The giant Exxon project that could create the world’s last petrostate
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Inside a drab six-storey office block in a residential street in Guyana’s capital Georgetown, a team of ExxonMobil executives are working out how to expand one of the largest offshore oil developments in history.
The US energy giant and its partners, Hess and Chinese group Cnooc, have already discovered about 11bn barrels of oil in the Stabroek Block, a vast oil reservoir about 120 miles off the coast of the South American country.
More than $55bn of investment has been sanctioned to extract just under half of those reserves, but after making more discoveries, the consortium is scaling up production.
“The way in which we’ve been able to progress so quickly from discovery to development and production, that is of huge value to Guyana,” says Alistair Routledge, ExxonMobil’s Guyana president. “It could deliver well over $100bn to the country.”
One of the smallest countries in South America, Guyana had no hydrocarbon industry prior to the Stabroek discoveries. The promised financial windfall could create one of the world’s last petrostates, just as global policymakers pledge a shift away from fossil fuels.
Field development is already generating rapid growth in a poor country; Guyana’s economy expanded 33 per cent even after inflation last year, and the IMF forecasts a similar increase this year.
Environmental campaigners have labelled the project a “climate bomb” and point to studies suggesting that global warming and rising sea levels could submerge low-lying Georgetown by 2030.
There are concerns among civil and human rights groups, trade unions and opposition politicians that the wealth generated by Exxon’s oil bonanza will bypass the general public and cause more harm than good.
Political scientists and economists call this the resource curse: the extraction of newly discovered minerals inflates the local currency, hollows out domestic industry and breeds societal division and corruption.
Critics say the production sharing agreement signed by the previous government in 2016 is unduly generous to the companies, a view shared by the IMF. There are also concerns Exxon is too close to the current administration, led by President Irfaan Ali, and riding roughshod over environmental laws.
The boom is already pushing up local prices, piling pressure on households in a country where almost half of the 800,000 population still live on less than $5.50 a day, the World Bank definition of poverty for a country like Guyana. Strike action by teachers is entering a fourth month and other public service unions are also threatening disruption, arguing that their members cannot survive on “starvation wages”.
There are disturbing precedents for the resource curse. Mobil, which Exxon later acquired, discovered oil off Equatorial Guinea in 1995; the three-decade boom that followed enriched the central African country’s ruling family but most of its population remained mired in poverty.
Decades of oil production in Guyana’s western neighbour, Venezuela, gave way to economic mismanagement, corruption and authoritarianism. The country’s socialist leader, Nicolás Maduro, is reviving a historic claim to a Guyanese province that includes part of Stabroek.
Schreiner Parker, a Latin America expert at research group Rystad Energy, says Guyana is “the test case for the resources curse in the 21st century”.
Since oil production began in late 2019 a construction boom has gathered pace in Georgetown, a city known for its tree-lined streets, network of irrigation canals and colonial architecture.
Several luxury hotels are taking shape, western-style shopping centres featuring Starbucks and a Hard Rock Cafe are popping up and Exxon is building a $160mn corporate headquarters on the outskirts.
The US supermajor has become a household name in Guyana, where it sponsors the Guyana Amazon Warriors cricket team, donates cash to a range of local initiatives and pays for billboard campaigns celebrating its role in boosting the economy.
Building an oil industry from scratch has created local jobs, the company says, with 6,200 Guyanese supporting the activities of ExxonMobil Guyana and its contractors by the end of last year. The company has spent G$313bn ($1.49bn) with Guyana-based suppliers since 2015, helped in part by local content laws passed in 2021.
One of them is Robin Muneshwer, executive director of a prominent local conglomerate and majority owner of Guyana Shore Base Inc, which won a tender to supply the offshore oil platforms and now employs more than 900 people to operate gigantic cranes, ships and other equipment.
“We are the poster boy for local content,” says Muneshwer, adding that the Shore Base partners recently won an 11-year extension to its contract. He says the government is aware of risks of the resource curse and is using oil money wisely to diversify the economy.
The real danger is ensuring that sections of the population are not left behind and the resources sector does not squeeze out other parts of the local economy, he adds.
Academics say Guyana’s authorities are in a race against time to show that oil revenues will be shared fairly with the public and not misused by politicians.
“When countries get big oil windfalls their governments tend to become more corrupt, less accountable and it becomes rarer and rarer to have free and fair elections,” says Michael Ross, a professor of political science at UCLA and author of The Oil Curse: How Petroleum Wealth Shapes the Development of Nations.
He points out that the government must negotiate with a corporation whose cash flow last year was more than three times Guyana’s GDP and which has huge experience of thrashing out complex contracts.
“Exxon is not your friend,” says Ross. “They want you to think they are, but they’re not. They are a business partner in it for themselves with enormous advantages at the bargaining table.”
The risks to Guyana’s 32-year-old democracy were highlighted at the last general election in 2020, when incumbent president David Granger refused to stand down following a recount of votes showing he lost narrowly.
Only the imposition of US sanctions forced the retired military officer from power amid sporadic outbreaks of violence in a nation divided between people of African, Indian and indigenous Guyanese descent.
The next election is due in 2025 and the opposition parties are already putting oil revenues, the consortium’s compliance with Guyanese law and concerns about the resources curse at the heart of their campaigns.
“We need to get more out of these oil resources,” says Aubrey Norton, leader of the official opposition in Guyana. “Within the first 100 days, we will pursue and engage with Exxon to ensure the people of Guyana benefit.”
A High Court ruling last year required the consortium to provide an “unlimited” financial guarantee to cover the cost of any oil spills, according to Norton. Exxon has since agreed to lodge a $2bn guarantee pending the outcome of an appeal.
Melinda Janki, a former BP lawyer who has lobbied for changes to parts of Guyana’s constitution dealing with the environment, is litigating the insurance case and several others. She claims environmental regulators and the government are refusing to hold Exxon to account, risking an environmental and financial disaster for the country.
“These [drilling rigs] are very dangerous operations. They’re producing oil above the limits that were set out in the environmental impact assessments,” says Janki.
She warns a disaster similar to Deepwater Horizon in 2010 would devastate Guyana and other Caribbean waterways. That spill, which killed 11 workers and leaked 4mn barrels of oil into the Gulf of Mexico, cost field operator BP $69bn.
Exxon denies Janki’s claims, saying it would never jeopardise safety and that its offshore facilities can operate “above design capacity” and achieve additional production safely following re-evaluations or de-bottlenecking studies.
But the Guyana-born lawyer has vowed to continue fighting the consortium and the government, arguing the deal struck between the parties “sold our patrimony”.
Wall Street analysts consider the production sharing agreement signed in 2016 as “the best oil deal in modern history” due to both the scale of the resource and the terms. Consultants at Wood Mackenzie forecast Exxon and its partners will generate $135bn in profits between 2024 and 2040. Guyana will receive $150bn over the same period, a staggering amount for a country that had a national budget of $3.75bn last year.
The consortium can collect up to three-quarters of revenue from the project until its costs are recouped. The remainder is split 50:50 with the government which also takes a 2 per cent royalty on production from the field — below the level in most offshore oil projects. It has also agreed to pay the companies’ income and corporation taxes from its share of the profits.
The agreement is so lucrative that in March it sparked a corporate battle between Exxon and US rival Chevron, which wants to buy Hess in a $53bn deal. Exxon argues it has first refusal over any sale of Hess’s stake in the Guyana find and has initiated an arbitration process that could torpedo the Chevron deal.
“The oil agreement we have is a legalised form of highway banditry,” says Glenn Lall, publisher of Kaieteur News, a newspaper in Guyana that has criticised both the government and opposition for mismanaging the relationship with the oil companies and argued that the Guyanese are getting “chicken feed”.
Lall says Exxon, the oil industry and the government are increasingly acting in concert to stymie criticism, including by hiring several Kaieteur News journalists.
Exxon’s Routledge dismisses Lall as a constant critic with political ambitions and “an axe to grind”, adding that “this is a competitive contract that is bringing investment into the country.”
President Ali acknowledges the deal is “skewed in favour” of Exxon but has not pursued a renegotiation. “The size of Exxon, in terms of the economy, tells you that you just couldn’t change the contract,” he tells the Financial Times. “It would have legal implications and the entire sector would have been held up.”
Any new deals with oil companies would not be so “lopsided”, Ali says, adding that he is passing reforms to bring more transparency to Guyana’s oil sector, diversify its economy and invest in infrastructure, health and education.
In 2021 his government passed legislation to increase oversight over Guyana’s natural resources fund, in line with the principles set out by the International Forum of Sovereign Wealth Funds.
However, in January the government proposed lifting some restrictions on the amount of money it can take out of the fund. More recently, US authorities imposed sanctions on a senior Guyanese official and several prominent businessmen allegedly involved in a $50mn tax scam in the gold sector.
Mae Thomas, permanent secretary of Guyana’s Ministry for Labour, provided benefits to Nazar and Azruddin Mohamed in exchange for cash and gifts, according to the US Treasury.
Critics say these episodes highlight the need for proper scrutiny and oversight. The government says it placed Thomas on leave and defended its record on rooting out corruption.
Foreign journalists should not hold a biased mentality about Guyana, says Ali, adding there is “tremendous corruption [elsewhere] in the developed world”.
Ali must also ensure a sceptical public begins to see some benefits from inward investment that is pushing rents and food prices to rise sharply.
Inflation hit an estimated 6.6 per cent in 2023, according to the US state department, but food prices have risen much more quickly over recent years.
“Since that gas came, things just got a little harder to survive,” says Olivia, a stallholder selling peanuts and other foodstuffs near the Marriott hotel, where rooms cost as much as $600 a night. “It’s just getting complicated because you aren’t getting the benefit of the oil money. People don’t want to pay [us] that money,” she says.
Discontent is already bubbling. Many teachers have been on strike for more than 60 days, demanding a 20 per cent pay rise. The Guyana Public Service Union, representing other public sector workers, has also threatened strike action over wages.
“Our economy is now an oil economy, it’s no longer an economy for the local people. We are in survival mode,” says Mehalai McAlmont, who teaches at Tutorial Academy secondary school in New Amsterdam. She says food prices have surged since the oil began to flow in 2019 [official statistics suggest the rise is about a third] while teachers’ salaries have stagnated.
Exxon’s discovery of oil in Guyana risks another characteristic of the resources curse: conflict with a neighbour. Ross, at UCLA, warns there are worrying parallels between the first Gulf war in 1990, when Iraq invaded its oil-rich neighbour Kuwait, and Venezuela’s threat to invade Guyana.
Venezuela has long claimed the Essequibo region, which makes up about two-thirds of Guyanese territory and includes part of the Stabroek Block off its coastline.
In December, Venezuelan president Maduro held a referendum in which he claimed voters approved the creation of the new Venezuelan Essequibo province.
He has also ordered state-owned companies to grant licences for exploration and production there. “ExxonMobil is not entering this sea . . . they should know that,” Maduro said in televised remarks in February, after Routledge revealed plans for two exploration wells off the Essequibo coast.
A small but steady military build-up has been documented by researchers on the disputed border. The US, which has significantly increased co-operation with Guyana since Exxon’s oil find, has carried out military drills with the Guyana Defence Force.
Exxon says Maduro’s threats are “making no difference” to its investment plans and plays down the risk of Guyana falling victim to the resources curse. “Our reputation is very strongly tied to making sure that everything happens as well as it can do,” says Routledge, while Ali stressed his nation’s “massively expanding military partnership with the US”.
But analysts say the rising tensions highlight how the sudden discovery of oil riches increase the risks of conflict, both internal and with neighbouring countries.
Ross, the UCLA academic, points to the many examples of countries that have succumbed to the resources curse and says Guayana faces “a gargantuan task” if it is to avoid joining them.
Cartography by Steven Bernard
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