Category: Guyana

(The New York Times, Clifford Krauss, 20.Jul.2018) – Guyana is a vast, watery wilderness with only three paved highways. There are a few dirt roads between villages that sit on stilts along rivers snaking through the rain forest. Children go to school in dugout canoes, and play naked in the muggy heat.

Hugging the coast are musty clapboard towns like Georgetown, the capital, which seems forgotten by time, honeycombed with canals first built by Dutch settlers and African slaves. The power grid is so unreliable that blackouts are a regular plague in the cities, while in much of the countryside there is no electricity at all.

Such is the unlikely setting for the world’s next big oil boom.

In the last three years, ExxonMobil has drilled eight gushing discovery wells offshore. With the potential to generate nearly $20 billion in oil revenue annually by the end of the next decade, roughly equivalent to the revenues of the much-larger Colombia, there could be enough bounty to lift the lives of almost every Guyanese.

If all goes well, one of the poorest countries in South America could become one of the wealthiest. Suddenly the talk of Georgetown is a proposed sovereign wealth fund to manage all the money, as if this were a Persian Gulf sheikhdom.

But there are obstacles. If history is any guide, countries that discover oil often waste their opportunity, as the resource blends seamlessly with corruption. Countries with weak political institutions like Guyana are especially vulnerable.

“You have an alignment of money and power in the hands of the state, so the party in power controls the resources,” said Floyd Haynes, a Guyanese-born finance professor who is a consultant to Business Ministry. “And the money is usually squandered, misapplied or downright stolen.’’

Senior government officials here have little experience regulating a big oil industry or negotiating with international companies. The civil service is corrupt, and the private sector is slow to innovate, businessmen and aides to senior officials acknowledge.

Still, there is cautious optimism. “We see this oil discovery as almost like providence,” said Raphael Trotman, the natural resources minister. “We’ve been given a second chance to get things right.”

The first chance was independence from Britain in 1966, and that chance was blown. A plague of ethnic tribal politics has produced a fragile state with an economy propelled by drug trafficking, money-laundering, and gold and diamond smuggling. A vast majority of college-educated youths emigrate to the United States or Canada, while those who stay behind experience high rates of H.I.V. infection, crime and suicide.

Can oil wealth help Guyana overcome its history, or will the windfall that will flood government coffers merely turn the page to a new tragic chapter?

“The challenges are enormous and shouldn’t be underestimated,” said Lars Mangal, president of Totaltec Oilfield Services, a Guyanese company seeking to train local workers in safety and basic oil operations. “We have to overcome nepotism, entitlements, corruption, cynicism and skepticism.”

The Guyanese government, under its agreement with Exxon, will receive roughly half the cash flow from oil production once the company’s costs are repaid. Economists say that will mean the country’s current gross domestic product of $3.6 billion will at least triple in five years.

But with exploration out of sight 120 miles offshore, and no refinery planned, the economic benefits for the population have been limited so far, making some cynical. Only about 600 Guyanese have found direct employment on the drill rigs, shore bases and offices, and that number may increase only to about 1,000, oil executives say.

“When we have big projects, we hire foreign companies who bring their own workers,” said Khemraj Dhaneshrie, a young chemist at the Leonora estate sugar mill.

Mr. Dhaneshrie is typically skeptical about his government’s ability to oversee foreign operations after Guyana’s long experience of opportunistic Chinese investment. He noted that the Chinese financed and built an enormous factory in 2009 to rescue the sugar industry, but it turned out to be a $181 million boondoggle.

“The Chinese cut down our forest, dug out our gold, and we never got a cent,” he said. “We could end up with the same experience with ExxonMobil.’’

In the Past, Wasted Opportunities

Colorful Hindi monuments tower over Guyana’s rice fields, a reminder of the cultural distance between the country and its Latin American neighbors. It is English speaking because of the legacy of British rule, and its two biggest ethnic groups are Afro-Guyanese and Indo-Guyanese — the descendants of slaves from Africa and of indentured servants brought from the Indian subcontinent in the 19th century.

Until now, the country had never produced oil, and traditionally it has traded its rice crop for fuel from Venezuela. Now it is attracting experienced Texas oilmen like Doug McGehee, Exxon’s Guyana operations manager.

Over the last 37 years working for ExxonMobil, Mr. McGehee has taken his black cowboy boots, silver belt buckle and Texas A&M class ring into the oil fields of Angola, Kazakhstan and Equatorial Guinea. In all those places, oil wealth has risen to the top, only to leave the poor behind. Last year, for example, a Paris criminal court convicted the vice president of Equatorial Guinea of money-laundering and embezzling more than $100 million.

But as Mr. McGehee monitored operations aboard the Noble Bob Douglas drill ship on a recent day, he insisted that Guyana could be different.

“The math is right here,” he said, noting that the country has a tiny population — below 800,000 — to share all the new wealth. Guyana’s government stands to take in more than $6 billion in royalties and taxes annually by the end of the 2020s, according to the Norwegian consultancy Rystad Energy.

“If the government manages the resource right, every Guyanese should benefit with better schools, better health facilities, better roads,” Mr. McGehee said.

That is no small “if.”

Guyanese need look no further than neighboring Venezuela to see a failed state where the world’s largest oil reserves have not prevented hunger, shortages of medicine and hyperinflation from producing widespread misery. Nearby Trinidad and Tobago offers another example of how countries dependent on oil can neglect traditional industries and then suffer severe economic shocks when crude and natural gas prices fall.

Scholars call the syndrome the “resource curse.”

Others warn of the “Dutch disease,” a phenomenon so labeled in the 1970s after a natural gas boom sapped the strength of manufacturing in the Netherlands. Nations that contract the disease from a sudden influx of mineral money typically suffer a surge of inflation, while labor from farming and other traditional professions is drawn to the higher-paying oil sector. Thus, wealth becomes more concentrated.

There are some examples of countries effectively using oil to reduce poverty. Malaysia, with large offshore oil production, has kept its economy diversified and growing. In the Middle East, Oman is a model for using oil and gas wealth to modernize its economy.

But dispiriting examples of wasted opportunity abound.

“We’re all concerned about the negatives,” Prime Minister Moses V. Nagamootoo said.

Dawn Chung Layne, who operates a sewing business out of her mother-in-law’s concrete house in Georgetown, is also anxious. She is attending workshops at the Center for Local Business Development, a program financed by Exxon, to learn ways she can benefit from the oil economy. She hopes to make curtains and linen for cafeterias on the oil ships, and uniforms for sports teams established by foreign companies and their families.

But she also sees risks in these new ventures. More affluent Guyanese may turn away from the sports uniforms she already makes to buy name brands like Nike and Adidas, she said, and she is concerned that food prices will rise.

“Check out the Trinidad economy,” she said. “They thought oil was the best thing since sliced bread, and they spent Sunday to Sunday. They stopped producing and imported everything with oil money. It could happen here.”

‘This Could Be Game Changing’

Before the recent breakthrough, various oil companies had drilled more than 40 wells off Guyana and neighboring Suriname since the 1960s. All were dry holes or otherwise not economically promising. But as oil prices rose a few years ago, Exxon and Royal Dutch Shell decided to take another look. (Shell eventually dropped out of the partnership.)

Exxon’s top geoscientist on the scene was Kerry Moreland, an Oklahoman whose family has been in oil for three generations. Ms. Moreland toyed with becoming a professional bowler and had interned as a tornado chaser for a Tulsa television station before going to work for Exxon and traveling the world in search of new fields. She pinpointed on the map where the first deepwater well, named Liza-1, should be drilled.

Recalling the day three years ago when she decided to duck out of some business meetings in Georgetown to visit the drilling platform, she said there was no more than a 20 percent chance that a meaningful amount of oil would burst out from three miles below the ocean bottom.

As luck would have it, just as her helicopter landed on the platform, the drill bit penetrated the oil reservoir. She went to the control room as the first data from the wells showed promising signs of hydrocarbons. When rock fragments came to the surface a few hours later, they were dripping with oil.

“At that moment, it was ‘Oh, my God, we’ve made a discovery,’” Ms. Moreland said. “You have to pinch yourself and ask, ‘Is this really happening?’ And it hit right then, this could be game changing for the country, one of the poorest countries in the Western Hemisphere. It was a dream come true for any geologist.’’

Exxon is known in the industry as a slow-moving, stodgy company, but Ms. Moreland’s enthusiasm caught fire through the executive wing in the Texas headquarters known as the God Pod. Within three months, the company sent two vessels to conduct the largest three-dimensional seismic test that Exxon had ever undertaken, over 6,500 square miles, in search of more oil.

There’s a lot at stake for Exxon in Guyana.

In recent years, its stock price has slumped because of disappointing production and depleting reserves. The company invested heavily in Canadian oil sands and in natural gas when prices were high, bets that have not worked out as well as expected. While the company was forced to write off large assets in Canada, Western sanctions on Russia foiled its plans to drill in the Russian Arctic.

Darren Woods, the company’s chief executive, has a plan to reverse company fortunes, and Guyana is a big part of it.

Leading a consortium that includes Hess and the China National Offshore Oil Corporation, Exxon is making an effort here that is nothing if not ambitious. Within three years of its big first discovery, it has begun drilling the first of 17 wells that will start yielding oil in 2020, with a floating production, storage and offloading vessel able to handle 120,000 barrels a day. And that is just the first phase.

Another floating vessel, with a capacity of 220,000 barrels a day, is planned, and a third vessel is being considered. In all, 500,000 barrels a day could be produced by sometime in the next decade — the equivalent of Ecuador’s national output. (Repsol of Spain, Tullow Oil of Britain and other companies are exploring, too.)

“It’s a growth area for us,” said Mr. McGehee, the Exxon operations manager. “We keep finding oil.”

That produces nothing but excitement for the 60 Guyanese workers on the Noble Bob Douglas drill ship, who have typically seen their incomes soar.

Gorshum Inniss, a 25-year-old roustabout with an easy smile and flashing dark eyes, is working on a crane crew lifting casing pipe for new wells, doubling what he earned working on a tugboat. He said he now had enough money to visit his parents and younger brother in New York and planned to build a house for him and his daughter.

“I’m proud to be one of the pioneers in this big moment for Guyana,” he said. “I see Guyana as the new Middle East.”

An Endangered Beach?

Not far from the turbulent Venezuelan border, there is a quiet stretch of coastline, pounded by surf, known as Shell Beach because its sand is made of tiny crushed seashells that make it feel like sawdust. Several endangered species of turtles come to nest at night. Once hunted for food, they are jealously guarded from poachers by residents who make a living fishing and selling coconuts.

Audley James, a former turtle hunter who makes necklaces out of beads and coconut shells, remembers when Trinidadian environmental consultants representing Repsol came six years ago to give two days of spill-response training.

The Trinidadians taught the residents how to lay temporary floating barriers to protect the beach from an oil spill, and gave them training certificates that look like diplomas. But there has been no further training that might prepare them for what is now a much less theoretical hazard.

“Plenty of us don’t understand what is going on,” Mr. James said.

Environmentalists are worried that oil will forestall development of renewable energy and that the government and oil companies are not fully prepared to prevent a possible spill.

“It’s two years before first oil, and we don’t have a national oil spill contingency plan,” said Annette Arjoon-Martins, president of the Guyana Marine Conservation Society. “We have our hands in the mouth of a jaguar.”

Ms. Arjoon-Martins said the government’s agreement with Exxon did not specify in enough detail the company’s responsibilities in case of a spill. Government officials disagreed, saying the country’s laws would hold the company fully liable.

Exxon executives say the company is doing everything possible to minimize the dangers of a spill disaster. The company has skimmers and oil booms on hand to collect errant oil, and it has applied to the government to use chemical dispersants in an emergency to break up any spilled oil. They say Guyana is close enough to the Gulf of Mexico to bring in plenty of help in an emergency.

The company has agreed to map the coastal mangroves and study the area’s fish, bird and turtle migration routes to set priorities in case a cleanup is ever needed, executives said. And in another potential environmental benefit, the company is planning to build a natural-gas pipeline to shore that will replace the heavy fuel oil burned for the country’s power plants, lowering costs to consumers and businesses.

“We are committed to develop these resources in the most responsible way with a minimal impact on the environment,” said Rod Henson, Exxon’s Guyana manager. “We stand by our operations, and in the unlikely event of an incident, we will absolutely respond immediately and we will fully take care of our responsibilities.”

Local oil executives say one obstacle to overcome is a lackadaisical attitude toward safety among Guyanese workers, who frequently arrive at their construction and wharf jobs in flip-flops and sometimes use their hard hats as soup bowls. That is something Exxon and other companies are working to change with courses and other training that teach workers to be careful, not only for their own safety but also to safeguard the fragile marine environment.

At a recent daily meeting of the crew of the Noble Bob Douglas to review environmental and safety precautions, Mr. Inniss, the roustabout, was given a chance to make his own safety presentation. He told of a serious accident he had a couple of years ago working on his motorcycle when he neglectfully left the motor running while adjusting a chain. He lost three fingertips.

“Use your heads before you use your hands,” he told the room full of Guyanese and American workers. He got an ovation and smiled proudly.

‘I See a Lot of Red Flags’

To visit the most senior oil regulator in Georgetown, one needs to climb an exterior staircase of warped wood that could sorely use a fresh coat of paint.

At the top is the tiny office of Newell Dennison, the acting head of the Guyana Geology and Mines Commission, whose desk is stacked high with folders beside a single metal filing cabinet. His office is spare of decorations, aside from two bouquets of artificial tropical flowers.

Mr. Dennison has a computer by his desk, from which he could consult data gathered by Exxon drill ships, though he said he had yet to do so. “We’re in transition,” he explained. “It’s a challenge.’’

For all the international attention that Guyana’s oil bonanza is beginning to generate, Mr. Dennison and the Department of Natural Resources have a mere nine technically trained people responsible for regulating oil production, engineering and geological research.

“You would expect we would have a problem to have 100 percent monitoring with our lack of resources,” said Mr. Dennison, a middle-aged geologist with horn-rimmed glasses and a neatly trimmed goatee. “My commission cannot be all of a sudden everything people expect us to be.”

There are a few signs of progress.

Guyana’s president, David A. Granger, a retired military commander leading a fractious coalition, has tried to establish a legal framework for the coming bonanza. To bypass corrupt officials, Mr. Granger has announced his intention to form an energy department for policymaking, responsible to the president, and an independent petroleum commission to regulate the industry and grant exploration and production licenses.

Under pressure to break with past secretive deals with international companies, Mr. Granger published Guyana’s contract with Exxon on a government website in December, opening a vigorous public debate on its terms. He has promised to end closed-door bidding for drilling rights, and to open auctions for future development.

Many of the changes have been promoted by Jan Mangal, Mr. Granger’s personal petroleum adviser and brother of Lars Mangal, the businessman. Jan Mangal, a Guyanese-born former Chevron project manager, has advised the president to put a hold on new leasing until the petroleum commission can be established with new personnel and has called for an investigation of several oil-exploration concessions made by the previous government to small oil companies.

“I see a lot of red flags,” said Mr. Mangal, who shuttles between Guyana and his home in Houston. “We cannot allow the Guyanese industry to be built around this shabby foundation of corruption.”

There are other signs of trouble.

Foreign development bank advisers have told the government that legislation to create a sovereign wealth fund to invest the royalties and taxes coming to the government lacks sufficient regulatory controls to avert corruption. The legislation is now in limbo. Mr. Granger’s energy department has not gotten off the ground, and a bill to set up the petroleum commission is stuck in the National Assembly.

That leaves Mr. Dennison and his commission in charge of regulation. He said he and everyone in the government felt pressure to get things right.

“Of course I worry,” Mr. Dennison said.

Clifford Krauss is a national energy business correspondent based in Houston. He joined The Times in 1990 and has been the bureau chief in Buenos Aires and Toronto. He is author of “Inside Central America: Its People, Politics, and History.” @ckrausss

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