XOM Exxon Mobil Corp

By Kejal Vyas | Photographs by Joana Toro for The Wall Street Journal 

GEORGETOWN, Guyana -- Along the sea wall separating this sleepy capital's moldering wooden houses from the coffee-colored Atlantic, construction workers in hard hats rush to expand ports, build luxury condos and open the country's first Hard Rock Café.

The developments aim to tap the expected wealth from what until recently was unimaginable for this jungle-covered former British colony: oil.

An Exxon Mobil Corp.-led consortium said last week it has begun offshore drilling after recently discovering at least 3.2 billion barrels of light crude in Guyanese waters. Guyana is projected within a decade to pump nearly a barrel of oil per person a day, more per capita than Saudi Arabia. That makes this poor backwater of 800,000 people -- mostly descendants of African slaves and indentured laborers from India -- a top global energy frontier.

"Each Guyanese is going to be a U.S.-dollar millionaire, or worth that, in a few years," Natural Resources Minister Raphael Trotman said, referring to a national wealth fund the country is developing.

Not everyone is convinced of a bonanza.

Many Guyanese say Exxon's deal disproportionately benefits the company and its minority partners -- Hess Corp. and China's Cnooc Ltd. -- while leaving little for this country of miners and farmers on horse-drawn carts. Others worry about corruption and Guyana's ability to responsibly handle an oil deposit worth nearly 50-times the nation's gross domestic product.

"Boy, ain't nobody here getting rich when all everyone does is steal," said Eon Samuels, 25, an unemployed construction worker, as he fished from a pier.

Exxon has called Guyana one of its most important and potentially profitable prospects, among a handful of new developments the company has identified as the best since its merger almost 20 years ago with Mobil Corp. Western oil companies have increasingly turned to Latin America at a time when opportunities have narrowed in other regions such as Russia or Iran due to sanctions or resource nationalism.

Exxon said that Guyana will receive an estimated $1.6 billion in royalties and revenue in the first five years after oil pumping begins in 2020 and a projected $7 billion during the life of one of its most promising fields. But the company hasn't finished appraising all the oil that it has found and keeps discovering more, portending what the company said was a larger payout for Guyana down the road. "This emerging industry has the potential to transform the economy of Guyana and positively impact the lives of people for generations to come," a company spokeswoman said.

It isn't uncommon in the oil industry for the first investors to get the best deals because they assume more risk. Exxon didn't discover oil in Guyana until 2015, 16 years after it signed an exploration contract.

But critics said the government should have demanded better terms when Exxon renewed the contract in 2016.

"Exxon took advantage of our weak bargaining position and our inexperience, and they were able to extract everything they wanted," said Anand Goolsarran, the country's former auditor general.

The International Monetary Fund, which is advising Guyana, recently recommended that the government halt granting new licenses until it can secure better terms and overhaul its tax structure.

Under its deal, Exxon is permitted to use as much as 75% of annual oil proceeds to recoup exploration and production costs once commercial pumping begins. Guyana gets a 2% royalty of the proceeds plus 50% of the remaining proceeds. That is on par with the world average for "frontier exploration," said IHS Markit analyst Carlos Bellorin.

But the oil companies' local taxes are paid from the country's share of the profits, cutting into Guyana's take.

"We will suffer from that contract for the next 75 years," said Christopher Ram, a prominent Guyanese attorney who through a weekly newspaper column and speeches has become a vociferous critic of the oil deal. "But what do I know? I'm just a third-world bookkeeper," he added, sifting through pages of the deal with Exxon.

Guyanese officials acknowledge the terms with Exxon aren't ideal but they point to other benefits for an isolated, underdeveloped and thinly populated country that suffers from tensions between its two main ethnic groups. They say the country needs Exxon's international lobbying might in a territorial tussle with neighboring Venezuela, which nationalized Exxon's assets a decade ago before a court ordered it to pay the company $1 billion.

Guyana's government says that an $18 million signing bonus from Exxon will pay the country's legal fees, as President David Granger's government tries to resolve Venezuela's century-old border claim on two thirds of Guyana's land and maritime territory -- including areas where Guyana wants to drill -- that has stymied foreign investment.

We need companies that have international influence in the corridors of power...so those things come at a price," said Mr. Trotman, the resources minister. "If we were an ordinary jurisdiction, I would say our terms look awful. But we have existed always with a threat of force against us. We have had to make decisions that are in our best national interest."

Foreign Minister Carl Greenidge, who is courting foreign oil companies such as France's Total and Spain's Repsol, said the concerns are overblown. He said the government is preparing to spend wisely, with lawmakers working on a sovereign-wealth fund to invest oil earnings in a country with average incomes of about $4,000 a year.

"I'm tired of people calling this the apocalypse," Mr. Greenidge said. "There are people here who think oil is just a rumor, a fraud by Exxon. They're mixing black magic with economics."

Few Guyanese will ever see the oil, which will be extracted 150 miles offshore and loaded onto floating storage vessels before being sold directly into the market. Onshore, the oil prospects have spawned a rush of construction activity.

At the Muneshwers Ltd. wharf here, one of Guyana's biggest container yards, workers rushed recently to expand a port area where Exxon's supply vessels are loaded for offshore platforms. Last year, Project manager Rabin Chandarpal had orders to accommodate one supply ship a week. Now he needs space for four ships a week.

"The more oil they find out there, the more activity we see here," Mr. Chandarpal said.

The Pegasus Hotel, one of Georgetown's most prominent, is planning a $100 million expansion that includes a new 15-floor convention center. The Trinidadian company MovieTowne is building an office-space and retail complex that will house eight new cinemas.

But concerns remain. Some worry that the production of oil will impact traditional Guyanese agriculture such as rice and sugar.

"I just ask, 'Where are we headed?'" said Somar Gharan, 62, who works at a sugar mill. He fears Guyana could become like oil-rich Venezuela.

Another sugar mill worker, Glenroy McKenzie, was sanguine.

"In the next 20 years," he said, "maybe my daughter will be working on one of those platforms. I have a lot of hope."

Write to Kejal Vyas at kejal.vyas@wsj.com

(END) Dow Jones Newswires

June 21, 2018 12:20 ET (16:20 GMT)

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