The discovery of oil reserves off the coast of Guyana will shape the country’s risk environment in the coming years. Oil production will bring significant economic benefits to the country, provided the government can navigate political divisions to introduce an effective regulatory framework. A territorial dispute with Venezuela is unlikely to result in a n armed conflict, although vessels may face harassment from the Venezuelan navy.
Guyana has an on-going territorial dispute with neighbouring Venezuela. Since 1966 Venezuela has claimed all territory west of the Essequibo River, amounting to two-thirds of Guyana’s oil and mineral rich territory. The discovery of 2 billion barrels of oil reserves in Guyanese waters has exacerbated poor relations between the two countries. In May 2015, following the discovery of oil by ExxonMobil at the Stabroek block, President Nicolás Maduro extended Venezuela’s maritime borders to include disputed territory.
In February 2018, the United Nations Secretary General António Guterres referred the border dispute to the International Court Justice (ICJ), a move supported by Guyana but rejected by Venezuela. The ICJ is expected to rule in favour of Guyana, given its de-facto control of the area and Venezuela’s poor standing in the international community. In the longer term outlook, resolution of the border issue in favour of Guyana would bolster investor confidence in the country’s nascent hydrocarbons industry.
In the near term, the territorial dispute is unlikely to escalate into a violent interstate conflict, despite Guyana deploying troops to border areas in February 2018, a measure that was primarily designed to combat increased smuggling by Venezuelan gangs. However, oil companies operating offshore in disputed waters may face harassment by the Venezuelan navy. In October 2013, an exploration ship contracted by Anadarko was seized by Venezuela, which claimed it was in Venezuelan and not Guyanese waters. The ship and its 36 crew members were released a week later. Venezuela has also routinely threatened legal action against firms operating in the disputed area.
In 2018, Guyana’s economy will experience robust real GDP growth of 3.5%, up from 3.3% in 2017. Growth will be driven by country’s gold mining industry. Gold forms 45.6% of Guyana’s exports, and with an uptick in global gold prices forecast in 2018, the sector will generate significant revenues for the government. Production is also forecasted to increase at Canadian miner Guyana Goldfields’ Aurora gold mine.
The company forecasts that annual production will reach 300,000 ounces within 5 years. Mining exports will also support Guyana’s current account. The deficit is forecasted to narrow to 0.4% of GDP in 2018, from 1.3% in 2017. From 2020, offshore oil production is expected to come online, pushing the current account into surplus. Production at the Liza project in Stabroek Block is expected to begin in 2020, with the government hoping to generate USD 300 million annually when full production is reached. The International Monetary Fund forecasts that oil production will support rapid GDP growth of 25-30% a year from 2020.
Guyana’s government has taken a number of steps to enhance investment conditions for foreign firms looking to enter its emerging oil sector. A 2016 Petroleum Agreement exempts ExxonMobil and its partners in Guyana from value-added tax, excise duties and import duties on equipment and supplies.
The country joined the Extractive Industry Transparency Initiative (EITI) in October 2017, demonstrating a commitment to exploiting its hydrocarbons reserves in a responsible and transparent manner.Guyana is also working with the World Bank and United States government to develop a legislative framework to govern the sector, alongside a regulatory agency and a Sovereign Wealth Fund. However, the government may struggle to pass the necessary legislation in 2018, as relations with the main opposition party deteriorated throughout 2017 and may block government bills.
The People’s Progressive Party-Civic (PPP-C) party raised concerns that the proposed Petroleum Commission Bill would give too much power to the natural resources minister, as well as highlighting a lack of transparency in the awarding of ExxonMobil’s production contract.
†The market rarely writes these risks.
*** Pricing is speculative as enquires shall be assessed on a case by case basis.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Ukraine, DRC, Bahrain and Cuba all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email
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