(Oilprice.com, 20.Jun.2020) — Paths to economic development might vary, ranging all the way from ruthless dictatorships hewing their way with an iron fist to established democracies laboring towards the well-being of its constituents. In terms of swift decision-making and efficiency, 20th century empirical data would rather tilt towards dictatorships with South Korea and Singapore being prime examples of how well things can turn out with a bit of providential disposition. Truth be told, Latin America has historically seen more of the former, although very rarely did hard-handed regimes bring about lasting economic prosperity. Oddly enough, new oil frontiers in Latin America are struggling to resolve this exact dilemma. As the markets has an increasing amount of information on how oil-prolific Guyana and Suriname are, both countries’ political attitude might have a crucial bearing on their prospective wealth.
Guyana and Suriname held elections with almost 3 months apart, yet due to the peculiarities of the former’s counting process the recount is still not finished – albeit there remains only one parliamentary seat to be determined for the final result to come about. With the opposition People’s Progressive Party (PPP) taking a 33-31 lead over the ruling PNC coalition, the balance in Guyana seems to be tilting in the favour of a government change. This has direct implications for Guyana’s nascent oil industry as the presumptive winner of the election, PPP, has already claimed it would increase the government’s take in the Exxon-operated Stabroek Block, the 1999 PSA for which has kickstarted offshore activities in the country. Guyana’s largest field, the recently commissioned Liza, has a breakeven level of $35 per barrel, therefore any additional expenditure increases would render new projects’ profitability even worse.
The United States has so far refrained from using its political clout to curb the enthusiasm of Irfaan Ali, the PPP presidential candidate, heretofore contenting itself with warnings on the inadmissibility of either party usurping power before the official recount results are issued. Evidently enough, ExxonMobil would prefer to avoid any changes to Guyana’s PSA terms – having discovered 8 billion barrels of oil merely within its Stabroek block, the US firm would be in a position to allude that even with the current upstream terms Guyana’s oil revenues would increase to $5 billion by 2025, essentially doubling the country’s GDP. Against this background, Suriname might boost its competitive edge by positioning itself as the „new Guyana” (a claim which seems not to be that far from truth).
Surprising as their outcome turned out to be, Suriname’s elections were relatively free and competitive despite running into delays with the results’ issuance (nowhere near as objectionable as Guyana’s), propelling the country’s longtime opposition to power. President Desi Bouterse, convicted for murdering or ordering to murder 15 political opponents in 1982 in what is now labelled “December murders” and also investigated by the Netherlands for drug trafficking, has become tangibly absent from public life after the June 05 announcement of election results. His National Democratic Party (NDP) has lost 10 seats in Suriname’s 51-seat Parliament and is now standing to cede power to a coalition of opposition parties spearheaded by the Progressive Reform Party (PRP) that are one vote short of a two-thirds majority, tallying 34 seats.
The NDP has asked for recounts in several zones, however the odds of Bouterse bouncing back to relevance are increasingly slimmer. Suriname’s GDP has decreased by a whopping 26% from its 2014 peak and the decrepit state of the economy with rising inflation and debt levels has played a palpable role in bringing down President Bouterse. PRP, the main Surinamese opposition party, has pledged to encourage oil development to “reconstruct” the South American nation, without providing much detail on the peculiarities of such reconstruction. With an increasing presence of Western majors in offshore Suriname, the new government to be formed will most likely continue to stick to the current upstream terms, wary of scaring off potential investors still years before any project is commissioned.
The key player in the Guyana-Suriname frontier so far, the US-based ExxonMobil, has seen Suriname as a risk mitigation element vis-à-vis the emerging difficulties in Guyana – this May it has acquired a 50-percent stake (from the Malaysian NOC Petronas) in the shallow-water block 52. Suriname’s offshore terms are slightly less attractive than those of Guyana: oil companies would need to pay a 6.25% royalty rate, the national NOC Staatsolie might take up to 20% in a project, cost oil hovers around 75-80% and the income tax rate stands at 36%. A royalty rate triple that of Guyana’s is obviously less alluring, however it seems unlikely to change in the upcoming years as opposed to Guyana where the extent of the royalty rate hike was heretofore never substantiated.
In terms of exploration activities in Suriname’s offshore, the Maka discovery has buttressed hopes that there might be substantially more in there. The Apache-Total tandem operating the Block 58 that comprises Maka has seen another discovery in April – the Sapakara-1 well hit a 79 metres net oil pay. Still in 2020 there will be at least two another exploration wells in and around Sapakara: Kwaskwasi-1 will be spudded some 10 kilometres northwest of it and a fourth one, still to be named, will be drilled 20 kilometers to the southeast. It was reported that Apache and Total have identified around 50 prospects in Block 58 across multiple deposit types. UK-based Tullow Oil intends to drill its Goliathberg-Voltzberg well in Q4 2020 further out from the Guyanese maritime border and Exxon’s entry into Block 52 might generate some activity in the shallow-water offshore parts of Suriname, too.
By Viktor Katona