A recent analysis by energy consultancy firm Wood Mackenzie indicates that the oil sectors of the burgeoning Guyana-Suriname basin could reap benefits from fiscal reforms introduced by Colombia’s newly elected President, Gustavo Petro.
The Colombian president has launched an ambitious fiscal reform program, which includes increased taxes on high-income individuals and the extractive industries such as oil and gas. While these fiscal changes are expected to result in an additional US$15 billion in government revenue over the next decade, they may have a counterproductive effect on the country’s oil and gas sector.
According to Wood Mackenzie, the reforms could lessen Colombia’s attractiveness as an investment destination for oil and gas companies. They point to the fact that higher taxes will likely cause the average corporate net cash flow from oil and gas projects to drop by an estimated 26%. This could prompt companies involved in exploration and production (E&P) to reassess their strategies and consider other regional markets that offer more favorable fiscal conditions.
Countries such as Guyana, Suriname, and Trinidad and Tobago could stand to gain as attractive alternatives for these companies, WoodMac explained. The potential shift in investment could accelerate Guyana’s oil sector growth, as international companies look for more favourable climates for their investments.
Wood Mackenzie further noted that while the Colombian government’s goal is to expedite the country’s transition to cleaner energy sources, achieving this in the face of decreasing revenue from the oil and gas industry could present a challenge. This is particularly true as Colombia’s export sector is still heavily reliant on crude oil and coal. The reforms are not without purpose. President Petro has pledged to move away from fossil fuels, and make Colombia a leader in the energy transition.
In this context, Guyana, with its multi-billion-barrel offshore reserves, could potentially benefit from the redirection of investments initially earmarked for Colombia. However, the extent of these potential benefits would depend on how Guyana’s government manages this potential influx of investment and whether it can provide a stable and favourable business environment. The South American country is preparing to auction off 14 coveted oil blocks in its first ever offshore licensing round.
This situation represents an opportunity for Guyana to take advantage of the shifting dynamics. The government is about to take legislation to Parliament to overhaul the petroleum sector’s regulatory framework. It will also soon finalise new model petroleum agreements to govern the blocks on offer.
