Since ExxonMobil announced the 2015 discovery of large oil reserves off the coast of Guyana, the small South American country has been buzzing with visions of a coming oil boom that U.S. diplomats say is going to bring tremendous wealth to the people of Guyana, about one-third of whom live below the poverty line.
“There will be an unimaginable amount of revenue [profits and royalties] coming into the country,” U.S. diplomat Terry Steers-Gonzalez said in remarks at the Essequibo Chamber of Commerce annual dinner in December.
Currently, ExxonMobil estimates that the equivalent of more than 5 billion barrels of oil are concentrated in the Stabroek Block, an area about 100 miles off the coast of Guyana. Reports indicate that ExxonMobil will begin producing about 100,000 barrels a day in 2020. The International Monetary Fund is anticipating an “oil windfall” for the country.
U.S. officials see the oil discovery in geopolitical terms with little concern for impacts on climate or the redistribution of wealth.
For officials in Washington, D.C., the discovery creates fresh opportunities to influence the global oil market. “We can make our hemisphere the undisputed seat of global energy supply,” Rex Tillerson, the previous Secretary of State and a former head of ExxonMobil, said last year.
Now that the United States is going through its own oil boom, becoming the largest producer of oil in the world, President Donald Trump has declared that the nation is on its way to achieving “energy dominance.”
“We have unleashed a revolution in American energy,” the president said in his State of the Union Address. “The United States is now the number-one producer of oil and natural gas anywhere in the world.”
A significant factor affecting the situation in Guyana is a longstanding border dispute between Guyana and Venezuela. For decades, the two countries have claimed ownership of the area where the oil is located.
In 2006, U.S diplomats in Guyana reported to the State Department that the border dispute was impeding economic development in the area. “Development of the region’s oil resources is also held up by the border situation,” the diplomats noted.
At the time, U.S. officials took a relatively neutral position on the dispute. Rather than siding with Guyana or Venezuela, they issued generic calls for negotiations. In July 2015, the incoming U.S. Ambassador to Guyana, Perry Holloway, told Congress that U.S. policy has “encouraged both countries to seek out a peaceful resolution.”
But as the discovery of oil altered the political dynamics and the Venezuelan government of Nicolas Maduro made claims to the area, U.S. officials began to side more openly with Guyana. In 2015, they began citing a ruling by an arbitral tribunal from 1899 that assigned the disputed territory to Guyana. “We call on all parties to continue to respect the 1899 arbitral ruling and boundary,” Holloway said in October 2015.
Last year, U.S. diplomat Terry Steers-Gonzalez remarked at the U.S. Embassy in Guyana that while “previously, we had simply supported the timely resolution of the Venezuela-Guyana border controversy . . . the U.S. government now also call[s] on all parties to respect the 1899 arbitration decision. While some might discount this seemingly simple addition, most of us present tonight understand how truly big it was, and is.”
The terms of the oil contract, which were initially kept secret from the public, have been vigorously debated in Guyana because they are so favorable to ExxonMobil.
As U.S. officials began siding with Guyana, they also began working to defend ExxonMobil’s contract with the Guyanese government. The terms of the contract, which were initially kept secret from the public, have been vigorously debated in Guyana because they are so favorable to ExxonMobil.
In an assessment of the contract, the International Monetary Fund in a report for Guyanese officials described the terms as “relatively favorable to investors by international standards.” “Existing production sharing agreements appear to enjoy royalty rates well below of what is observed internationally,” the IMF wrote.
According to the terms of the revenue-sharing agreement, 75 percent of oil production will initially be allocated to ExxonMobil and its partners for the purposes of “cost recovery” of investments made in oil infrastructure. The remaining 25 percent will be split on a 50-50 basis with the government of Guyana. Since the contract includes a royalty of 2 percent on gross earnings, the government of Guyana will receive 14.5 percent of initial oil revenues. Only after ExxonMobil recuperates its initial costs will the government of Guyana start to receive more revenue. Analysts at the IMF predict that the share of the oil revenue received by the government of Guyana will not increase significantly until the late 2020s.
“There is no scenario, after initial investments are recovered, where Guyana gets less money than its partners,” Ambassador Holloway insisted in July 2018.
Additional concerns animate critics of the planned oil production. One major fear is that the promised revenue will not be equally shared by the people of Guyana. Historically, Guyana has been mined for commodities such as gold and bauxite without bringing any significant material gain to the country.
Environmental considerations, which have also been raised, include the potential impacts on the climate and the risk of a major oil spill. “Everyone should be concerned about an oil spill,” Holloway conceded in an interview with a Guyanese newspaper in December. “It does happen very frequently in the industry.”
Yet Holloway characterized ExxonMobil as “safety-conscious company” and dismissed all of the “doom and gloom” that he hears from people about the potential for exploitation.
The basic message of U.S. officials is that oil is going to bring newfound wealth and riches to the people of Guyana. As they lay the groundwork for ExxonMobil to dominate the new oil market, they are selling the people of Guyana on a grand vision of their country becoming one of the wealthiest places in the world. In fact, U.S. diplomats have been working as some of the biggest boosters for ExxonMobil in Guyana.
“Our Embassy continues to repeat that it is truly difficult to comprehend the real magnitude of these oil finds,” Steers-Gonzalez said at the Essequibo Chamber of Commerce in December. “This is really, really big. Huge, gigantic, enormous, ginormous!”