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Editorial/Opinion

 

Latin America Energy Advisor : Q & A : Will Guyana's Oil find transform its energy sector?




In a brief statement the UN media office said that “The Secretary-General met today with President of Venezuela, H.E. Mr. Nicolás Maduro. The Secretary General “reiterated his assurances of the readiness to discuss the way forward with both Governments”.

 

The Deepwater Champion Oil Rig began exploration operations off Guyana's coast in March, and in May, ExxonMobil reported that the ?rst well had made a “signi?cant oil discovery.” 

Venezuelan and Guyanese leaders have been trading barbs in recent weeks, with the government of Venezuelan President Nicolás Maduro going so far as to recall its ambassador to Guyana amid mounting tensions over a border dispute between the two nations. Venezuela has long claimed a signi? cant part of Guyana, including areas of the Atlantic Ocean where ExxonMobil recently announced a major oil ?nd that the government has said could be worth up to 12 times the value of Guyana's entire economy. How will the border dispute play out, and will it interfere with plans to develop the oil ?nd? How important was the discovery for Guyana, which currently produces no oil?

Fazal Hosein, Trinidad-based consultant geologist at International Geological Services Ltd.: “For more than 100 years, Guyana waited patiently while neighboring Venezuela, Trinidad, Brazil and Suriname enjoyed the commercial success of oil exploration. Success ?nally came in May when the ExxonMobil Liza-1 well drilled in the offshore deep waters of the Stabroek license 120 miles offshore Guyana found 295 feet of high-quality hydrocarbon bearing reservoirs. Guyana was happy, but Venezuela, wanting most of Guyana's offshore acreage, issued a decree on May 26 challenging the 1899 treaty decision setting the countries' borders. The oil discovery can be considered well within Guyana's exclusive economic zone, and ?eld development plans should not be affected. This discovery is huge for Guyana and may de?nitely impact a change from an agriculture and mining economy to one of oil and gas production. Development will be determined by an oil price above $60 per barrel, but the estimated 500 million barrels of oil reserves could make it happen early with ?rst oil production occurring within 5 years. This is the ?rst discovery in Guyana, but the excellent source rock and petroleum system in the basin and the association with slope and deepwater fan depositional systems in the area suggest several more discoveries are forthcoming in the adjacent blocks of Anadarko, Mid Atlantic Oil & Gas /JHI Associates Canje, CGX and Repsol, which are now suddenly more prospective following ExxonMobil's success.”

Sadio Garavini di Turno, former Venezuelan ambassador to Sweden, Guatemala and Guyana: “The discovery of 400 million to possibly 700 million barrels of oil, which equates to approximately 12 times Guyana's GDP at current oil prices, is obviously potentially transformational news for Guyana. The problem is that the concessions given by Guyana to ExxonMobil and other companies include areas which are clearly Guyanese, areas that are in the disputed zone with Venezuela and also areas that are evidently in the Venezuelan Atlantic front. The Venezuelan government, after forgetting the dispute for nearly 16 years, is now trying to use it for electoral reasons to distract public attention from the socioeconomic disaster it has created. The dispute has to be resolved “in a manner that is acceptable to both parties” as disposed in the Geneva Agreement of 1966. The ?rst article of the treaty compels the parties to negotiate a “satisfactory solution for the practical settlement of the controversy.” Both parties should try to reduce tensions and sit down at the negotiating table, with the support of the United Nations secretary general, as set out in the Geneva Agreement.”

Anthony T. Bryan, senior fellow at the Institute of International Relations at The University of the West Indies in St. Augustine, Trinidad and Tobago: “It seems obvious that President Maduro is manipulating the border dispute. It is partly a troubled leader's response to domestic pressures. His actions stand in stark contrast to those of his predecessor, Hugo Chávez, who, while wooing his smaller Caribbean neighbors for international support for his global ambitions, simply put the dispute on ice. The May 27 Venezuelan decree claiming sovereignty over Guyana's continental shelf, waters in some parts of the eastern Caribbean, almost all of Guyana's Exclusive Economic Zone (EEZ) off the Essequibo region of Guyana and a good deal of Suriname's maritime space, goes well beyond the original maritime boundary dispute that was arbitrated under the U.N. Law of the Sea Convention in 2007, largely in Guyana's favor. Although Venezuela is one of seven coastal states that have failed to sign the convention, Guyana will not concede to Venezuelan pressure. It has called Maduro's bluff. Guyana also reasserts that its lawful boundaries that were established 116 years ago are not negotiable. In its pushback, it has taken Venezuela's latest move to the United Nations, the Commonwealth, the OAS, Caricom and UNASUR. The ExxonMobil oil ?nd was an added blow to Venezuela after the $1.6 billion compensation awarded to ExxonMobil for nationalization of its Venezuelan assets. But there will not be any war over the Essequibo. Venezuelan pressure might take other economic avenues (such as curtailing the Petrocaribe agreement with Guyana), but further escalation will make socialist Venezuela look like a regional bully. Maduro would be well advised to sit this one out. The oil ?nd is transformational for Guyana, and for energy security in the Caribbean as a whole. The dispute will not deter ExxonMobil, though it may put a temporary damper on exploration in other parts of its current exploration zone. With the help of the multinationals, the international organizations, and the countries in the Caribbean and those South America (Colombia and Brazil) offended by Maduro's actions, Guyana will become a signi?cant oil producer within the decade. But perhaps the oil discovery has made dispute settlement more dif?cult since the resource factor is now obvious.”

Ronald Sanders, consultant, former Caribbean ambassador and senior fellow at the Institute of Commonwealth Studies: “ExxonMobil's oil discovery is extremely important to Guyana. It is established that there are considerable oil and gas resources in Guyana's waters. Production would vastly improve Guyana's economic situation for the bene?t of itself and its partner countries in the Caribbean Community (Caricom). An 1897 treaty obliged Venezuela and Guyana (then British Guiana) to accept the result of an 1899 arbitration, setting their present boundaries, as a ‘full, perfect and ?nal' settlement. The boundaries were accepted by Venezuela for 63 years until 1962 as British Guiana moved toward independence when Venezuela claimed it was ‘robbed' by the arbitral award. A 1966 agreement, signed by the governments of Britain, British Guiana and Venezuela in Geneva and ?led with the United States, acknowledged not a border dispute but rather a ‘controversy' based on the new Venezuelan assertion of nullity. The agreement provides for the resolution of the controversy by actions of the U.N. secretary general under Article 33 of the U.N. Charter. After 49 years, including 25 years of the secretary general's efforts at mediation and conciliation through a ‘good of ?ces' process, no resolution has been found. The exhaustion of other options now leaves a ‘judicial settlement' open to the secretary general. Such a judicial settlement by the International Court of Justice would settle the issue peacefully, binding both Guyana and Venezuela. In 2013, the Venezuelan navy evicted from Guyanese waters the RV Teknik Perdana, a survey boat being used by Texas-based Anadarko Petroleum Corp. to carry out seismic surveys. ExxonMobil was well aware of that incident. Unless Venezuela intervenes militarily, ExxonMobil's work on the oil ?nd should legitimately continue.”

 

 

 

 

Latin America Energy Advisor is published weekly by the Inter-American Dialogue an organization that engages a network of global leaders to foster democratic governance, prosperity, and social equity in Latin America and the Caribbean. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was published by Latin America Energy Advisor, on July 31, 2015. Petroleumworld reprint this article in the interest of our readers

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