ExxonMobil and friends enjoy attractive deal in Guyana to the detriment of the small state.

The energy transition is underway but it’s going to take time. Under most realistic scenarios, fossil fuels will continue to play an important role in the energy mix of many countries for decades to come.

This is particularly true for the high-quality, light sweet crude from Guyana’s deepwater exploration blocks that ExxonMobil started producing from December last year. The revenue from these finds could be transformational for the country with less than one million people. But nothing is that easy. Unfortunately for Guyana, in the 9 months since production started, they have been hit by an oil crisis, the Coronavirus health crisis and a political crisis in the form of alleged electoral fraud.

This is unfortunate but there are also structural issues with the oil sector in Guyana, which will hinder their ability to create value from the recent finds.

“Exxon has a monopoly over Guyana.”

Former Presidential Advisor for Petroleum, Guyana.

The first being the lack of competition for ExxonMobil. A former oil advisor to Guyana explained, “Exxon have all the data and the infrastructure and software to interpret it, the government has nothing. Exxon has a monopoly over Guyana.”

The second being the lack of technical ability in government, the same source continues, “They need the help of expats as the Guyanese just don’t have the expertise.”

The third being the weakness of Guyanese institutions. A former ExxonMobil manager with experience in Guyana told us, “To have a sustainable oil and gas sector the government needs to invest in creating robust institutions. They should have started this when ExxonMobil came in 2015, but they didn’t.”

“The government needs to invest in creating robust institutions.”

Former ExxonMobil manager with experience in Guyana.

As a result of the above factors, ExxonMobil, and its partners, have secured an attractive deal in Guyana: royalties are low by international standards and they have a sweetheart tax deal. However, as ExxonMobil continues to find more high-quality oil, the calls for a renegotiation of terms are growing louder.

Other pressures on ExxonMobil are also starting to emerge. Recent crises have slowed negotiations on the 220,000 b/d Payara license (critical for the 750,000 b/d target for the block) and last Friday, Guyana announced that ExxonMobil would be hit with environmental fines over gas flaring and the dumping of untreated water.

Is the government in Guyana about to get tough? We are watching closely.

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