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Guyana needs to learn quickly how to manage oil wealth

Guyana, a tiny nation on the north coast of South America, is about to become the world’s newest petrostate — and potentially the richest. In 2015, ExxonMobil made what one of its executives described as a “fairy tale” discovery in the vast Stabroek exploration block off the Guyanese coast. Since then, it’s found so much oil that by the mid-2020s Guyana, with a population of about 778,000, will probably produce more crude per citizen than any other country.

However, Guyana is unprepared for what’s coming. Its petroleum laws were written in the 1980s. The Department of Energy has an annual budget of $2 million. Five years after Exxon’s discovery, the country still hasn’t finished crafting relevant new laws or even established a regulatory body to oversee exploration and production. Last year the government set up a sovereign wealth fund to soak up as much as $5 billion in oil revenue per year by 2025, but there are no plans for how to spend it.

Even as the windfall approaches, more and more questions are being raised about how the country sold exploration rights off its coast — not just to Exxon, but also to other outfits that followed in the supermajor’s wake. The State Assets Recovery Agency, an anticorruption unit looking into the leases, hasn’t named any targets. It’s too early for that, said its director, Clive Thomas. “We’re building up a case,” he said.

Oil can be intoxicating, especially in a nation where the average income is $385 a month. “It’s really a matter of how wealthy you’re going to be, rather than whether you’re going to be wealthy at all,” said Minister of Natural Resources Raphael Trotman. Exxon expects the first oil in 2020, with output quickly ramping up to 120,000 barrels a day and rising to 750,000 by 2025. The government estimates the Exxon deal will bring in $300 million in 2020, about a third of Guyana’s tax revenue, and surge to $5 billion by 2025.
Source: Bloomberg

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