By Steven Jasmin – OilNOW
A few weeks ago, I posted a breakdown of the estimated $500 Billion USD worth of oil that has been discovered and will be extracted. The post was well received and re-shared quite a bit. In the post I outlined my napkin estimate that Guyana was expected to see at least $200 billion over the next 20 years in revenue from the country’s take of the Oil and Gas find – approximately 40% of the total value of the recoverable assets.
Recently, a report came out by Rystad Energy that flipped my analysis on its head. Rystad believes that given what has been found, by 2035 the country of Guyana will not be receiving 40% of the total revenue as I predicted, but rather 10 billion dollars a year which is closer to 60% of the total revenue from the field.
Some will argue that it is still not enough, and that the country deserves more. I am not going to get into that argument as I feel Esso Guyana has done an incredible job of bringing Guyana’s field into production in record time coming 6 months ahead of schedule and over 1 billion dollars under budget. People are quick to forget that every dollar that the International Oil Companies (IOC) save, allows Guyana to repay its debts to the IOC’s much quicker.
For those in the O&G industry, everyone knows opening new fields, especially hard to reach fields that are deep offshore, is an extremely challenging and expensive task and comes with a tremendous amount of risk for which the IOC’s including ExxonMobil (NYSE: XOM), Hess(NYSE: HES), and CNOOC Nexen – the partners that comprise Esso Guyana as well as the other active explorers that are working in Guyana including: EccoAtlantic (AIM: ECO), CGX(TSE: CGX), Repsol (BME: REP), Tullow (LON: TLW), and Total (NYSE: TOT) need to be compensated for.
Here you will find the analysis by Rystad that shows where Guyana’s estimated Government take lands among a peer group of other new and existing oil producing countries. Notice Guyana’s estimated average is higher than both the United States and Israel. Where the final numbers will lie only time will tell, but if the field continues to operate at the velocity and efficiency that they have been so far, it could actually still increase.
Let’s put 10 billion US Dollars a year in context. As of 2019 the IMF estimated Guyana’s GDP to be 4.12 billion and ranked 154th out of 185 countries. If you add the 10 billion in annual oil revenue that the country is estimated to receive, Guyana will have a total GDP of 14.12 billion and it will move to 125th place. This assumes no other growth occurs as a result of rapid domestic investment, cheaper power from LNG and renewable energy sources, increasing population, the emergence of a middle class with disposable income, and continued oil finds. All of which will occur and continue to have a dramatic impact on Guyana’s total GDP. So, with the new information from Rystad and their team, I believe Guyana’s Natural Resource Fund will see closer to $300 billion over the next 2 decades – which is an un-leveraged sum.
According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) 2019 Economic Survey says that Guyana has the lowest public debt in the entire Caribbean at 41.7% of GDP or approximately 2 billion USD. This is before you take into account the 300 billion dollars that I estimate the country will receive. I know these numbers are big, but another way to look at it is, if I have $300 dollars, and I owe my friends $2 dollars, I am essentially debt free and my friends are all willing to lend me a lot more money. So regardless of exactly where Guyana is sitting, or whether you feel that a fair deal was reached, it is important to remain focused on the Economic Tsunami that is coming.
I am constantly getting asked by International Investors, Family Offices, Government Officials, and Local and Foreign Partners and friends for my opinion on why Guyana is still struggling. The big question that repeatedly comes up is when will Guyana start to see the real benefits of this massive oil find and what is it going to do to real wage inflation? The long and the short answer is no one truly knows.
I liken Guyana’s current business environment and economy to that of an approaching tsunami. Before a tsunami makes landfall, a natural phenomenon called a “drawback” occurs. The drawback is where the water recedes far into the ocean – sometimes for miles, as the tsunami gains strength and prepares to make land fall. For the most part everyone trying to work and invest in Guyana is chasing the drawback not realizing that behind it is an Economic Tsunami that is coming, and if they are not careful, they will be washed away.
I firmly believe since Exxon found first oil in 2015 and the country began working with the multi-lateral aide organizations including the IADB, the IMF, the World Bank and others, to begin capacity building for the tremendous growth coming it forced the country to clamp down and make some hard decisions so that it would be prepared for the Economic Tsunami. The Government rightfully refused loans and did not go on a spending spree pre-production, which was counseled by all of their advisers including the IMF, the World Bank, and the IADB. Why go to the loan shark when you know you can go to a regular bank in the not too distant future?
When will Guyana’s Economic Tsunami make landfall?
My response has always focused on 3 main milestones:
- Once Guyana produced and shipped its first 1MM barrels of oil from the FPSO Liza Destiny.
- When the country receives a credit rating from the international rating agencies.
- When a fair and free elections take place on March 2nd.
One of the three milestones has been successfully completed. Guyana has produced over 2.7MM barrels of oil to date and the government is lifting its first 1MM barrels and has already established its holding accounts with the Federal Reserve Bank in New York – something that most oil producing nations do as the petro-dollar is the world’s reserve currency. I anticipate the credit agency’s issuing a credit rating on Guyana by the end of Q2 or start of Q3 if not sooner – I am hoping sooner. Finally, the elections are scheduled for March 2nd.
Both parties are working together as Guyana welcomed for the first time the “Queen of the Skies” an Atlas Air 747-400 (another major milestone that demonstrates Guyana’s commitment to capacity building) that brought the ballot papers from Canada to Guyana under a secure and bi-partisan delegation led by GECOM. To complement Guyana’s own election monitoring process, the International Community is sending multiple delegations to assist with Election Monitors who are already arriving and working tirelessly with all parties to ensure that the elections on March 2nd are peaceful and free. Until these three milestones are hit, I contend we will continue to be in a period of economic drawback.
Given it is election season in Guyana and the Country is facing the “mother of all elections” as some have termed it, both sides are feverishly working to make their points. Politically in Guyana I am focused on where the country is going and how Smart City Clearing Company Ltd. and our portfolio companies and local partners can help create value and make an impact.
Being a US Citizen, I want the entire country regardless of race, creed, or political affiliation to succeed. I know there is more opportunity in Guyana than any other country in the world. I am not supporting any party, but rather am staying focused on my mission of helping Guyana grow and become the new leader of not just the Caribbean but as well as Central and South America.
As one of the poorest countries in the South Western Hemisphere quickly becomes one of the wealthiest, a lot of things are going to change. The Guyana of yesterday should never be forgotten, but as one of my superheroes always said; “With Great Power Comes Great Responsibility” – Peter Parker AKA Spiderman.
I hope all Guyanese take these words to heart and work together to help ensure that Guyana continues down the path of development and growth that everyone can and will participate in.
Mr. Jasmin is Chairman and Managing Director of Smart City Clearing Company Ltd. a BVI based frontier market merchant bank focused entirely on supporting Guyana’s growth as the country develops post first-oil. The bank’s focus is working with High Net Worth and Institutional clients and partners across all aspects of the Alternative Investment Asset Class as they look to invest and participate in Guyana’s growth. His practice focuses on four key areas: Offshore Oil & Gas Services, Infrastructure Development, Technology, as well as Commercial Real Estate Development, Management & Brokerage. As a former registered investment banker based in Atlanta, GA USA with offices in Fourchon, Louisiana; Houston, Texas; and since June of 2017 Georgetown, Guyana, South America. He has spent the past 30 months working in Guyana and laying the groundwork to be the liaison between regional and international investment community as their dedicated Guyanese boots on the ground asset manager and partner. He has developed a keen understanding of the Guyanese market and what it takes to be a successful investor, asset manager, and operator in the world’s fastest growing economy.
