ExxonMobil executives work in a six-storey office building in the capital of Guyana, Georgetown. They are figuring out how to expand what is one of the world’s largest offshore oil projects.
US energy giant, Hess, and Chinese group Cnooc have discovered 11bn barrels in the Stabroek Block. This vast oil reservoir is located about 120 miles from the coast of South America.
The consortium has sanctioned more than $55bn in investment to extract less than half of these reserves. However, after discovering new discoveries, it is now scaling up production.
Alistair Routledge is the president of ExxonMobil Guyana. He says: “The speed at which we have been able progress from discovery to production and development, this has enormous value for Guyana.” It could bring in well over $100bn for the country.
Guyana, one of the smallest nations in South America before the Stabroek discovery, had no hydrocarbons industry. The financial windfall promised could create one the last petrostates in the world, as global policymakers promise a move away from fossil fuels.
The field development has already generated rapid growth in an impoverished country. Guyana’s GDP grew by 33 percent last year even after accounting for inflation, and IMF predicts that the increase will be similar this year.
Environmental campaigners have called the project a “climate bomb” and cited studies that suggest global warming and rising ocean levels could submerge Georgetown, which is low-lying, by 2030.
Civil and human rights organizations, trade unions and political opposition groups are concerned that the wealth generated from Exxon’s oil bonanza may bypass the general population and cause more harm than benefit.
The resource curse is what political scientists and economists refer to: the mining of newly discovered mineral inflates local currencies, hollows out the domestic industry and breeds social division and corruption.
The IMF also agrees that the 2016 production sharing agreement, signed by the former government, was excessively generous. Exxon’s closeness to the current government, headed by President Irfaan Ali and its disregard for environmental laws are other concerns.
The boom has already pushed up prices in Guyana, putting pressure on the households of a nation where nearly half of its 800,000 people still live with less than $5.50 per day – the World Bank’s definition of poverty. Teachers’ strike action is now in its fourth month, and other public sector unions have also threatened disruptions claiming that their members can’t survive on “starvation wage”.
The resource curse has a disturbing history. Exxon acquired Mobil in 1996 after it discovered oil in Equatorial Guinea. The boom that followed for three decades enriched the ruling family of the country, but the majority of the population was still mired in poverty.
Venezuela, Guyana’s western neighbor, has been plagued by economic mismanagement, corrupt practices and authoritarianism for decades. Nicolas Maduro is the socialist leader of Venezuela, and he has revived a claim that dates back to centuries. It includes a part of Stabroek.
Schreiner Parker is a Latin America specialist at Rystad, and he says Guyana “is the test case for resources curse of the 21st Century”.
Since oil production began in late 2019 a construction boom has gathered pace in Georgetown, a city known for its tree-lined streets, network of irrigation canals and colonial architecture.
The construction of several luxury hotels is underway. Western-style shopping centers featuring Starbucks and Hard Rock Cafes are also popping up. Exxon, meanwhile, is building its $160mn corporate HQ on the outskirts.
The US supermajor is a household brand in Guyana. It sponsors the Guyana Amazon Warriors Cricket team, donates money to local initiatives, and pays for advertising campaigns that celebrate its role in boosting Guyana’s economy.
The company claims that the creation of a new oil industry has led to the creation of local jobs. By the end of the last year, 6,200 Guyanese were supporting the activities and contractors of ExxonMobil Guyana. Since 2015, the company has spent G$313bn (1.49bn) on Guyana-based suppliers. This was made possible in part by laws passed in 2020 that encourage local content.
Robin Muneshwer is one of them. He is the executive director of an important local conglomerate, and the majority owner of Guyana Shore Base Inc. The company won a bid to supply offshore oil platforms, and employs over 900 people who operate giant cranes, vessels, and other equipment.
Muneshwer says, “We are the poster child for local content.” He also adds that Shore Base’s contract was recently extended by 11 years. He said the government was aware of the risks associated with the resource curse, and that it is using the oil money to diversify its economy.
He adds that the real danger lies in ensuring sections of the populace aren’t left behind, and the resource sector doesn’t squeeze out other sectors of the local economies.
Academics claim that Guyana’s government is in a race with time to prove that oil revenue will be distributed fairly and not misused.
When countries receive large oil windfalls, their governments tend towards corruption, and they become less accountable. It is rarer and scarcer that there are free and fair election, says Michael Ross. He is a professor of Political Science at UCLA, and the author of The Oil Curse : How Petroleum Wealth Shapes The Development of Nations.
He says that the government should negotiate with a company whose cash flow was three times Guyana’s GDP last year and has vast experience in negotiating complex contracts.
Ross says, “Exxon will not be your friend.” They want you to believe they are your friend, but they are not. “They are in it to benefit themselves, and have enormous bargaining power.”
At the 2020 general elections, Guyana’s 32 year-old democracy was put at risk when David Granger, the incumbent president, refused to step down after a vote recount showed he had narrowly lost.
The retired military officer was only forced from power by the US sanctions, amid violent outbreaks in a nation divided among people of African descent, Indian descent and indigenous Guyanese.
The next elections are due in 2025, and opposition parties have already put oil revenues, compliance by the consortium with Guyanese laws and concern about the resource curse at the forefront of their campaigns.
Aubrey Norton is the leader of Guyana’s official opposition. He says, “We must get more from these oil resources.” “Within the next 100 days, we’ll pursue and engage Exxon in order to ensure that the people of Guyana are benefited.”
Norton reports that a High Court decision last year ordered the consortium to give an “unlimited’ financial guarantee in order to cover any costs associated with oil spills. Exxon agreed to deposit a $2bn financial guarantee in the interim, pending an outcome of an appeal.
Melinda Janki is a former BP attorney who has lobbied to change parts of Guyana’s constitution that deal with the environment. She is currently litigating this case, as well as several others. She says that the government and environmental regulators refuse to hold Exxon accountable, putting the country at risk of an environmental and financial catastrophe.
These [drilling platforms] are extremely dangerous operations. Janki says that they are producing more oil than the limits set in the environmental impact assessment.
She warned that a disaster like Deepwater Horizon, which occurred in 2010, would destroy Guyana and the Caribbean. This spill cost BP $69bn. It killed 11 workers, and leaked 4mn gallons of oil into Gulf of Mexico.
Exxon refutes Janki’s allegations, saying that it would never compromise safety. It also claims that its offshore facilities are capable of operating “above their design capacity”, and achieving additional production in a safe manner following reevaluations and de-bottlenecking.
The Guyana-born attorney has pledged to continue his fight against the consortium and government, claiming that the deal reached between the two parties “sold out our patrimony”.
Wall Street analysts regard the 2016 production sharing agreement as the “best oil deal ever” because of its size and terms. Wood Mackenzie consultants predict Exxon will make $135bn between 2024-2040. Guyana will receive 150bn in the same time period. This is a huge amount, considering that Guyana had a budget of only $3.75bn.
The consortium is entitled to up to three quarters of the revenue generated by the project, until all costs have been recovered. The government will receive a 2 percent royalty on the production of the oil field, which is lower than most offshore projects. The government has agreed to pay income taxes and corporate taxes on behalf of the companies from its share.
This agreement is so lucrative, it has sparked a battle in March between Exxon’s US rival Chevron and Exxon. Chevron wants to purchase Hess for $53bn. Exxon claims it has the first right of refusal on any sale of Hess’s stake in the Guyana discovery and has started an arbitration process which could jeopardize the Chevron transaction.
“The oil deal we have is legalised highway banditry,” Glenn Lall says, publisher of Kaieteur News in Guyana, which has criticised the government as well as the opposition for mismanaging their relationship with oil companies, and argued that Guyanese get “chicken food”.
Lall claims that Exxon, oil companies and government agencies are increasingly working together to suppress criticism. This includes hiring a number of Kaieteur News journalists.
Routledge, Exxon’s Routledge, dismisses Lall and his political ambitions as “a constant critic” with “an axe-to-grind”, adding that this is “a competitive contract which is bringing investments into the country.”
Ali has acknowledged that the deal “skewed to Exxon’s benefit” but hasn’t pursued a new negotiation. The size of Exxon in terms of its economy tells you you couldn’t just change the contract. It would have had legal implications, and the whole sector would have been halted.”
Ali claims that any new deals with oil firms would not be “lopsided”. He also says he’s passing reforms in order to bring transparency to Guyana’s oil sector and diversify the economy, as well as invest in infrastructure, education, and health.
His government will pass legislation in 2021 to enhance oversight of Guyana’s Natural Resources Fund, following the principles of the International Forum of Sovereign Wealth Funds.
In January, the government announced that it would lift some restrictions on how much money can be taken out of the fund. US authorities have recently imposed sanctions against a Guyanese official, and several prominent businessmen who were allegedly involved in an alleged $50mn gold tax scam.
According to the US Treasury, Mae Thomas (permanent secretary of Guyana’s Ministry for Labour) provided benefits to Nazar Mohamed and Azruddin Mohammed in exchange for gifts and cash.
These episodes, say critics, highlight the importance of proper oversight and scrutiny. Thomas was placed on leave by the government, which defended their record in fighting corruption.
Ali says foreign journalists shouldn’t have a bias mentality towards Guyana. He adds that “there is tremendous corruption [elsewhere]” in the developed world.
Ali must also ensure a sceptical public begins to see some benefits from inward investment that is pushing rents and food prices to rise sharply.
According to the US State Department, inflation is expected to reach 6.6% in 2023. However, food prices have increased much faster over recent years.
Since the gas arrived, it has become harder to live, says Olivia, who runs a food stall near a Marriott hotel where rooms can cost up to $600 per night. It’s getting more complicated, because you don’t get the oil money. “People don’t want [us] to pay that money,” says she.
Already, discontent is bubbling. Teachers have been striking for over 60 days to demand a 20% pay increase. Guyana Public Service Union (representing other workers in the public sector) has also threatened to strike over wages.
“Our economy has become an oil economy. It is no longer an economy of the local people.” Mehalai McAlmont teaches at Tutorial Academy Secondary School in New Amsterdam. She says, “We are in survival mode.” She claims that food prices have risen since oil started flowing in 2019. [Official statistics indicate a rise of about a third] and teachers’ salaries are stagnant.
Exxon’s discovery in Guyana of oil risks another characteristic that is part of the curse of resources: conflict with neighbours. Ross warns that there are alarming parallels between Iraq’s invasion of Kuwait in 1990 and Venezuela’s threat of a Guyana invasion.
Venezuela has claimed the Essequibo Region for many years. It comprises about two thirds of Guyanese Territory and includes a part of the Stabroek block off its coast.
In December, Venezuelan President Maduro conducted a referendum where he claimed that voters had approved the creation of a new Venezuelan Essequibo Province.
He also ordered state-owned firms to grant exploration and production licences there. “ExxonMobil will not enter this sea. . . “They should know that,” Maduro stated in televised remarks made in February after Routledge announced plans for two exploratory wells near the Essequibo Coast.
Researchers have documented a small but steady buildup of military forces on the border dispute. Researchers have documented a small but steady military build-up on the disputed border.
Exxon claims that Maduro’s threats “make no difference” to their investment plans, and downplays the risk of Guyana becoming a victim of the resource curse. Routledge says that “our reputation is strongly linked to making sure everything happens well”, while Ali emphasized his nation’s massively expanding military partnership.
Analysts say that the rise in tensions highlights how the discovery of oil wealth increases the risk of conflict both within the country and with its neighbours.
Ross, a UCLA academic, cites the many countries that have fallen victim to the curse of resources and warns Guayana it faces a “gargantuan challenge” to avoid following them.
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