News Americas, NEW YORK, NY, Tues. Dec. 19, 2023: Fitch Ratings has affirmed the Dominican Republic’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ and revised the Outlook to Positive from Stable. The Positive Outlook reflects improved governance, robust growth prospects, and a trend towards higher per capita income. Dominican Republic’s governance indicators have shown improvement, and there are expectations of legislative changes to enhance the macro institutional framework. Growth, while decelerating in 2023, is expected to recover in 2024-2025. External liquidity metrics have improved, and foreign currency debt is decreasing.

The ratings are supported by strong economic growth, diversified exports, high per-capita GDP, and favorable governance scores. However, fiscal challenges, external liquidity buffers, and reliance on external bond market financing are constraints. The upcoming presidential and legislative elections in May 2024 are expected to maintain political stability. Stimulus measures have been enacted in response to slowing growth in 2023.

Inflation has fallen, enabling the central bank to cut the policy rate. The current account deficit is forecasted to decline, largely funded by robust FDI inflows. Tax advances have been used to fund higher capex. The government has increased local market borrowing. Fiscal reforms are under discussion, including a tax reform. The electricity sector remains a fiscal vulnerability.

ESG considerations include political stability, rule of law, institutional quality, control of corruption, human rights, and creditor rights. These factors have varying degrees of relevance to the rating and are assessed accordingly.

Rating Sensitivities:
Negative factors that could lead to a downgrade include a sharp deterioration in public finances, external vulnerability, or failure to achieve strong growth. Positive rating action could result from improved fiscal flexibility, higher growth, or further governance improvements.

Country Ceiling:
The Country Ceiling for the Dominican Republic is in line with the Long-Term Foreign-Currency IDR, indicating no material constraints on capital or exchange controls.

ESG Considerations:
Dominican Republic’s ESG Relevance Scores are ‘5[+]’ for Political Stability and Rights, ‘5’ for Rule of Law, Institutional & Regulatory Quality, and Control of Corruption, ‘4[+]’ for Human Rights and Political Freedoms, and ‘4’ for Creditor Rights. These factors are considered relevant to the rating and are key rating drivers with varying impact on the credit profile.

By Cristina Caus

News Americas, FORT LAUDERDALE, FL, Tues. Dec. 19, 2023: The Gas-to-Energy project is an embodiment of Guyana’s mission to transform its historically underperforming economy, now one of the fastest growing, into a world-class and competitive environment.  The GtE project represents one of the largest single-expenditure projects in the history of Guyana.

Planned as a 25-year joint venture between the Government of Guyana and ExxonMobil with a cost of approximately US$ 2 billion, the project is designed to supply natural gas from the Stabroek Block through a 12-inch diameter pipeline that will run 220km to the onshore Wales Development Zone on the West Bank of Demerara, connecting to a facility that is slated to encompass a 300 MW natural gas power plant and a natural gas liquids (NGL) plant. When completed, these two facilities will be capable of producing at least 4,000 barrels per day, including the fractionation of liquefied petroleum gas (LPG).  The NGL processing plant will treat the gas to extract NGLs for commercial use, and the power plant will use the dry gas to generate electricity for domestic use. Later developments could include plants for producing ammonia and urea.

 The Project is one of a kind and it consists of two phases:1.Pipeline installation coming at an estimated cost of  US$1.3 billion. Exxon is going to manage the installation of the subsea pipeline on the seafloor to transport the natural gas from the Liza field to the onshore pipeline, with a minimum of 50 million standard cubic feet of gas per day capacity (mmscfd) and a maximum capacity of 130 mmscfd. and 2.The construction of the gas power plant and the integrated NGL plant, managed by the US-based partnership CH4/Lindsayca at a cost of approximately  US$759 million.  The project is expected to come online by the end of 2024.

In its anticipation,  the Petroleum Management Programme under the Ministry of Natural Resource of Guyana, released the Gas Monetization Strategy which serves as a discussion paper for citizens and experts to share their opinions with the government on the project and the strategy to manage Guyana’s substantial gas resources.

Given the size, scope and cost of the project, some are skeptical and find it difficult to determine the feasibility of it; and there are aspects that need to be analyzed.  

Is Guyana Truly Ready For A Project Of This Scale?

Resource wise – yes. The Guyana-Suriname basin is known to contain large amounts of natural and associated gas as well as crude oil. Gas accounts for about 25% of the 11bn barrels of oil equivalent (boe) in recoverable reserves discovered at Stabroek.  According to estimates, the  proved gas reserves are at 17 trillion cubic feet (tcf). , The associated gas is currently used for pressure maintenance and enhanced oil recovery, but it is considered to be trapping a substantial quantity of oil, therefore limiting the oil exploration and production capabilities as well.

Infrastructure-Wise Guyana Hasn’t Been Ready For This Sudden Oil And Gas Turn Of Events To Start With

The country was in a similar dilemma a few years ago when it started offshore operations. It didn’t have the adequate infrastructure, financial and workforce capability to embrace this sprouting industry and that’s where a leap of faith was required. Up to date, ExxonMobil and its contractors spent more thanUS$900 million with locals since the first discovery in 2015. By the end of 2022, the company and contractors employed over 5,000 Guyanese workers, representing more than 65 percent of the overall workforce in the local oil and gas industry.

With no experience or offshore infrastructure, Guyana just in four years managed to have acquired two FPSOs (at an approximate cost of about $1B each)  actively operating in its deep waters, with one more expected to be delivered by the end of 2023 and three more targeted by the end of 2027. That’s a total of six floating production storage and offloading vessels, quite an impressive portfolio of assets for a beginner like Guyana, and a solid investment for a supermajor like Exxon. This agile responsiveness to its petroleum infrastructure and workforce needs integrated with foreign partnerships, investments and skills transfer is a harbinger of how Guyana can manage complex infrastructure projects, such as the Gas to Energy one and how competitive it can get on the global market.

The costly infrastructure investments if coupled with the right maintenance practices have a quite long lifespan, between 30-50 years for the Gas power plants and the NGL plants and an average of 50 years for the natural gas transmission pipelines; long enough to pay off the hundreds of millions of dollars it takes to build them and longer in comparison for example with the solar power plants that on average would last 25-30 years, wind farms that  have an expected lifetime of around 20 years, while energy storage last roughly 10 years.

Financially Wise – Yes, But This Requires Caution

In the past two years the global events have been favoring the commodity prices therefore creating more oil revenues for the oil producing economies, including Guyana, who has pocketed about  US$1.24 billion in revenue from oil sales and royalties annually since first oil production in 2019.

The key to economic stability for a country is a balanced wealth management and distribution strategy. Often happens that developing countries who get blessed with wealth from resources initiate generous spendings, expensive projects and acquisitions which mostly lead to exaggerated loans and burdening debts. That’s the case of many oil exporters, eight out the top 35 net oil exporters from 1979 to 2010 have defaulted on their debt during that period, some of them are Argentina, Sudan, Iran, Iraq, Russia, Mexico, Egypt. 

While considering a project of this scale, it is important to pay attention to maintaining a good-debt-to GDP ratio. The relationship between abundant fossil fuel reserves and rising debt is no coincidence and many of the countries facing debt distress have significant oil and gas reserves. Many oil exporting economies get trapped in this vicious cycle where they benefit from increasing oil revenues which increases the value of their reserves and boosts their credit ratings, enabling them to get more loans, when the oil prices drop the debt is heavier pushing the economy to expand the fossil fuel sector more and rely more on the  revenues it generates, which gets attractive for creditors but becomes a heavy burden for the economy, as it gets more indebted. 

As a rule of thumb, a  good-debt-to- GDP ratio is usually under 60 percent. Guyana was at 27.80 percent in 2022, expected to reach 30.00 percent of GDP by the end of 2023.  According to the IEEFA Guyana’s debt will skyrocket from US$621 million in 2023 to an overwhelming US$1.7 billion in 2027, primarily fueled by the Gas-to-Energy initiative. On the other hand, Guyana’s GDP is forecasted to see a tremendous growth as well, reaching US$ 29.94 billion by 2028, placing it somewhere in the 58% debt to GDP ratio.

The Oil & Gas Debt – Vicious Cycle

Figure: The relationship between abundant fossil fuel reserves and rising debt

If we are to do a quick math around the Gas to Energy project, the pipeline installation by Exxon will commit Guyana to pay annually for the next 20 years a fixed rate of US$55 million to Exxon, this amount is the amortized cost of US$1 billion for 20 years at a discount rate. The natural gas and the LNG plant facilities  are to be financed by the government, for 2023 about $US 200 million were allocated from the budget  while the other portion of approximately US$646 million is pending financial approval the government is seeking from EXIM.

The flip side of the coin is that currently about 90 percent of Guyana’s power generation capacity comes from heavy fuel oil. The GtE project would be saving about US $11 million that is used to pay for fuel every single month in addition to reducing electricity prices by an estimated 50 percent, which currently is at a rate of 15 US cents per kilowatt hour. Also, according to the Winston Brassington, Head of the Gas-to-Energy Task Force, it is estimated that the commercialization of the excess NGLs will earn Guyana about US$100 million per year, providing the revenues to meet the annual payments and make a profit.

We should also consider the potential revenues from branching out the GtE project as highlighted in the Gas Monetization Strategy. The production of fertilizers, such as ammonia, can contribute enormously to the diversification of the project and the economy. Natural gas is the primary feedstock for ammonia, the building block for all nitrogen fertilizers, and accounts for 70-90% of production costs. If we take a look at the fertilizer market, it is roughly increasing by 12 percent compared to the previous years and it is forecasted to surpass US$ 240 billion by 2030. Trinidad and Tobago can serve as a good example of how profitable it can become, as in 2021, T&T exported US$1.74 billion in ammonia, the most exported product in the country and placed the nation as the second largest exporter of ammonia in the world. The Russia- Ukraine war has destabilized the fertilizer market globally, as they both were large fertilizer producers, therefore creating an opportunity for newcomers as Guyana.

There has been constant discouragement addressed by some global organizations and individuals towards Guyanese pursuit of its fossil fuels resources from the beginning. The kind of” in the right place at the right time” opportunity isn’t presented every day and wouldn’t Guyana have taken the risk to invest in its oil exploration and production it would not become the fastest growing economy in the world in few years only blessing its citizens with a phenomenal GDP per capita growth from about US$6.950 in 2020 to $US 20.000 in 2022 with a forecasted 80.74 percent continuous increase to about US $37.000 by 2028.

Some are worried that this project will indebt the country for many years to come and some even claim, as the U.S. based Institute for Energy Economics and Financial Analysis (IEEFA), that the project is “unnecessary and financially unsustainable”,  advising that Guyana could use its oil profits for a reliable, low-cost rooftop solar solution that would save billions while providing low-carbon electricity to the entire country.

Renewable energy is indeed a good solution developed in parallel, however it is an intermittent variable power and it needs to be balanced with a stable and reliable source, such as the natural gas, which is a low-carbon energy source compared to current HFO being used. Moreover, renewable energy, as solar suggested by the IEEFA, would address a portion of country’s economic challenge, which is energy generation, however, would not create the other economic opportunities as some described earlier.

The massive economic growth in Guyana is creating a huge demand for energy supply and for serious investments in grid modernization, transmission lines and substations for integration.  Nevertheless, the fact that Guyana has natural gas in abundance should be considered as a step towards diversification of its energy portfolio and energy security and transition plans, while combined with renewable energy projects.  A healthy approach is required that considers economic expansion into new sectors, development of new projects, reliable partnerships and investments that align with country’s needs and global market demand in a sustainable and financially sound way.

EDITOR’S NOTE: Cristina Caus is an International Economist and Oil and Gas/Energy Consultant and Business Developer. She has a rich, over a decade experience in the oil & gas industry worldwide and holds a master’s degree in international business from FIU.

By Meredith Arnold McIntyre

News Americas, NEW YORK, NY, Tues. Nov. 28, 2023: The Guyanese economy continues to grow very rapidly, driven by the booming oil sector and supported by the government’s modernization plans. GDP continues to expand at an unprecedented rate following growth of 62.3 percent in 2022 (the highest in the world) economic growth is expected to be 38 percent in 2023.

Oil production continues to expand rapidly with the coming on stream of a third oil field, while accelerated implementation of a public investment program is supporting strong growth in the non-oil sector. The program is targeted at critical development needs and vital to strengthening economic capacity including transportation, housing, and flood management infrastructure, and raising human capital.

The latter objective of raising human capital is vital to achieving stronger long-term, sustainable growth. The presence of significant skills gaps that could hinder growth and economic transformation has been highlighted by policymakers. The other facet of the challenge is skills mismatches in the labor market where there are workers seeking employment but do not have the skills demanded in the labor market. Taken together this suggests a significant shortage of the labor skills required and recent estimates by public officials put the shortage at about 100,000 persons. Skilled labor shortages have been identified in technical skills – welders, machinists, heavy equipment operators and a range of technical skills needed in the oil industry.

In addition, as the world becomes increasingly digital Guyana like many developing countries faces the challenge of increasing the supply of skilled workers with digital skills. There is a growing need to produce skilled workers with digital skills to support an expanding service sector and the diversification of the economy, reducing the dependence on the rapidly expanding oil sector.  The note looks at the core digital skills Guyana will need to support the process of economic transformation and diversification.

To support the drive for increased digitalization Guyana must significantly expand internet access. The International Telecommunications Union (ITU) estimated in 2021 that only 17 percent of the population had internet access. The low level of internet penetration is  limiting access to online education and digital skills training. Increasing broadband access and internet penetration is an important component of Government’s strategy to support the transformation process.

It is well established that digitalization increases economic efficiency, reduces transactions costs, and increases competitiveness. The Government is preparing and implementing a variety of reforms to increase digitalization of the economy and to boost labor productivity e.g., single window processing of permits, digital ID and digital banking records.

As Guyana pursues an economic transformation strategy what are the core digital skills needed to support digitization and economic transformation? The core digital skills needed to support the development of a modern economy with an efficient services sector are a combination of “hard” and “soft” skills.The “hard” skills include: (i) Online or internet-based research. This requires setting up methods of accumulating data and these include customer surveys, online interviews and metric data gathering. (ii) Social media management. This means establishing methods/processes to gather information from social media audiences and using the information to develop strategies for target audiences, for example, critical in marketing goods/services by companies or promotion of government programs to increase participation. (iii) Data and spreadsheet management. This enhances vital quantitative skills and includes managing databases and spreadsheet software to organize the data ensuring it is easily understood with a wide variety of audiences. (iv) Enhancing digital threat awareness or the risks of using digital devices. This is the area of cyber security that is of growing importance as digitization expands across the world. Cybersecurity training involves acquiring the tools to not only be aware of the digital threats but to protect the individual and the organization. For example, hacking, phishing, privacy violations, and cyberbullying.  (v) Desktop publishing. This is the range of core digital skills needed to ensure Guyana can supply the skilled workers needed to support economic transformation including the economic diversification needed long-term to reduce the dependence on the rapidly expanding oil sector.

In the oil industry digital skills have an increasingly important role to play. A global survey of by Statista[1] found that respondents identified data analytics (60,percent of the respondents) and cyber security (57 percent) as the two most critical digital skills for the oil and gas industry. Other key digital skills identified included engineering (38 percent), data science (37 percent), digital literacy (28 percent) and digital engineering (28 percent). Taken together these skills were seen as crucial to securing the future success of their companies.

Guyana’s government has identified digital skills training as a priority in the program to close skills gaps. Government has clearly stated its intention to pursue a variety of digital literacy initiatives and the private sector can play a key role by investing in upgrading/developing digital skills in the workforce.  Importantly, underpinning these “hard skills” is knowledge of key software in word processing, spreadsheets, and databases.  For example, word processing (Microsoft word, google docs), spreadsheets (Microsoft excel, google sheets, Apple numbers) and database software (Microsoft SQL server, Oracle DBMS).

Developing core digital skills while necessary is not sufficient to enhance the skills of the workers needed for the current economic transformation. The “hard skills” need to be complemented by training in and knowledge of “soft skills”. What are the soft skills?These include (i) Teamwork and collaboration. Working in teams and effective collaboration is increasingly a core part of the modern organization in the public and private sectors. (ii) Interpersonal skills and communication. This is needed in all forms of communication – oral, written, non-verbal and importantly, listening, remains a vital skill for working effectively in a modern organization. (iii) Critical thinking. In the era of fake news, social media bubbles, information overload skilled workers operating in the digital space will need the skill of critical thinking. (iv) emotional intelligence is another soft skill modern organizations in the public and private sectors need to train workers.

Finally, developing digital skills is going to require collaboration between the public and private sectors and cannot be seen exclusively as a function of the state. Businesses will need to invest resources in the digital training of their workforce and government in designing and developing digital skills development programs will need close collaboration with the private sector to identify the sectors/industries where the digital skills shortages are acute. Typically, training staff via online courses with international certification is a common method for private companies. Private sector inputs in training programs are critical to aligning the programs with the needs of the economy as they evolve over time.

EDITOR’S NOTE:  Dr. Meredith Arnold McIntyre has been an economist for over 30 years. He has worked in a variety of Caribbean regional institutions including the Caribbean Development Bank, Organization of Eastern Caribbean States, and the Caribbean Regional Negotiating Machinery in the 1990s. Dr. McIntyre joined the International Monetary Fund (IMF) in February 2001 and worked on countries in Africa and the Caribbean including leading IMF country team missions to Guyana. Dr. McIntyre has published a book and a variety of articles on issues in macroeconomic and trade policy in small states. He is currently an Associate, Manchester Trade Ltd and a Fellow with the Caribbean Policy Consortium. 

By Meredith Arnold McIntyre

News Americas, NEW YORK, NY, Tues. Nov. 28, 2023: The Guyanese economy continues to grow very rapidly, driven by the booming oil sector and supported by the government’s modernization plans. GDP continues to expand at an unprecedented rate following growth of 62.3 percent in 2022 (the highest in the world) economic growth is expected to be 38 percent in 2023.

Oil production continues to expand rapidly with the coming on stream of a third oil field, while accelerated implementation of a public investment program is supporting strong growth in the non-oil sector. The program is targeted at critical development needs and vital to strengthening economic capacity including transportation, housing, and flood management infrastructure, and raising human capital.

The latter objective of raising human capital is vital to achieving stronger long-term, sustainable growth. The presence of significant skills gaps that could hinder growth and economic transformation has been highlighted by policymakers. The other facet of the challenge is skills mismatches in the labor market where there are workers seeking employment but do not have the skills demanded in the labor market. Taken together this suggests a significant shortage of the labor skills required and recent estimates by public officials put the shortage at about 100,000 persons. Skilled labor shortages have been identified in technical skills – welders, machinists, heavy equipment operators and a range of technical skills needed in the oil industry.

In addition, as the world becomes increasingly digital Guyana like many developing countries faces the challenge of increasing the supply of skilled workers with digital skills. There is a growing need to produce skilled workers with digital skills to support an expanding service sector and the diversification of the economy, reducing the dependence on the rapidly expanding oil sector.  The note looks at the core digital skills Guyana will need to support the process of economic transformation and diversification.

To support the drive for increased digitalization Guyana must significantly expand internet access. The International Telecommunications Union (ITU) estimated in 2021 that only 17 percent of the population had internet access. The low level of internet penetration is  limiting access to online education and digital skills training. Increasing broadband access and internet penetration is an important component of Government’s strategy to support the transformation process.

It is well established that digitalization increases economic efficiency, reduces transactions costs, and increases competitiveness. The Government is preparing and implementing a variety of reforms to increase digitalization of the economy and to boost labor productivity e.g., single window processing of permits, digital ID and digital banking records.

As Guyana pursues an economic transformation strategy what are the core digital skills needed to support digitization and economic transformation? The core digital skills needed to support the development of a modern economy with an efficient services sector are a combination of “hard” and “soft” skills.The “hard” skills include: (i) Online or internet-based research. This requires setting up methods of accumulating data and these include customer surveys, online interviews and metric data gathering. (ii) Social media management. This means establishing methods/processes to gather information from social media audiences and using the information to develop strategies for target audiences, for example, critical in marketing goods/services by companies or promotion of government programs to increase participation. (iii) Data and spreadsheet management. This enhances vital quantitative skills and includes managing databases and spreadsheet software to organize the data ensuring it is easily understood with a wide variety of audiences. (iv) Enhancing digital threat awareness or the risks of using digital devices. This is the area of cyber security that is of growing importance as digitization expands across the world. Cybersecurity training involves acquiring the tools to not only be aware of the digital threats but to protect the individual and the organization. For example, hacking, phishing, privacy violations, and cyberbullying.  (v) Desktop publishing. This is the range of core digital skills needed to ensure Guyana can supply the skilled workers needed to support economic transformation including the economic diversification needed long-term to reduce the dependence on the rapidly expanding oil sector.

In the oil industry digital skills have an increasingly important role to play. A global survey of by Statista[1] found that respondents identified data analytics (60,percent of the respondents) and cyber security (57 percent) as the two most critical digital skills for the oil and gas industry. Other key digital skills identified included engineering (38 percent), data science (37 percent), digital literacy (28 percent) and digital engineering (28 percent). Taken together these skills were seen as crucial to securing the future success of their companies.

Guyana’s government has identified digital skills training as a priority in the program to close skills gaps. Government has clearly stated its intention to pursue a variety of digital literacy initiatives and the private sector can play a key role by investing in upgrading/developing digital skills in the workforce.  Importantly, underpinning these “hard skills” is knowledge of key software in word processing, spreadsheets, and databases.  For example, word processing (Microsoft word, google docs), spreadsheets (Microsoft excel, google sheets, Apple numbers) and database software (Microsoft SQL server, Oracle DBMS).

Developing core digital skills while necessary is not sufficient to enhance the skills of the workers needed for the current economic transformation. The “hard skills” need to be complemented by training in and knowledge of “soft skills”. What are the soft skills?These include (i) Teamwork and collaboration. Working in teams and effective collaboration is increasingly a core part of the modern organization in the public and private sectors. (ii) Interpersonal skills and communication. This is needed in all forms of communication – oral, written, non-verbal and importantly, listening, remains a vital skill for working effectively in a modern organization. (iii) Critical thinking. In the era of fake news, social media bubbles, information overload skilled workers operating in the digital space will need the skill of critical thinking. (iv) emotional intelligence is another soft skill modern organizations in the public and private sectors need to train workers.

Finally, developing digital skills is going to require collaboration between the public and private sectors and cannot be seen exclusively as a function of the state. Businesses will need to invest resources in the digital training of their workforce and government in designing and developing digital skills development programs will need close collaboration with the private sector to identify the sectors/industries where the digital skills shortages are acute. Typically, training staff via online courses with international certification is a common method for private companies. Private sector inputs in training programs are critical to aligning the programs with the needs of the economy as they evolve over time.

EDITOR’S NOTE:  Dr. Meredith Arnold McIntyre has been an economist for over 30 years. He has worked in a variety of Caribbean regional institutions including the Caribbean Development Bank, Organization of Eastern Caribbean States, and the Caribbean Regional Negotiating Machinery in the 1990s. Dr. McIntyre joined the International Monetary Fund (IMF) in February 2001 and worked on countries in Africa and the Caribbean including leading IMF country team missions to Guyana. Dr. McIntyre has published a book and a variety of articles on issues in macroeconomic and trade policy in small states. He is currently an Associate, Manchester Trade Ltd and a Fellow with the Caribbean Policy Consortium. 

By Arthur Deakin

News Americas, WASHINGTON, D.C., Tues. Nov., 21, 2023: The recent merging of oil and gas companies in the U.S. indicate that energy majors see a long-term future for specific hydrocarbons in the energy transition. Chevron’s announcement of their US$53 billion all stock acquisition of Hess, and ExxonMobil’s US$59 billion merger with Pioneer Natural Resources, is likely the beginning of a wider industry consolidation in which oil majors target independent producers operating in relatively stable jurisdictions with proven light crude reserves, low breakeven costs, and flexible oil supply (i.e., shale wells that can start producing quickly when oil prices are high). Oil majors will continue to prioritize assets that generate significant free cash flows so they can continue paying large dividends to shareholders.

High cost of capital make greenfield assets hard to finance

Financing greenfield energy assets in emerging markets has become extremely challenging with the rise of interest rates. Hydrocarbon assets, which most investors are shying away from, and low carbon technologies, some of which do not yet have proven paths to profitability, are struggling to attract investments in developing markets as the risk-return is simply unjustifiable in the current financial environment. Outright acquisitions and mergers, however, have become more appealing, and none more so than the Stabroek Block in Guyana. The biggest discovery in the last decade has an estimated 11 billion barrels of recoverable oil equivalent, with potential to grow even more in the future.  This is a multi-decade production play, and it signals Chevron’s commitment to a long-term hydrocarbon strategy in the Americas.

For years, Hess has known they’ve struck the jackpot with Guyana, reflected by the upbeat mood internally at the company.  They’ve been seeking a large payday for quite some time—well deservedly so, as Guyana’s Stabroek Block has been praised as the best oil find in recent times. In addition to its resource potential, the ExxonMobil-operated block offers highly competitive breakeven costs ranging from $25 to $35 per barrel across producing projects. It is located offshore, where there tends to be less direct impact on communities than onshore drilling, and it also operates under a favorable production sharing agreement with attractive fiscal terms.

Image 1: Breakeven costs

Five major implications for Guyana

The Chevron-Hess deal will have five major implications for the Guyanese economy, all of which are likely to lead to long-term reverberations for the local oil and gas sector:  

An accelerated exploration of the Stabroek block

ExxonMobil’s $63 billion dollars in free cash flow in 2022 makes it one of the most well-capitalized oil and gas companies in the world. The speed of their ramp up in Guyana has been unprecedented, both in terms of time to market and successfully drilled wells. However, with another oil major joining the Stabroek consortium, it is likely that the 10 to 12 wells planned for 2024, and the 35-well exploration campaign announced through 2028, will actually exceed the original numbers.

An increase in production estimates for existing wells

While the Stabroek consortium already has one of the most, if not the most, competent, and technical team in the oil and gas industry with ExxonMobil at the helm, there are technological advances that Chevron could bring to the table that could increase production estimates for Guyana (upwards from the 1.2mn projected for 2027). Chevron CEO Mike Wirth discussed their collaboration with AI juggernaut OpenAI noting “We’ve been working with OpenAI for multiple years now on technologies that could work in our industry,” Wirth said. He noted oil giants generate immense datasets on geological characteristics and more. Often times, these innovative technologies are siloed inside companies, with Chevron already suggesting that they will introduce new technical capabilities to the Bakken assets owned by Hess.

Image 2: Oil production

A more competitive oil and gas sector

Although Exxon will still be calling the shots as the lead operator of the Stabroek consortium, the presence of another American oil major will lead to more collaborative decision making behind closed doors. Chevron will also now be part of the bid made in the recent oil tender by Exxon, Hess and CNOOC, pacifying some of the government’s claims that ExxonMobil is the only game in town. 

Greater Chinese influence outside of the oil & gas sector

Although the third partner in the Stabroek consortium is Chinese (CNOOC), the state-owned oil company has remained in the background during the last eight years of oil development in Guyana. Now, with the presence of two of the largest American oil majors in the consortium, CNOOC’s influence is likely to diminish. In turn, the Chinese government will increase its presence in surrounding sectors such as mining, healthcare, renewable power, and road infrastructure.

Greater pressure from the government and the people

With more resources, comes greater responsibility. The Guyanese government will likely highlight this acquisition to show that interest in Guyana remains hot, using the momentum to sign production sharing agreements that are less beneficial for oil companies in the most recent oil auction. The Guyanese people will also be more inclined to see what they can get out of a new major company coming into the country, both in terms of jobs and greater concessions. Despite the Wall Street Journal recently reporting that Guyana is booming, the reporting also raised questions on how the material improvement is flowing to ordinary Guyanese. It is expected that there will be more public pressure for improved living conditions in Guyana.  

Chevron is bullet-proofing their portfolio against international turmoil

Although Hess’ 30% participation in the Stabroek consortium was the main reason behind Chevron’s acquisition, Hess also produces 190,000 barrels per day in the Bakken Shale Play where it owns 465,000 acres of land. The Bakken formation is both more mature and smaller than the Permian basin, signaling less room for growth, but the abundance of land means Chevron could drill new wells in new locations as old wells mature. This flexibility, during a time of geopolitical turmoil, is exactly what Chevron is looking for as it seeks to bullet-proof its portfolio against unstable regimes and international conflicts.

Chevron also announced that the Bakken asset will provide a constant level of production, and strong cash flows, for many years to come. In fact, if the number of rigs remain constant, at four, Chevron estimates that the Bakken acquisition will have at least 15 years of inventory. Although the Bakken has high half-cycle breakeven costs, at U$58 per barrel, Chevron’s resources means that it faces less pressure to stick to modest production increases like many other shale producers. Its deep pockets, and ability to keep providing returns to shareholders, means that Chevron can afford to take riskier bets.

EDITOR’S NOTE: Arthur Deakin is the Director of the Energy Practice at AMI (Americas Market Intelligence). Through market research and strategic analysis, he helps companies expand into Guyana and the wider Latin American region. In the past ten years, AMI has helped companies understand the Guyanese market, navigate Guyana’s local content legislation, execute pre- and post-acquisition due diligence and conduct competitive analysis on key players in the country.

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