Categories: Report

The Country That Wasn’t Ready to Win the Lottery

Guyana just discovered it owns enough oil to solve all its problems — and cause even bigger ones.

GEORGETOWN, Guyana — Amid the narrow streets and rusty docks of Georgetown, the quiet capital of Guyana, the first signs of an oil boom are visible. Steel pipe destined for deep-water projects can be seen stacked on wharves near the city center. Over at the Marriott, the country’s only five-star hotel, the bar fills up throughout the day with Brazilian oil workers and American contractors. Boats embark from a new depot on the Demerara River, ferrying supplies to oil projects hundreds of miles from the coast.

Driving much of this activity is ExxonMobil. Three years ago, the company’s Guyana subsidiary found crude in sandstone reservoirs about 120 miles offshore, the first of a string of offshore discoveries that have raised the country’s reserves to an estimated 3.2 billion barrels from nothing at all. Decades of dry wells had made such a cache impossible to imagine.

With ExxonMobil expecting “first oil” — that is, to start pumping crude — in 2020, Guyana is bracing for a wave of newfound money to hit government coffers. The government anticipates collecting $300 million in petroleum funds each year from the company’s initial phase of work on a single well — a sum that represents about a quarter of the current national budget. Analysts at a Norwegian energy consultancy are even more bullish, claiming the government could rake in as much as $5 billion per year from oil by the end of the next decade.

That money will go a long way in this sparsely populated former British colony of about 750,000, where political competition between the country’s African- and Indian-descended populations has long stunted development. The country’s needs are many. Guyana’s power supply is erratic, leaving even parts of the capital without electricity at times. Its infant mortality rate is almost double the average of Latin American and Caribbean countries. Its unemployment rate stood at 11.8 percent in 2017, according to the World Bank.

“This is the best thing that has ever happened to Guyana,” Minister of Finance Winston Jordan said in an interview. “I can say that not since perhaps when sugar was introduced in the colonies have [there been] such opportunities for massive transformation of the economy.”

Oil will also generate tremendous pressure on a country known for fragile government institutions, ethnic divisions, and little transparency. The speed and focus with which ExxonMobil and its partners, Hess and China National Offshore Oil Corporation, are doing their work aren’t always being matched by elected leaders in Georgetown, who are moving far more slowly in building government infrastructure to manage the oil industry. Officials insist they have time to develop those institutions.

“We’ve always dreamed,” Jordan said, “but we’ve never had the resources to convert our dreams to reality.” But Guyana’s oil windfall could easily convert the country’s dreams into a living nightmare, one that leaves it with greater inequality, more corruption, and internal strife. Many fear that’s exactly what will happen.

Guyana has always depended on trading commodities for its survival. Its earliest existence as a polity was rooted in sugar; colonial planters forced enslaved Africans — and later, after Britain abolished slavery in 1834, indentured servants from India — to harvest the crop. In later years, and still today, the country’s economy is driven by the export of gold, rice, and bauxite.

Then, on May 20, 2015, just nine days after the current government in Guyana won the general election, ExxonMobil made public news that had been quietly discussed in government circles for a couple of weeks: the company had found crude.

ExxonMobil’s interest in the country dates to the mid-1990s, when the company said it identified Guyana’s deep waters as an “area of interest” for oil after completing a series of geologic surveys, and in 1999, a subsidiary signed an agreement to hunt for petroleum in a vast offshore concession. But for years, company carried out little work, ostensibly because of a maritime border dispute between Guyana and Suriname that began in 2000. That fight was resolved in 2007, clearing the way for ExxonMobil to restart exploration a year later. Seven years after that, the company issued its press statement lauding a “significant” find at the Liza-1 well, located northeast of Georgetown in the Atlantic Ocean.

Oil has historically generated wealth like few commodities can — but it’s also recognized as a double-edge sword, one associated with the so-called resource curse that has marred the development of countries like Angola and Venezuela. In worried conversations across government ministries and offices in Georgetown, Guyanese are expressing worries they will be the curse’s next victim. “I’ve heard of the resource curse … and all the ills of oil, and I can tell you I am quite petrified,” acknowledged Raphael Trotman, the minister of natural resources, in an interview in late April.

“Lower-middle income countries like Guyana,” said Michael Ross, a political scientist at the University of California, Los Angeles who has written on the subject, “tend to have great difficulty using the wealth they have newly discovered in a way that benefits their people.”

The problems associated with resources are multidimensional, according to Ross and other researchers. Commodity prices rise and fall unpredictably on the global market, whipsawing a country’s economy and budgets. Oil and minerals can become so valuable they displace other sectors that could potentially generate growth. And all too often, members of government and elites seek to benefit financially from their country’s resource endowments. There are also plenty of cases where international investors cooperated with corrupt, or simply shortsighted, local officials if they stood to benefit themselves.

The resource curse isn’t inevitable, and Norway and Canada, with their rule of law, diversified economies, and strong institutions, are frequently cited exemplars of resource management. Yet in the worst cases, the control of resources can descend into armed conflict. Petroleum is “a very highly concentrated economic activity that requires permitting and things like that from the government, so it’s just incredibly tempting for the executive branch to capture those resources,” said Sarah Chayes, a senior fellow at the Carnegie Endowment for International Peace.

In Guyana, observers fear oil will intensify the longstanding competition between ethnic Indians, who make up about 40 percent of the population and people of African heritage, who comprise about 29 percent of the population, according to the country’s 2012 census. Both have longstanding complaints about the other, going back to the days of the Afro-Guyanese strongman Forbes Burnham, who ran the country between 1964 and 1985, rigging elections to ensure his power. The Indo-Guyanese-dominated People’s Progressive Party won elections in 1992, ruling for the next 23 years but generating criticism for alleged corruption.

Managing the transition to an oil-powered economy will likely be at the forefront of elections scheduled for 2020. The current government, led by the People’s National Congress, which draws its support from the country’s Afro-Guyanese community, and the People’s Progressive Party will vie to control government as the petroleum revenue starts to roll in.

“There will be a huge fight over it, in elections, and who is going to be in government,” said Thomas Singh, an economist at the University of Guyana. “So, I anticipate a lot of our revenues will be dissipated in conflict. I mean this, by the way. I expect conflict.”

The parliament building in Georgetown, colored a light shade of pink, is located at one end of the government district, next to the city’s Stabroek Market. One sunny afternoon in late April, the driveway out front was filled with Toyota Land Cruisers. The 65-member National Assembly was about to begin a session focused on a juvenile justice bill. It was the fifth time the legislative body had met since the start of the year.

The debates and long speeches carried into the night. At one point, Gail Teixeira, the opposition whip, castigated the government for failing to move on an agenda, accusing the party of stalling oil-related legislation. “The Petroleum Commission bill, which is so important to this country, has been sitting in committee since June 2017,” Teixeira said. “So, what’s the problem? You’re in the chair, not us.” The Petroleum Commission is intended to do everything from collect oil industry data to ensure companies comply with all relevant laws. Because of the stalled legislation, it exists right now only in theory.

The government is under pressure — and not just from the opposition. ExxonMobil is rapidly developing its first well. Both it and Total have cut deals with smaller companies that obtained offshore acreage from the government years ago. Repsol and Tullow Oil are active, too. Ralph Ramkarran, a former speaker of the National Assembly who left the People’s Progressive Party, believes the government has not “displayed the capacity and willingness to act in a concerted manner to set the stage in all respects for development of Guyana as an oil and gas producer.”

The Petroleum Commission isn’t the only agency the country still needs to get off the ground. The current administration is still mulling how to set up a sovereign wealth fund to guide how Guyana spends and invests its oil money. In the absence of a fund, there has been relatively little discussion about how the country should use the cash.

Trotman, the minister of natural resources, listened silently to Teixeira’s jab that night in parliament. An attorney by training, he is familiar with such criticism, hearing it on near-daily basis in the Guyanese press, which carries out lively coverage of battles between the ruling and opposition parties. Later, during an interview at his ministry, Trotman recounted his side with a hoarse voice. Legislation for the sovereign wealth fund should be presented before the end of the year, he said, at which time it will be better to start debating how to use and invest future oil revenues. The Petroleum Commission bill was delayed while the country waited for help from experts at the World Bank, Trotman added (the government recently announced it present a new bill in parliament in June).

“There’s no such thing as enough time,” Trotman said. “Our objective, of course, is to have as much as we can get in place before production starts, but accepting and understanding that even with production, it will take years, sometimes decades, to really be able to fully grasp and manage everything properly.”

Building up the new agencies won’t be easy, even when they are formed on paper. A 2009 United Nations report found that almost 80 percent of Guyanese who attend college seek opportunities abroad. Skilled workers equipped to take on complex oil regulation are rare and those with credentials will be tempted by jobs at lucrative oil companies. “It’s a big, huge, huge, huge problem,” Jordan, the finance minister, said in a separate interview. “And it’s magnified because of the pressures that have been put on the administration to prepare for oil and gas.”

The government is devising coping mechanisms, but they may pose problems of their own. To make up for what it called “capacity deficiencies,” Minister of State Joseph Harmon recently announced the Guyanese Environmental Protection Agency had outsourced an environmental assessment of some of ExxonMobil’s activities offshore to a U.S.-based firm. ExxonMobil’s affiliate in Guyana will cover the cost of the contract. Harmon denied the agency was “reneging on its responsibility” in having the company pay for the service, according to a government news story.

International oil companies certainly have the expertise and willingness to cooperate with Guyana. No firm has pushed harder to establish a relationship with the government than ExxonMobil, owner of biggest stake in what analysts have called “one of the most lucrative new energy discoveries in the world,” according to Barron’s. ExxonMobil declined to make anyone available for an interview. The company has been busy in the country. It has hosted ministers on its offshore drillship and at its Texas headquarters, made charitable donations and established a local business-development center. Comments from its executives in Guyana are often big news in the Georgetown media. When reporters from Foreign Policy asked to observe an oil-spill training session a government agency organized with ExxonMobil, Minister of State Harmon said he was unable to authorize it. “It’s their event,” he said.

In an email, a spokesman said the company has engaged Guyanese government agencies “to understand their priorities and objectives for industry growth, including a vision for responsible industry oversight and regulation … The Guyana development is a phased development, in part so that there is time to build the necessary capacity across the industry and government.”

But it remains an open question whether the government will have the power to challenge ExxonMobil — and other oil companies — when their interests don’t neatly overlap with the country’s own.

Newell Dennison, the burly, tall leader of the Guyana Geology and Mines Commission, a state agency that handles permitting, regulating, and other matters related to petroleum and mining projects, was amazed by the news in 2015 that ExxonMobil had found oil at the Liza-1 well. He also was a bit worried, at least initially.

“My God, why now?” he recalled thinking. The elections were heated, after all. “The contemplation of ‘why now’ was very brief … It then became, ‘let’s take it step by step.’”

After years of dry wells, oil in Guyana now meant big money. The status of ExxonMobil’s agreement with the government, which was inked in 1999 but put in abeyance during the border fight with Suriname, suddenly was a pressing issue. In April 2016, about a year after the election and discovery, Dennison and a colleague traveled to ExxonMobil’s sprawling campus outside of Houston to discuss technical issues. There, company officials “confronted” them about the terms of its contract, according to a memo Dennison wrote and the government later released.

Even though ExxonMobil had found a major well by this time, his memo says company officials were “obviously ruffled” by the suggestion that ExxonMobil pay a $1 million annual rental fee and “not at all receptive” to the idea of paying a royalty, the memo says. The original 1999 deal provided for neither. The company’s spokesman declined to comment on the memo.

Guyana’s new contract with ExxonMobil, signed in June 2016, wasn’t made public for more than a year and generated controversy as the specifics started to leak. A furor ensued after Chris Ram, a Georgetown accountant and lawyer, broke the news in the Stabroek News, a leading newspaper in Georgetown, that ExxonMobil and its partners had paid the government a signing bonus, a payment later confirmed to be $18 million.

For Ram, the opaqueness around the bonus demonstrated how little the government cared about transparency. “There’s no accountability in a country like this. I know it’s kind of difficult to understand. They just feel we don’t have a right to know,” he said in an interview. (Ram’s accounting firm has done business with oil companies, though he denied a report that it has provided services to ExxonMobil or its subsidiaries.)

Government officials have said they always planned to release the agreement. After months of pressure, the administration finally released the entire contract at the end of last year. Under the deal, Guyana got a 2 percent royalty, a 50-50 split of so-called profit oil and a $1 million annual fee. To some outside observers, the terms made it seem Guyana had missed an opportunity. The International Monetary Fund, for example, called it “relatively favorable” for the companies. OpenOil, a Berlin-based analytical firm, estimated that Guyana will take in no more than 54 percent of the economic proceeds under the contract, less than comparable deals. Ghana, for example, structured an agreement for offshore oil that will give it 64 percent, according to the company. Critics of the deal in Guyana go further, seeing it as a failure that must be renegotiated.

An ExxonMobil spokesman said in an email the agreement was “globally competitive for countries with a similar oil and gas profile, which in the case of Guyana was an unproven basin.” He pointed to an assessment from the consultancy Wood Mackenzie, which estimated that Guyana’s fiscal take under the deal is above average within a group of 78 frontier oil areas around the globe.

Beyond the dollars and cents, the contract gives Guyana a powerful new ally — ExxonMobil is now tethered to the country for years to come — and that relationship is already influencing Guyanese foreign policy. Some officials hope to now leverage the deepened relationship with ExxonMobil to secure resolution of a long-term border dispute with Caracas, whose claim to two-thirds of Guyanese territory dates to the 18th century, when Venezuela was a Spanish colony. (Venezuela has pressed its claim on and off over the years since an 1899 crisis arbitration ruled in favor of British Guiana.) ExxonMobil, for its part, has been fighting with Venezuela over the late President Hugo Chávez’s decision to expropriate its assets in the country in 2007.

­Under Chávez, tensions between Venezuela and Guyana had eased. But the detente ended in 2013, five months after his death, when the Venezuelan Navy seized a vessel seeking oil offshore for the petroleum company Anadarko, which then left Guyana. More recently, Venezuelan President Nicolás Maduro’s government has warned Guyana and ExxonMobil it objects to any activities in disputed waters. Trotman, the natural resources minister, confirmed the current administration wanted to secure a “strategic relationship” with ExxonMobil in revamping the 1999 deal. “For us, it was more than oil contract,” he said. “The value of this contract is way beyond whatever is written on paper to us.”

The contract is arming Guyana with new resources in its fight with Venezuela. Last March, Guyana took its case regarding the border to the International Court of Justice, seeking an end to the controversy. It plans to use up to $15 million it received from ExxonMobil and its partners to pay for lawyers arguing its case. The company’s spokesman declined to comment on Guyana’s border disputes.

With oil production expected to start in less than two years, the current government is busily promoting the steps it is taking to get ready.

Oxford University professor Paul Collier, a well-known international development expert, visited Georgetown this spring for a round of talks with the cabinet; in April, the government announced it would bring World Bank experts to the country. The Civil Defence Commission has held oil-spill trainings and the tax authority is trying to train staff to monitor the oil industry.

ExxonMobil, meanwhile, is quickly establishing itself as a dominant economic force in Guyana. The company and its main contractors spent around $60 million last year and during the first quarter of 2018 working with hundreds of Guyanese-based companies, according to ExxonMobil. Those benefiting include companies ranging from Maggie’s Snackette and Catering to bus services and hotels, a list issued by the government shows.

While the administration has released petroleum contracts and the ExxonMobil contractor list, other basic accountability and transparency standards are still lacking. In a country where politicians have helped themselves to well-located land plots and the political parties regularly mount corruption investigations against each other, the underdevelopment of these systems is a major issue, given the money set to arrive in Guyana with oil, according to observers like Troy Thomas, a leader in the Guyanese branch of Transparency International, a global nonprofit organization.

“We don’t have freedom of information,” added Thomas, who recalled asking Guyana’s open-records commissioner for information, only to be ignored. “He didn’t even write us back.”

Oil production is expected to begin in 2020, the same year as the next election, yet the country has no campaign finance laws. An Integrity Commission collects asset declarations from politicians, but it keeps these documents confidential. Corporate records are not available online, making it difficult to keep tabs on shareholders and owners in local companies.

And even though the government plans to join a major extractive-industry transparency group, the government is still in the dark about critical aspects of the oil sector. Earlier this year, the country’s securities commission took out a newspaper advertisement seeking information about a company called GGC Resources. The firm owns about 30 percent of a company that controls an offshore block in Guyana under a 2013 agreement. According to the securities regulator, GGC lists its address in New York, on the ninth floor of a building on Park Avenue. Beyond that, little is known.

In the ad, the regulator asked the public share any details of GGC’s “incorporation, principals, directorship, nature of business, its shareholders and any other relevant information.” Shaun Allicock, an attorney at the securities commission, confirmed the agency still does not know who “the actual, real owners are.” That raises a red flag for experts in managing natural resources, who point out that hidden shareholders in valuable resources could include politically powerful individuals. “Not knowing who the true beneficial owners of a company that obtained a major oil license are opens the door to the risk that finite oil resources aren’t being maximized for public benefit but for private gain,” said Erica Westenberg, the governance programs director at the Natural Resource Governance Institute, who was speaking generally.

Some Guyanese simply assume that oil won’t produce meaningful change in their lives. A well-worn cynicism was on display one sunny morning in April at the Stabroek Market, where vendors sell everything from pineapples and clothing while touts organize bus trips to the interior. “I think just those in power will be more rich,” said Michael Persaud, an accountant who was sitting in an ice cream parlor near the market. “The small man will never see his way in this country under oil.”

Funding for the reporting on this story was provided by the Blanchette Hooker Rockefeller Fund, Energy Foundation, Lorana Sullivan Foundation, Open Society Foundations, Rockefeller Brothers Fund, Rockefeller Family Fund, Tellus Mater Foundation and the Tortuga Foundation, as well as by the Investigative Reporting Resource at the Columbia Journalism School.


Like this article? Read an unlimited number of articles, plus access to our entire 47-year printed archive, the FP App, and the Digital Magazine when you subscribe to FP Premium!