US$11.6M IDB Loan to Bolster Guyana Oil Sector

The Inter-American Development Bank has approved a US$11.6M loan to Guyana to help it prepare to transition towards becoming a major oil and gas producing state.

The policy-based loan will fund a project designed to support the strengthening and the sustainability of the energy sector in Guyana by contributing to the institutional development of oil and gas governance and the development of cleaner energy sources for electricity generation, the IDB said in a release.

The specific objectives of this loan programme are: first, to develop a management and planning framework for Guyana’s oil and gas sector; and second, to contribute towards the development of a policy framework so that Guyana may diversify its electricity generation matrix using cleaner or renewable sources.

Guyana’s new energy scenario, which will likely yield significant revenues for the government, represents a transformative shift in Guyana’s development trajectory, the IDB said, adding that it embodies a crucial and unprecedented opportunity for economic growth and sustainable development. “The conversion of short-term oil wealth into long-term, well-being hinges on the capacity of the Guyanese Government to adequately manage this new sector and enact productivity-enhancing reforms. If handled well, it can boost the overall standard of living for the country.”

However, the bank said there is considerable work to be done so that Guyana can enjoy the benefits of its recent—and potential—oil and gas wealth. “Too often resource-rich countries have become or remained poor as a result of inadequate resource management. Hence, there is an urgent need to improve the governance of Guyana’s oil and gas sector ahead of the start of production in 2020.”

The agreed-upon policy commitments of the first tranche of the program are as follows: (1) creation of the Department of Energy (DE) within the Ministry of the Presidency to take over responsibilities related to the governance and development of Guyana’s oil and gas sector; (2) approval by the DE of a draft roadmap to develop Guyana’s oil and gas institutional framework, and; (3) design of a model contract for future Production Sharing Agreements (PSA) by the DE and presented to Guyana’s Ministry of the Presidency. The agreed-upon policy commitments for the second tranche are: (1) a DE functions manual establishing its organisational structure, budget and staff allocation, approved by the Ministry of the Presidency; (2) a PSA set of protocols and mechanisms for contract management; and (3) an oil and gas depletion policy designed by the DE and presented for approval to the Ministry of the Presidency.

Finally, the programme will aid the Government of Guyana with the development of a policy framework to diversify and promote the sustainability of Guyana’s electricity generation matrix. The loan is funded in two components totalling US$11.64 million. The first component will total US$5.82 million from the IDB’s Ordinary Capital, disbursed within two years with a grace period of 5.5 years, and an interest rate based on LIBOR. The second component will total US$5.82 million from the IDB’s Concessional Ordinary Capital, disbursed within two years with a grace period of 40 years, and 0.25 per cent interest rate. The executing agency will be Guyana’s Ministry of Finance (MoF).

On Monday last, ExxonMobil announced that it has made its 10th discovery offshore Guyana and increased its estimate of the discovered recoverable resource for the Stabroek Block to more than five billion oil-equivalent barrels. The resource estimate, up from the previous estimate of more than four billion oil-equivalent barrels, is a result of further evaluation of previous discoveries and includes a new discovery at the Pluma-1 well, the company said in a statement. “The discovery of a resource base of more than five billion oil-equivalent barrels in less than four years is a testament of our technical expertise and rigorous evaluation and pursuit of high-potential, high-risk opportunities in this frontier area,” said Neil Chapman, ExxonMobil senior vice-president. “We will continue to apply what we’ve learned to identify additional exploration prospects and potential future discoveries that will deliver significant value to Guyanese people, our partners and shareholders.”

The Pluma-1 well encountered approximately 121 feet (37 metres) of high-quality hydrocarbon-bearing sandstone reservoir. Pluma-1 reached a depth of 16,447 feet (5,013 metres) in 3,340 feet (1,018 metres) of water. The Noble Tom Madden drillship began drilling on Nov. 1. The well is located approximately 17 miles (27 kilometres) south of the Turbot-1 well. The Noble Tom Madden will next drill the Tilapia-1 prospect located 3.4 miles (5.5 kilometres) west of the Longtail-1 well. “Together with the government and people of Guyana, we are continuing to grow the value of the Stabroek Block for Guyana, our partners and ExxonMobil with successful exploration investments,” said Steve Greenlee, president of ExxonMobil Exploration Company. “Our ongoing work will evaluate development options in the southeastern portion of the block, potentially combining Pluma with prior Turbot and Longtail discoveries into a major new development area.”

The Liza Phase-1 development is expected to begin producing up to 120,000 barrels of oil per day by early 2020, utilising the Liza Destiny floating storage, production and offloading vessel (FPSO). As previously announced, Liza Phase-2 is expected to start up by mid-2022. Pending government and regulatory approvals, Liza Phase-2 project sanction is expected in early 2019 and will use a second FPSO designed to produce up to 220,000 barrels per day. Sanctioning of a third development, Payara, is also expected in 2019 with start up as early as 2023. The Stabroek Block is 6.6 million acres (26,800 square kilometres). ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited, is the operator and holds 45 per cent interest in the Stabroek Block. Hess Guyana Exploration Ltd. holds 30 per cent interest and CNOOC Nexen Petroleum Guyana Limited holds 25 per cent interest.