Guyana: Port in a geopolitical storm?
Q3 auction of blocks may benefit from global instability
The planned Q3 auction of offshore blocks in the Guyana Basin may become even more of an event with the geopolitical complications tumbling from the Russian invasion of Ukraine.
Peering into the future, projects in Asia, the Middle East and former Soviet satellite states will likely be increasingly complicated given what has been a cataclysmic disruption of the economic order in the past two weeks. As Lenin said decades can happen in days and we have seen the most extraordinary economic and financial blockade/isolation of Russia that will not be easily and quickly walked back. Even then both sides will be wary to enter into agreements that previously seemed impervious to political tensions. Above ground risk has been heightened and the withdrawal of several IOCs from Russia will likely result in a new caution over where to invest and who to partner with.
The attraction of the Guyana Basin is primarily geological, ticking all the right boxes: Numerous discoveries of light, low carbon crude in large and consistent reservoirs. Its possible 20B barrels are seen as the perfect product for the energy transition.
Moreover Guyana’s location -in America’s backyard and close to East Coast refineries - also makes investment here in a risk off world even more appealing. In many ways Guyana’s oil can be viewed as contributing to American energy independence what with ExxonMobil and Hess major partners in the prolific Stabroek Block.
Domestically, Guyana’s politics is not without risks but the current government is not under immediate threat of losing power, with elections not until 2025. It is also pursuing a highly accommodative policy of looking to develop the basin and monetize its resources aggressively. The fiscal terms are now being revised as part of a new model Production Sharing Agreement but even here Vice President Bharrat Jagdeo has told investors not to be unduly alarmed as while it will mean more revenues to the government it will encourage accelerated development. The government has also promised to build regulatory capacity to ensure timely approvals of projects.
There is one area of risk, and that is the historic claims by Venezuela to a large portion of North Western Guyana and the related maritime area. This has in the past discouraged any exploration closer to the Venezuelan maritime border, with the Roraima block held by Occidental after its acquisition of Anadarko under a force majeure. Also an ExxonMobil-contracted seismic vessel was intercepted by the Venezuelan Coast Guard in 2018 and since then no more activity in that area has occurred. Guyana has brought the case to the International Court of Justice for a final resolution of what is a 120-year-old controversy. This will take some time and Venezuela has yet to recognise the court’s jurisdiction. However the threat of physical force to claim territory is seen as remote and American naval presence in the Caribbean sea would be a significant deterrent.
There are few details on the proposed auction but likely areas will be nearshore blocks and areas relinquished in existing licensed blocks as part of contract requirements. However, the jewel in the crown might be the deep water Block C, 9600 acres, that is north east of Stabroek, directly north of Canje block and next door to the Suriname maritime border.
Jagdeo has advised that some blocks may be reserved for a proposed national oil company although no firm decision has been made on this. In addition he suggested ExxonMobil might be precluded from bidding, presumably from a fear of too much dominance in the sector. This might be a mistake as the company has shown itself to be incredibly efficient in exploring and developing the Stabroek Block, with only five years from discovery to first oil. However there might be geopolitical considerations involved with Guyana in recent talks with Qatar and Saudi Arabia. Brazil has also been mentioned as a possible suitor.