Contemplating Oil Prospects, Suriname and Guyana Look to Peers

The neighboring South American countries of Suriname and Guyana are adjusting to life in the spotlight of the global oil industry. As they adapt to new prospects that are both exciting and challenging, government officials in both countries hope to learn from the experiences of their peers in other new oil hotspots.
 
In late October we visited Paramaribo, the capital of Suriname and home to roughly half of the country’s 558,368 people. Suriname’s government hosted the annual meeting of the New Petroleum Producers Discussion Group, co-organized by Chatham House, the Natural Resource Governance Institute and the Commonwealth Secretariat. The meeting took place amidst vigorous oil and gas exploration by a group of international oil companies (including ExxonMobil, Kosmos, Tullow, Petronas and Statoil) that are working in partnership with Staatsolie, the Surinamese national oil company. Suriname has produced oil onshore at small volumes for decades, with production at 16,000 barrels per day in 2016. But the intensity of explorers’ interest has the government and other Surinamese stakeholders considering the impacts of a potentially game-changing offshore discovery.
 
The conversations in Suriname follow a series of oil discoveries that were announced next door in Guyana beginning in 2015. The two countries sit on the Guyana-Suriname Basin, which the U.S. Geological Survey has ranked as one of the most geologically promising, underexplored oil basins in the world. ExxonMobil and the Guyanese government have announced five new oil discoveries in the last two years. Experts estimate that the finds already announced could reach a total of 2 billion barrels of recoverable oil. Guyana’s government sent a delegation to the New Producers meeting in Suriname, following a similar meeting in Georgetown late last year. In Paramaribo, they joined officials from other new and prospective oil producers, including Belize, Ghana, Liberia, Barbados, Namibia and Uganda.
 
Suriname and Guyana find themselves at different points in their life cycles as prospective oil producers. Guyana has already made large discoveries, while Suriname is at a more speculative stage of offshore exploration. Institutionally, Suriname has developed a small but capable administrative and commercial body—Staatsolie—as a result of its years of small-scale production, while Guyana is just beginning to build its administrative architecture in response to the discovery.
 
But the two countries face a similar set of issues. Both have small populations and small economies. Suriname’s GDP is USD 3.6 billion, placing it 158^th in the world. Guyana, which has a population just shy of 800,000, has a GDP of $3.4 billion, placing it 159^th. This means that significant oil production could have a massive impact on these economies. If managed correctly, successful oil projects could mean a major boost to the development agenda of either country. But the potential for negative distortions—including budget volatility and the disruption of other sectors—is high if risks are not managed effectively.
 
In Paramaribo, representatives from other countries with serious oil prospects offered several relevant insights for Suriname and Guyana. These included lessons learned by Ghanaian officials as they legislated oil sector regulations, as well as their experiences engaging with civil society while drafting the laws. Norwegian delegates shared their experiences with revenue administration in the sector, while Ugandan officials shared their experiences with sector regulation and good practices for undertaking exploration in an eco-sensitive area. Among the lessons flagged during the discussion conducted under the Chatham House Rule, were:
 
·         Managing public expectations is key. Some governments have not been sufficiently proactive in educating populations about the distinction between oil exploration and having a commercially viable oil find. This can lead to significant public distrust; when a well turns out to be dry, citizens—who had previously been led to believe that big revenues were imminent—often suspect foul play. Officials cited the importance of communicating with populations (about the timing, size and uncertainties of field development and associated revenues) in cases where a commercial discovery had been made.
 
·         Successful institutional reform requires specific, achievable targets based on clearly defined policy goals and supporting legal and regulatory frameworks. Both Guyana and Suriname are considering significant reforms to the public structures that manage the oil and gas sector. In Guyana, the government has proposed legislation to establish a new petroleum commission to regulate the sector, and officials are considering whether to establish a national oil company to play a commercial role. In Suriname, authorities are considering potential reforms to Staatsolie—which now plays a mixed regulatory and commercial role—in the event of an offshore discovery. The consensus among delegations from the other new producers was that, faced with the daunting challenge of building the state’s capacity to oversee complex production, one critical step is to conduct a sober, rigorous needs assessment to facilitate strategic decision-making.
 
·         Managing relationships with private partners requires a nuanced approach. Many of the producing-country representatives emphasized the need to strike a healthy balance in relationships with oil company partners. It is necessary for the government to scrutinize company activities closely, and to ensure that they are following the rules and paying the state its due. But the path to success also involves government officials “doing their homework” to ensure they are scrutinizing the right places and not unduly delaying or burdening their partners.
 
As one of the next steps for the project, the participating country teams identified specific areas of potential dedicated support that would be beneficial, including: experience-sharing between relevant agencies across countries; specific guidance on conducting due diligence for potential exploration companies; and guidance on good governance in the oil and gas sector.
 
The New Producers Project is building a set of tools derived from the experiences of participating countries, including the comprehensive Guidelines for Good Governance in Emerging Oil and Gas Producers and more targeted publications on topics such as how to build effective strategies for local content generation. The project also provides opportunities for mentoring exchanges among officials from countries with particularly relevant experiences, and a help desk to provide quick responses to pressing policy questions.
 
Patrick Heller is an advisor at the Natural Resource Governance Institute (NRGI). Aisha Adam is NRGI’s Africa associate.