Guyana Elections And First Oil

(Argus, 26.Sep.2019) — Guyana will hold parliamentary elections on 2 March 2020, around the time that ExxonMobil plans to launch offshore oil production that promises to transform the economy of the tiny South American country.

The ruling People’s National Congress (PNC) party that has overseen the advent of oil development faces a close challenge from the main opposition People’s Progressive Party (PPP), which has pledged to toughen oil contract terms.

Both parties claim to be centrist and pro-business, but the PPP says the terms of Guyana’s production-sharing agreements (PSAs) are “too generous” and should have given the country of 780,000 people “a fairer share.”

Election observers in Guyana are predicting a tight race, based on traditional voting patterns.

In the outgoing 65-seat assembly, the PNC lost its one-seat majority in a December 2018 confidence vote when one government member voted with the opposition.

Since ExxonMobil started making substantial offshore discoveries in 2015, President David Granger´s administration has signed PSAs with other oil companies, including Chevron, France´s Total, Spain´s Repsol, Italy’s Eni, the UK’s Tullow and Germany’s Dea.

ExxonMobil recently announced a 14th discovery on the deepwater Stabroek, boosting its estimated recoverable resource of more than 6bn bl of oil equivalent (boe), the company said.

ExxonMobil and its partners, US independent Hess and Chinese state-owned CNOOC unit Nexen, plan to start production of the new light crude stream Liza around March 2020 at a rate of 120,000 b/d, ramping up to 750,000 b/d by 2025, a level rivaling that of neighboring Venezuela and outpacing fellow Opec country Ecuador.

Liza has a gravity of 32.1°API and 0.51pc sulfur. ExxonMobil has told Argus that discussions on where preliminary test cargoes will be refined are ongoing.

The PPP says it is “uncomfortable” with the terms of the PSA with ExxonMobil but would not change them as the company is far advanced with its production plans “and any interruption of the schedule to deliver first oil would be damaging to the national economy.”

But contracts that were signed with other oil companies after the deal with ExxonMobil will not be upheld by a PPP government “because they were poorly negotiated,” the party said.

“We have made it clear that we intend to review every contract that was signed after ExxonMobil’s,” PPP leader and the country’s former president Bharrat Jagdeo said in July.

The PPP’s position on the oil sector “is sending negative messages to foreign investors and this could harm the development of the sector,” the president’s office tells Argus.

“The contract terms were agreed in good faith, and should be respected.”

None of the oil companies has responded to a request for a comment on the parties’ positions going into the election.

An April 2018 review of the country´s PSA model by the International Monetary Fund (IMF) concluded it was “relatively favorable to investors by international standards.”

The government reacted in November 2018 by suspending upstream licensing until 2020 to update future contract terms, the energy department said.

The revised PSAs will be more attractive to oil companies and will increase the country’s returns, it said. But current contracts will not be affected.

The PNC and the PPP are united on one threat to offshore exploration in Guyana – a 19th century territorial claim by Venezuela on Guyana’s resource-rich Essequibo province, where Stabroek is located.

The dispute has prevented the countries from demarcating their maritime boundary.

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