Guyana may not steer clear of failure with oil if fatal flaws in oil deal not corrected - Int’l Analysts

Guyana may not steer clear of failure with oil if fatal flaws in oil deal not corrected – Int’l Analysts

Apr 03, 2022 News

By Kiana Wilburg

Kaieteur News – With the monetisation of its 10 billion barrels of oil equivalent resources, Guyana’s leaders hope to raise the standard of living of its people, cut the nation’s debt, and have significant deposits made into the Natural Resource Fund (NRF). But the unfortunate reality that confronts the new oil producing state is that it is in a weak position to accomplish these goals.
This is according to Tom Sanzillo and Gerard Kreeft, two financial and energy advisors attached to the Institute for Energy Economics and Financial Analysis (IEEFA).
To cement their argument, Sanzillo, IEEFA’s Director of Financial Analysis and Kreeft, IEEFA’s Energy Transition Advisor, urged all Guyanese authorities to consider the case of Angola, which has hosted world oil developers for the last 25 years and is a cautionary tale for nations hoping to cash in on oil and gas development.
In providing some historical context, Sanzillo and Kreeft noted that oil was discovered in Angola in 1955. They explained that in the 1990s, deepwater exploration took off and Angola became a global presence. They said that major oil companies including Total, ExxonMobil, BP, ENI, Chevron and Equinor have successfully drilled for oil in working through Sonangol, the nation’s state-owned oil and gas operator.
Both noted that the country produced approximately 1.4 million barrels per day last year, down from peaks of 1.9 million barrels per day. Given its vast resources, the advisors highlighted that Angola rank 15th in the world of top oil producers while adding that President Joao Lourenco is trying to increase production with a new round of offers to the international oil community.
Despite its resources, however, the two advisors said that “four decades of oil production have created neither prosperity nor fiscal stability for Angola.” At the end of 2020, for example, they pointed out that the national debt stood at approximately US$76 billion. They said, “With the assistance of the IMF, World Bank, African Development Bank and others, Angola has managed to juggle its year-to-year obligations with a combination of refinanced or forgiven debt. Angola recently entered the G-20’s Debt Service Suspension Initiative, designed to assist financially distressed countries.”
What is also shocking about the country that is so rich with oil, is the fact that one in three Angolans lives below the poverty level, and more than half live on less than U$1.90 per day. Sanzillo and his colleague noted that an unbalanced economy and corrupt government are cited as major factors driving the economic inequality.
Considering the foregoing, both analysts agreed that oil development surely led Angola into a series of traps that include budget deficits, foreign indebtedness, corruption, and oil exploration and development contracts that have benefited corporations at Angola’s expense. And despite the current struggle to introduce new reforms and combat corruption, Sanzillo and Kreeft noted that the lack of economic diversification leaves Angola poorly positioned to handle changes brought on by the energy transition.
Taking the case of Angola into account, the IEEFA advisors alluded that it may not be possible for Guyana to steer clear of a similar fate, especially when it continues to cling to a one-sided deal that favours the three companies (ExxonMobil, Hess, and CNOOC/NEXEN), creates obstacles to growth, and threatens to leave Guyana deeper in debt.

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