Guyana’s strategic concerns may determine winners of new oil blocks

Minister of Natural Resources Raphael Trotman has suggested that in order to help defend Guyana’s sovereignty and security, it may negotiate directly with state-owned oil companies on the licensing of certain blocks, while undertaking a bidding process in relation to others.

Nine companies including Brazil’s Petrobras, France’s Total, and US company Chevron are understood to be actively exploring the possibility of separately, or as a part of consortia, on the country’s remaining oil blocks.

Speaking to Stabroek News about the interest being shown by oil majors, Mr Trotman said that the government is exploring both “direct engagements” and a “select bidding process” in the future assignment of offshore blocks. His remarks follow the suggestion that a so far unnamed international firm will be advising the Guyana Government on how to market the country’s remaining oil acreage.

The idea appears to be that Guyana will be seeking direct engagement with National Oil Companies (NOCs) such as Petrobras, but may favour a select bidding process to attract other major International Oil Companies (IOCs). This is because issuing exploration licenses to certain companies, especially those from Brazil or France, will likely have the benefit of broadening international support for Guyana’s integrity and sovereignty at a time of growing tension with its neighbour Venezuela.

It is felt that stronger economic relations with the countries concerned would also cement strategic allegiances. Guyana and Brazil recently agreed to increase their cooperation on defence issues.

Guyana is also understood to remain concerned about Suriname’s claims to the New River Triangle in south-eastern Guyana. In 2000, Suriname used force to evict a CGX rig from Guyana’s territorial waters. Though this dispute was subsequently settled in Guyana’s favour in an international tribunal in 2007, Suriname’s position on the recent referral of the border dispute between Guyana and Venezuela to the International Court of Justice remains ambiguous. Concerns were raised further when Suriname’s Foreign Minister met recently with Venezuela’s deputy foreign minister for Latin America and the Caribbean to discuss strengthening ‘ties of friendship and bilateral cooperation’.  St Vincent’s Prime Minister, Ralph Gonsalves, who remains supportive of Venezuela in CARICOM, also visited Suriname recently.

Mr Trotman highlighted that the government had yet to decide how the remaining oil exploration blocks would be assigned but emphasised that “national interest” would be the determining factor. “We are committed to ensuring that whatever decision we take is guided by the vision as to what is best for the people of Guyana who are the owners of the national patrimony. Cabinet will consider this matter in the upcoming months,” Mr Trotman told Stabroek News.

The news came just days after ExxonMobil announced formally its seventh oil discovery on its Pacora-1 offshore exploration site. The company said that it was now projecting overall production from all its finds off Guyana at 500,000 barrels per day once all wells reach the production phase. The Pacora-1 well is situated approximately four miles west of the Payara-1 well and follows previous discoveries on the Stabroek Block at Liza, Payara, Liza Deep, Snoek, Turbot and Ranger.

The company has also announced that on 7 March, it would begin drilling for a three-month period at its Liza-5 well site around 108.2 nautical miles of the coast of Guyana.

Balancing geopolitics with the demands of civil society

The latest discovery has further ratcheted up the pressure on Guyana’s government from the opposition and civil society to renegotiate its Production Sharing Agreement (PSA) with ExxonMobil. Under the PSA, after the payment of 2% royalties, the company is authorised to deduct as much as 75% of the remaining 98% of the value of investments made, plus its daily cost of operations.

This, and further articles within the PSA released in January have led parts of civil society and the opposition to strongly criticise the current and previous Government for the perceived way in which the contract favours ExxonMobil.

While the government has promised greater transparency in releasing all subsequent PSAs that it enters into with oil companies; the country’s geostrategic and security needs may now trump demands that the government take a more nationalist approach to its potential oil wealth.

Although the government has still to formally confirm how it will address future PSAs, Minister Trotman’s recent comments suggest that Guyana will now be looking to cultivate strong economic ties with national oil companies in particular as a means to underwrite its long term geostrategic security.

This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.

Photo Credit: Divulgação Petrobras, Wikimedia Commons