExxonMobil, the largest of the operations offshore put in its money and is hell bent on recovering that money in the shortest possible time. It is here that some Guyanese have problems. In its quest to recover its money in a hurry, perhaps before the bottom falls out of oil, the oil company is taking out seventy-five per cent from every barrel it pumps.

That Guyana is getting two per cent royalty is due to the belief that initially, its leaders concluded that there was no oil. The decision to ask for a one per cent royalty was merely a token. The country was prepared to accept any money it could get from the exploration which was expected to come up empty.

That is all history. The result is that Guyana must now play catchup with all that is needed for a country developing an oil industry. It needs to have auditors for the accounts that would be submitted. But more, the country needs to ensure that all the provisions to earn its fair share are in place.

It has never been easy to fashion laws in the country. Fashioning oil laws is a whole new ball game. Things like ring fencing were never heard about, with the result that there are no provisions in the initial agreement signed with the oil companies.

Of course, Guyana would be shafted in the early years because it can do nothing about the present agreement in place until it comes up for renewal.

In the not too distant past, I heard people say that unless Guyana can get its fair share, then a decision should be taken to have the oil remain where it is. That would have been foolhardy, because it would have been unlikely that any new investor would have come.

It is not by accident that not much is being said in the face of the criticisms of the oil contract. The politicians know what happened and they know the consequences of any untoward move to halt oil production.

One newspaper has made it a duty to provide all the information it could on the current oil contract. There was much talk about local content, until realization hit that Guyanese were in no position to take advantage of the opportunities.

That is where the Trinidadians came in with their knowledge and seem to hold pride of place in the arrangements with the oil companies.

We weren’t trained as oil engineers, so there is the race to produce people who could actually hold a place in the industry. We have some people working on the offshore facilities, but as President David Granger noted, oil does not provide employment for many people.

From calculations, once the books are correct, Guyana would get 12.5 per cent of the proceeds from oil that comes up—two per cent royalty and a share of the twenty-five per cent in profit share. There is going to be money to be had, but in some quarters what would be had is small compared to what should be had.

Some believe that Guyanese should be living like the citizens of Kuwait and some believe that we should be like the people of Saudi Arabia. Reality is a far cry from that. That might happen years down the road, but not in the foreseeable future.

An examination of some of the African countries that found oil but remained poor, would reveal that their leaders were corrupt to the bone. They took money that could have gone to national development and salted it away.
In yesterday’s issue of the Kaieteur News there was the story of Angola. I looked at the money that went to the former President’s daughter and son, and saw money that could have done so much for that country.

Some of the African leaders took as much as US$500 million and placed it in their private accounts. They bought mansions in other countries. They splurged for their self-gratification while their people starved.

As fate would have it, for now Guyana does not have leaders of such corruptibility. And in any case, there are mechanisms in place for the country to recover that money. Our leaders are compelled to explain their wealth.
Last week, in Trinidad, a family was called on to explain its wealth. The outcome of that would be interesting. I can see millions of dollars going back to the state.

For Guyana’s part, revenue from the oil business is already trickling down, although not to the extent that people expect. But again, these are early times.

Guyana is moving to sell its share of the oil. It had no prior experience in selling oil, but it is learning. Tomorrow, bidders are coming in for a face-to-face bidding exercise. That is a start.

Come next year, the oil contract comes up for renewal. It would be interesting to see what Guyana seeks. The bottom line is that Exxon and the other oil companies will have to recover their money. There is going to be a limit to how much Guyana will be able to get from its oil, at least for the first twenty years.

I would have disappeared from the earth by the time Guyana gets money from oil. But then again, oil is under threat in the face of global warming. Guyana’s find may have come a little too late. I am sorry it did not come twenty years earlier.

But then again, we might have had super-rich politicians, and we would have remained little better than we are today.

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  • brandli62  On December 19, 2019 at 3:55 am

    I congratulate Adam Harris for this excellent, level-headed analysis on how to deal with the expectations as the start of the oil production in Guyana is imminent. With people like Adam Harris shaping the public opinion, I am confident that Guyana has a chance to escape the curse of oil. I urge the electorate to put class and race loyalties aside and vote for politicians of equal caliber in the upcoming elections. It will be crucial for the future of the nation.

  • Trevor  On December 19, 2019 at 5:46 pm

    “Some believe that Guyanese should be living like the citizens of Kuwait and some believe that we should be like the people of Saudi Arabia.”

    This sort of comparison makes me sick. Those countries are autocratic regimes. A better comparison would be Canada or Norway.

  • brandli62  On December 19, 2019 at 6:29 pm

    Norwegian living standards without the cold weather would be a perfect goal to achieve with the oil revenues of the coming years! 🙂

  • wally n  On December 19, 2019 at 6:45 pm

    “That is where the Trinidadians came in with their knowledge and seem to hold pride of place in the arrangements with the oil companies.”
    GOVERNMENT should keep one eye on these crooks, while the country moves upward among the developed, our good times are long over due.
    BTW all the Bribery Crookedness …already deep in the country will go into overtime, I am sure the Government is prepared.

  • Trevor  On December 20, 2019 at 6:17 am

    A Gross National Income of over US$65,000 yearly (not GDP, but income) would be a change that I would welcome. Norway has a small population, like Guyana, compared to landmass.

    But please, don’t aspire to become dictator countries like the Gulf States. They are oppressive family-run dictatorships.

  • Lloyd Nurse  On December 24, 2019 at 6:26 am

    What I find lacking in all these analysis and comments is the attention to detail. Vague summaries and presumptions are open doors for corruptive practices.
    I would love to see a daily graph of extraction, revenue, debt and profit. Guyana must create a TV station/show that gives information and air discussions on the effects of its oil resources on its development on a continuous basis. One of the establishes stations may start a 2 hour program daily.

    Lets start with how much of a days production converted to $$ can be accessed. When and how, are valuable topics for discussion. There will be all kinds of opportunities generated from such information flow. Guyanese are in an information desert that can easily become an oasis.

    We can begin with our history of oil exploration and expand to experiences of other countries on the path ahead of us.

    Eight of ten young people are made to believe that the government did a bad business deal because the don’t understand business. Only a few know or can acknowledge the facts, some of which are stated by Mr. Adam Harris. Who accepts 2%? They just don’t know and will allow false promises into their minds. The government must act to correct these dangerous misconceptions.

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