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Can Guyana Salvage Its Much-Hyped Oil Boom?

The deeply impoverished South American country of Guyana in recent years was heralded as the hottest new oil boom in the Americas. A series of large offshore oil discoveries by integrated global energy major ExxonMobil catapulted Guyana into the spotlight.

Earlier this year Exxon made its 16th oil discovery in the offshore Stabroek Block. The oil giant also revised upward its estimated recoverable resources in Guyana to more than 8 million barrels of oil equivalent, highlighting the country’s considerable hydrocarbon potential.

There was further good news at the end of July 2020 with Hess, which is partnered with Exxon and CNOOC to develop the Stabroek Block, reporting that appraisal drilling of the Yellowtail well had identified two more reservoirs. The low breakeven costs associated with operating in Guyana’s offshore oil fields, with Hess estimating they are an industry-low $35 per barrel, coupled with the considerable exploration upside is attracting significant interest from energy majors around the globe.

These factors underscore the tremendous potential held by the Stabroek Block and the considerable revenue it will generate for Guyana’s impoverished economy.

While those elements point to a prosperous future for Guyana, bitterly disputed March 2020 elections and an ensuing political crisis indicate that the poverty-stricken former British colony may not be able to fully realize its petroleum wealth. A political impasse arose after the March elections with Guyana’s two major political parties claiming victory. The post-election dispute triggered a ballot recount, allegations of electoral fraud against both political parties, and numerous court cases.

Related: Investment Funds Could Miss Out On Multi-Year Bull Run In Oil & Gas StocksThe ongoing crisis amplified existing ethnic tensions worsening the political wrangling and battle for control of Guyana’s substantial oil wealth. The deepening political dilemma saw the U.S. impose sanctions comprised of visa restrictions for any citizens of Guyana Washington believed were undermining democracy.

Earlier this month, Guyana’s opposition The People’s Progressive Party was found to have won the bitterly contested election bringing an end to months of dispute which was crippling investment in the country’s burgeoning oil industry. The former British colony’s vast oil wealth has already transformed it into the world’s fastest-growing economy, despite the COVID-19 pandemic. The IMF predicts that Guyana’s gross domestic product will expand 53% this year alone and by another 6% in 2021.

Key to maintaining this growth and the development of what is considered the second poorest country in South America is attracting the substantial foreign investment needed to develop Guyana’s vast oil wealth. The appointment of opposition leader Mohamed Irfaan Ali earlier this month as president has resolved, for the time being, the political impasse which existed since March. That is an important step to realizing Guyana’s vast oil wealth.

Nonetheless, outgoing incumbent David Granger made it clear that he will keep contesting the election results, meaning that the current peace may be short-lived.  The exploitation of Guyana’s vast hydrocarbon wealth is further complicated by claims of irregularities in the contracting process with Exxon.

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