Guyana’s transformation

Guyana

Guyana’s Minister of Natural Resources Raphael Trotman talks to TOGY about ExxonMobil’s large offshore discovery in the Stabroek block in 2015 and how it will kick-start the country’s oil and gas industry. The minister also discusses the various steps that the Guyanese government has taken to prepare the country for the development of its natural resources and human capital in the near to mid term.

What must the ministry and the government prioritise to ensure the start of Guyana’s offshore oil and gas production?
The new government of Guyana assumed office on May 16, 2015 when we were made aware of this gigantic find by ExxonMobil. Since then, the task of the Ministry of Natural Resources has been to define exactly what we have and look at the industry to see at what point the government has to have direct intervention through legislation, the regulatory framework and the finding of experts to advise the government.
This is because Guyana had none of these prior to the discovery. We did have a Petroleum Act because we’ve always believed that we possessed oil and gas. So, the government’s task now is building capacity to meet that production and understand the business better.

How will this discovery impact Guyana’s economy?
You can use the word transformational, but even that word doesn’t capture correctly what is going to happen to Guyana if we manage to carry out this development, even at the current oil price of USD 30 per barrel. Assuming that the offshore discovery holds 700 million barrels of oil or more, our take would be hundreds of millions of dollars.
For an economy such as ours, where we are accustomed to spending USD 100 million per year on different projects, we rely heavily on grants and loans from financial institutions and friends of Guyana. With this in mind, having this kind of wealth is going to be beyond transformative.
We are aware of the resource curse and countries that have gone down similar paths. Some have floundered and some have done very well. We would like to temper our expectations and excitement with common sense and try to ensure that we progress sensibly and with cautious optimism.

Can Guyana and ExxonMobil take advantage of the low oil price environment in developing this recent offshore discovery?
Because of the low prices, we have found that exploration is cheaper than it normally is in terms of expertise, equipment and the availability of cheaper equipment in the global oil and gas industry. Therefore, lower prices represent a bonus for us at this stage. We are not at all bothered by the current low oil prices because we are still in the exploratory phase.

According to ExxonMobil, the project is to be executed within the next 10 years. What are the chances for commercial drilling to start earlier?
Anything is possible and all things are unlikely at this time. As a government we would like to see early production, but not at the expense of foregoing or jeopardising anything. We want to make sure we go through the proper stages. If we mature too quickly, that could be a problem.
You can have production in a few years that lacks the capacities that environmental protection agencies require, for example, if there were a spill or some other accident. We need to have support services in place and we need to make sure that our financial architecture is better prepared for taxation purposes and budgeting. We have to ensure that we have lawyers that can advise on production-sharing agreements (PSAs).
There are a number of things that have to be put in place before we can say that we are ready for production. That’s what we are focusing on.

What are the key challenges in executing this development in a sustainable manner?
The key challenge is increasing capacity. We need to get our economy aligned towards becoming an oil-producing state where revenues are generated from oil and gas proceeds. Traditionally, our economy has been based on agriculture and, to some extent, gold and bauxite mining. This process is going to take a while because we have to train a new generation of people to become experts on oil and gas.
We have to begin to understand how revenues are to be harnessed, preserved, spent and how the temptation to spend all of it as quickly as possible can be avoided. All of these disciplines have to be learned.

What can be done to make sure this development will benefit the locally owned domestic services industry?
Naturally, we see the opportunities for services to be endless. Our fear, of course, which we have to guard against, is a movement away from agriculture and the other services that we do that are just as critical. We don’t want to have our economy be so dependent on oil and gas that when prices do fall again or when the reserves go, whether it be 40 or 50 years from now, that we have no other foundation to stand on. That is what we have to plan for.

Are there other areas besides the offshore discovery that the government will be looking at?
We are trying to encourage more interest in onshore exploration opportunities in Guyana. There is one area close to the Brazilian border that has some signs of hydrocarbons. There have been two unsuccessful attempts made. UK exploration firm Tullow Oil has approached us saying that they believe they have the expertise to successfully explore that basin.
In another part of Guyana, near the Surinamese border, there were indicators of a presence of hydrocarbons. So even though there is excitement about offshore and deep-sea production, there is still potential onshore and in shallow waters. There is an area known as the Corentyne block. This is held by a Canadian company and that is close to the Surinamese border.

What is the ministry doing to widen the pool of companies interested in doing business in Guyana?
Right now, our focus is not to widen, but to manage what we have. That is not to say that we are shutting out others, but we believe that we have enough on our plate at the current time. We need to better understand and build capacity before we make more calls for people and companies to come, because if they do come and oil is found, we would not be in a position to handle all that comes our way.
We are building on a plan that says over the next three to four years we will build capacity. As the interest grows, we will explore the options of a bidding round, closed or otherwise both for onshore and shallow-water areas.

Has the Guyanese government had discussions with other governments with regards to collaboration?
We have had no official talks with any ministry from any different country except the government of Mexico, which we would like to pursue. As far as experts from Trinidad and Tobago, we have been in touch with entrepreneurs and we are hoping they can pay us a visit in the next few weeks.
We have a mining week, which is celebrated and commemorated annually. It has been focused on alluvial mining for ore, but this year we would like to highlight oil and gas more. Hopefully, we have a mini-expo with Trinidadian support.
Guyana has an understanding with the government of Norway. It is a good example because it has vast petroleum resources, but its energy is generated from hydropower. We are working with the government of Norway to develop our renewable energy capacity and better understand how to manage oil revenues.

Do you see common values as an important factor in enhancing collaboration within the regional oil and gas industry?
I believe that Guyana sees its resources as being resources that are available to CARICOM. They are Guyanese resources, but we wish to have them made available to the Caribbean as a whole. There is a very strong bond within and amongst Caribbean people.
For decades, Trinidad has been a big brother to much of the Caribbean. Now that it is in some distress, we believe that if the time comes and we are called upon to play a similar role, we will do so because we have been beneficiaries of Trinidad’s good will, along with other countries. What we have is not just for Guyana, but it is to be shared so that the entire region can lift itself up.

Where is the greatest need for foreign expertise in the Guyanese energy industry?
I believe it will be needed at both the policy-making and the intellectual levels. There are many services required to drive oil and gas from downstream to midstream and upstream. Trinidad and Tobago has that expertise. It’s inevitable that they will come across to Guyana.
The hope is to pair them up with local businesses. When the visiting Trinidad team comes we will begin the conversation about local content and creating a good mix of expatriate and local companies and services.

Is there an increased interest from local companies in entering the oil and gas industry, given the opportunities presented by the ExxonMobil discovery?
Yes, there is tremendous interest. There are some local companies who’ve showed exploration interest. There is one company, Nabi Oil and Gas, that has done some onshore drilling unsuccessfully, but they still have interest. Outside of that, in the services sector, there are many companies quite excited about the prospects.
This is all new to us, but certainly Guyanese companies hold strength in support services for vessels, from rigging material to transportation services, and there are services for the supplies of food and all the essentials.
Regarding professional services such as legal and accounting, we have a good core of lawyers, accountants and economists. They too will have to transition and perhaps get some re-orientation towards the oil and gas industry.

In March 2016, Guyana agreed to ratify the COP21 agreement. What is the significance of this agreement and how will it impact the country’s energy industry in the long term?
Guyana was very happy to be a part of the significant outcome of COP21 and we have committed through our intended nationally determined contribution to go to 100% renewables within a decade. It’s a very ambitious statement, but it was made deliberately because we know that petroleum is coming and the incentive to move to renewables will diminish once oil has flowed. Because of this we’ve committed to a path that gets us to renewables as quickly as possible.
Thankfully, our energy demand is very low; we only use about 140 MW of power.
We’ve been blessed with many rivers and waterways that can produce hydropower, and we have an abundance of sun and wind. Our task is to go to renewables, so when the petroleum revenue comes, it will be used for savings and development, and not for energy. This is because our energy bill remains our largest foreign exchange burden.
Going to renewables quickly will take us away from burning heavily and reduce gas emissions.
Having 100% renewables is very ambitious, but because we are small – less than 1 million people – and most of us live on the coast where the resources are, it is an achievable target.

How receptive has the Caribbean region been to new technologies in the light of the global oil glut and low oil prices?
We do think, as a group, through CARICOM, the Ministers would meet and plan, so that the benefits that come, even if they come through one country, are meant to be enjoyed by all. Certainly, the trickle-down effect will benefit Guyana, but I also believe that Guyana will benefit more directly as a country. Prices are low and the world is changing, but one of our advantages is that we are still small in size, so we can absorb technology faster and at a lower rate than some larger countries.

Do you see opportunities for enhancing the country’s local manufacturing sector?
Yes, but manufacturing requires good and strong energy and stable governments. Our first drive would be to have our domestic demand for energy satisfied and the second, to look at the industrialisation.
Many years ago there was a discussion about having an aluminium plant in Trinidad because they had the petroleum at the time. We have bauxite here, so we believe that we may be in a better position with hydropower to generate enough energy to sustain an aluminium plant. Once this energy is here, other interests may spring up where people may see Guyana as a good place to invest and set-up manufacturing processes.

What are the Ministry of Natural Resources’ key priorities for 2016?
This year we are focusing on improving our legislative framework for the oil and gas industry. We are reviewing our PSAs so that when we go out to attract other companies, we will be in a strong position. We are also focusing on putting the necessary pieces in place for a sovereign wealth fund, even though we will have no production throughout 2016.
Lastly, and most importantly, we are working on creating an oil and gas agency. Right now, we have a Geology and Mines Commission, and an Energy Agency that addresses issues related to gas retail and distribution management. By the end of 2016, we want to have a design available for an oil and gas regulatory agency and bring that to the parliament’s attention for discussion, debate and decision. Those are our priorities.

Are there any particular areas where the ministry would like to see amendments made to the PSAs?
Naturally, yes. For example, the PSA agreement with ExxonMobil was signed in the 1990s. Looking ahead, we want to make sure that Guyana gets a good share – 50% minimum. We would also like to ensure that royalties are in place, and we have to look at the issue of taxation again. Some countries favour paying taxes themselves.
Importantly, we would like to look at adjustments based on the price of oil, both on price and production. As price goes up, you would expect to see increases in revenue rather than just have a base take. These are features we want to improve on.
In terms of the length of contracts, Guyana prefers longer-term relationships with credible international companies. By the time you get to development of a well and production, it is close to 20 years. We do not want to send a message that we are interested in short engagements. We want to build strong credibility and a sense that companies can come and feel secure here, develop their resources and function.

What progress has been made on developing local content policy for the domestic oil and gas industry?
We are currently in discussions about having legislation in place to drive local content. Right now, having local content legislation is a bit iffy because there is no industry and we need foreign expertise to support the oil and gas industry in Guyana.
You cannot make demands for welders or divers because there are none. I can have a legislation that says that a certain percentage of all welders need to be Guyanese, but if there is a deficiency there, it makes little sense. Certainly, over the next five years, we will be developing local content legislation.
We have started looking at training at our technical institutes and have geared them towards the industry. The University of the West Indies from Trinidad and Tobago had a team that came over. Guyana’s Minister of Education has had talks with Trinidad’s Minister of Education, and we are also pushing companies to grant scholarships. For new companies, that is something that we are going to place a heavy emphasis on.

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