On the northern coast of South America, there is a very small and extremely poor country that borders the Atlantic Ocean. To its west lies Venezuela, with which it shares a common border extending to much of the southwest. In the south, despite its small area due to the country's peculiar geographical shape, we find the largest country on the continent, Brazil. To the east, we find the Republic of Suriname, which is the smallest country on the continent. This country before us is one that most of us have never even heard of, and nobody paid much attention to it, as is often the case with Central and South American nations. If you had approached major global companies a few years ago and suggested they invest in any sector there, they would likely have dismissed the idea, saying, "Come on, why would we invest there?” Ten years ago, in 2013, a major global company decided to break this neglect. It took a gamble with tens of millions of dollars, hoping luck would be on its side. The company defied everyone, went against the current, and tried to find a treasure through an investment with, at best, a 20% chance of success— a success rate no rational company would dare to gamble on and invest money in. Ten years after this gamble—which, by the way, actually started much earlier as I'll explain in a bit—this company now controls oil reserves worth a trillion dollars. Yes, that's a one followed by 12 zeros, the kind of number most of us get confused by. The country itself has begun to leave poverty behind, and in just three years, by 2027, it will produce more oil per capita than major oil-producing nations like Saudi Arabia or Kuwait. Even more importantly, it currently boasts the fastest-growing economy in the world, by a wide margin compared to the countries trailing behind. All of this is the result of an incredible venture that American company ExxonMobil started back in 1997. This company now holds the largest oil discovery in the world in the past twenty years or so. As for the country, its name is Guyana, so remember that name, because its significance in South America and the entire Caribbean region is becoming apparent now. Today, we’re going to tell the story of this incredible discovery and explore its impact on the global oil market. We’ll also discuss Saudi Arabia's interest in Guyana and the investment projects it plans to undertake there. This is a very important episode, and I highly recommend you watch it until the end. But before we begin, I want to share something very important with you. we will officially and systematically open up membership to the Economic Informant. It will have four tiers, each offering exclusive content that varies depending on the membership level. The primary goal of opening up membership is for those of you who can, to support us so that we can maintain the high quality of our content, which is very expensive to produce and continues to rise in cost. We’ll explain all the details soon Now, let's dive into today's story about Guyana. I’m Ashraf Ibrahim, and this is The Economic Informant. I want to thank Business Link for supporting the content of this episode. Business Link is a leading company with over 15 years of experience in providing business setup services in the UAE and Saudi Arabia. Here’s what one of their clients had to say about them. You’ll find a link to their website below the video and in the Facebook comments. We’ll start our story today from a long time ago, about a century, or to be precise, 96 years ago. The village you see on this map is called Calcutta. It is one of the villages in the Saramacca district of Suriname —yes, exactly, the neighboring country of Guyana that we just mentioned. In 1928, a group of villagers decided to dig a well to provide fresh water for the community's needs. Among the places they dug was the yard of a local school in the village. The important thing is that when they reached a depth of 160 meters, they encountered a surprise: instead of the expected water, they struck crude oil. Of course, this scene, which might seem comedic and fit for an old Arabic film, eventually led to one of the biggest accidental oil discoveries in South America, with an estimated reserve of one billion barrels. The field remained in the schoolyard until the 1960s, when major global oil companies began to take interest in Suriname, marking the beginning of organized exploration in the Kalka field and in the country as a whole. What’s important here is that this strange discovery story captured an Australian geologist named Rod Limbert. In the 1990s, Limbert, who was working for the American oil giant ExxonMobil, shared a somewhat unconventional geological theory with Bloomberg News. Rood believed that the primary rock source of oil in Venezuela, known as the La Luna Formation, which you see here, extends beneath the Atlantic Ocean all the way to the maritime areas controlled by Guyana, Suriname, and French Guiana. He was convinced that the oil discovered by the villagers in the courtyard of the Calcutta school initially formed off the continental shelf of Guyana and, over millions of years, had slowly migrated due to natural factors for more than 100 miles along the country’s coast. In mid-1997, Lambert approached his theory in addition to some data to the Exxon team responsible for initiating the company's activities in new geological basins. However, he was unable to convince them and received no response, as the data was insufficient to substantiate his idea. Despite his frustration, Lambert, like anyone passionate and determined in their field, clung to his idea until the end. He flew from Houston, Texas, to Georgetown, the capital of Guyana, with two of his colleagues to secure drilling rights and exploration permits from the Guyana Geology and Mines Commission, all without informing anyone at Exxon. At that time, Guyana was one of the poorest countries in South America under the rule of Forbes Burnham, who governed the country for over twenty years (1964-1985). Despite Lambert having no authority to negotiate or take any action, the primary goal of his trip was not merely to obtain preliminary drilling approvals or permits. Even if he had obtained them and returned to the Exxon management team, they would likely reject his idea again. Therefore, the main objective of the quick trip was to acquire records and data on old well drills. After completing this task with his colleagues, they returned to the Exxon team in Texas with the new data, convinced them, and received the green light from the company to begin exploration negotiations with the Guyanese government. So, did Lambert manage to secure a good or profitable deal for Exxon with the government of Guyana? In reality, describing the deal or contract he secured with Guyana as "profitable" is an understatement. The contract Lambert obtained for Exxon was extremely, extremely, extremely profitable for the company, and yes, I mean to repeat "extremely" like that. Let me show you why: The area where Exxon obtained exploration rights is called the Stabroek Block, and as you can see, this block is over a thousand times larger than oil fields in the Gulf of Mexico. The Guyanese government did not request any upfront payments before discovering any oil, and the contract stipulated that Exxon would retain 50% of the profits from any discoveries after deducting exploration, drilling, and extraction costs. The government would receive a 1% royalty, which is the percentage for exploiting state-owned land. To put this into perspective, in the U.S., any company wanting to explore there pays the federal government a 12.5% royalty. Although the Guyanese government later faced severe internal criticism due to this contract, Lambert recounts that he found the agreement perfectly suited to the exploration conditions and the risk margin Exxon undertook. On the other hand, the government hoped that this deal would help it in its serious border disputes with Suriname and Venezuela. From their perspective, partnering with Exxon directly meant that anyone considering challenging Guyana would inevitably confront the world’s strongest oil company, backed by the world’s most powerful country. With such a package, no one would likely want to take them on. Although this is theoretically correct, the reality was somewhat different. For eight years, Exxon was unable to operate in the area due to Surinamese warships, until 2007, when there was a breakthrough in the military border conflict between Guyana and Suriname. At that point, Exxon began to reconsider the contract and explore how to start oil drilling in Stabroek. During that time, Exxon started contemplating abandoning the entire area and selling the exploration rights, as seismic studies would be very expensive. They had much more significant exploration areas in Brazil, the Gulf of Mexico, and of course, the United States, which was on the brink of a major shale oil boom. Selling the Stabroek Block would provide the necessary liquidity for these more important regions. But did they actually do that? This is where the story takes a fascinating turn, and pay close attention to what happens next. In 2008, Rudy Dismuke, an American engineer and one of Exxon’s key commercial advisors globally, reviewed the contract Lambert had secured with the Guyanese government and thought it was a contract the company could not afford to forfeit. However, he faced the dilemma of the initial exploration costs, which Exxon was reluctant to cover entirely, as these costs would determine whether oil was present or not. Therefore, Rudy suggested bringing in another partner to share the cost of the survey studies in exchange for a share of the discovered reserves. Exxon successfully sold 25% of the rights to the area to the Anglo-Dutch energy giant Shell. Despite the initial studies showing no promising results, Shell increased its stake in the field to 50% between 2010 and 2013. During this time, there were two geologists at a small exploration company in Houston called Apache: Tim Chisholm and Pablo Eisner. They had been trying for years to secure a stake in the Stabroek Block for Apache but had been unsuccessful until the company’s management decided to let them go. Tim then joined Hess Corporation, and Eisner went to work for the China National Offshore Oil Corporation (CNOOC). It's crucial to remember these two names, as their roles were significant in the discovery of Guyana's oil. In early 2013, Exxon turned to an Australian geologist named Scott Dyksterhuis to help analyze the massive amount of data coming from the studies funded by Shell. At this point, Exxon had little time to decide whether to invest in the region, as the Guyanese government was about to withdraw the concession and seek another company to take it over. During this period, all the circumstances were against any success in this area. Let’s list these factors to understand the difficult situation: - Exxon wanted to focus on more important regions and was unwilling to spend at least $175 million on its own for the drilling costs in the area. - Shell was becoming increasingly frustrated with the area, especially after its failure to find oil in regions of French Guiana. - The Guyanese government was pressuring Exxon to reach results, or they would cancel the contract. On top of all this, a few months later, in mid-2014, Shell dropped a bombshell in Exxon’s court by announcing, “Well, folks, thank you for the time, but we are not investing any more money in this dismal area.” They withdrew their investments from the Stabroek Block, allowing Exxon to regain 100% ownership of the region. At this point, Exxon was left with only two options: either find one or two partners to take ownership stakes in the area in exchange for covering the drilling costs in the Lisa Formation, or withdraw from the region entirely and return it to the government. Fortunately for Exxon, Scott, after analyzing the vast amounts of data with his team, was convinced that the Lisa Formation contained oil. In late 2013, Exxon had him meet with oil companies to make presentations and try to persuade them to invest in the region. Scott and his team successfully convinced Hess Corporation to invest in the area and acquire a 30% stake in Stabroek. So, who made the decision at Hess and staked his entire professional career on it? Exactly, it was Tim Chisholm, whom we just mentioned and who made a notable impression on those paying attention. Not only that, but he also contacted his friend Pablo Eisner to bring CNOOC into the deal. CNOOC did join and acquired a 25% stake in the region, agreeing to share the drilling costs with Hess. Thus, the ownership of Stabroek was as follows: 45% for Exxon, without incurring any drilling costs or assuming any risks; 30% for Hess; and 25% for CNOOC, with Hess and CNOOC covering the drilling costs as mentioned. With this distribution, the first well was drilled in the Lisa Formation in May 2015, at a total cost of $225 million. Exxon essentially paid nothing due to the way ownership stakes were allocated, as we saw. After enduring hardships, problems, and losses amounting to millions of dollars, the good news finally came for all participants in this venture: the Lisa Formation contains approximately 11 billion barrels of oil. This figure includes the total amount of oil and natural gas present, representing a fortune estimated at around $1 trillion, as mentioned at the start of the episode. Of course, some of you might say that Exxon missed out on the chance to exclusively benefit from this discovery and the associated wealth after Shell withdrew. This observation may have merit, but Liam Malone, Exxon’s head of oil production, explains that at that time it wasn't appropriate to bet hundreds of millions of dollars on drilling a single well, which was a high-risk, high-reward scenario. If the well failed, the company would face significant losses, as shown by the costs. Therefore, their decision was based on the information available at the time and was aligned with it. This is a crucial lesson: while seizing important opportunities is essential, it must be done within reasonable limits. There's no doubt that Exxon’s competitors are regretting missing out on such a great opportunity. We're talking about around 30 companies that missed out on this chance, with American Chevron at the top of the list. Chevron acquired Hess for $53 billion in October 2023, which includes the 30% Hess owned in Stabroek. Of course, Exxon didn’t stay silent and filed an arbitration case against Hess in 2024 to buy the stake instead of Chevron. This case is expected to take some time before a ruling is made. As for Guyana, it is currently on the brink of an economic transformation that South America has never seen before. This isn’t just my opinion but also that of former Colombian President Iván Duque Márquez, who referred in an article he published in April 2024 to Guyana as the 'leading development laboratory in Latin America' This small country, with a population of 800,000, has become the fastest-growing economy in the world due to the oil boom, according to World Bank data. It is on track to produce 800,000 barrels per day, a figure that surpasses the production of major Latin American countries like Colombia, which has a population of 52 million and produced around 780,000 barrels in 2023. As mentioned, its daily production is expected to exceed Kuwait’s and possibly even Saudi Arabia’s in the coming years, based on per capita production. Saudi Arabia, aware of this rise and eager to invest in it, saw a prominent presence of the Guyanese government delegation at the Saudi-Caribbean Investment Forum held in July 2022 in the Dominican Republic. This interest was sparked by a prior Saudi initiative involving an official visit in February of the same year by a Saudi delegation led by Foreign Minister Adel al-Jubeir, which discussed investment opportunities in oil, gas, agriculture, and other sectors in Guyana. So, this all sounds promising, but is everything rosy for this small Latin American country? In reality, it’s not. There are obstacles and issues that need to be fundamentally addressed by this oil boom before we can say that Guyana has a successful and inspiring economic experience in the coming years. The first problem, of course, is the impact of this boom on ordinary citizens. If we look at the numbers, we’ll find that historically, Guyana’s per capita GDP has been among the lowest in South America. However, the exceptional economic growth over the past four years, driven by the oil boom, with an average annual growth rate of over 42% (42.3%), has increased per capita GDP to over $18,000 ($18,199) in 2022, up from around $6,500 ($6,477) in 2019. Despite these figures, the average Guyanese citizen has not yet fully felt the impact. Almost half of the population remains below or near the poverty line, and residents of remote areas still struggle with access to basic infrastructure, educational, and healthcare services. Moreover, the oil sector has not yet created a significant number of jobs to noticeably reduce unemployment. There are also many other challenges, including the quality of education, healthcare, and climate. Guyana is mostly covered by forests and has the lowest deforestation rate in South America. While this is a positive environmental indicator, it also makes the economy vulnerable to annual losses due to flooding and the impact on coastal agricultural land. The biggest challenge for Guyana, however, will be border disputes, particularly with Venezuela, which is continuously expanding its military presence near the disputed Essequibo region, currently under Guyanese control. Venezuela is increasingly focused on this region following the Guyanese oil boom. I don’t want to go into more details, as there is a lot to cover, but today we aimed to highlight this intriguing discovery in this small country and see what lessons we might learn from their experience with ExxonMobil. In conclusion, I have a question for you all: What do you think we can learn from the story of Exxon and Guyana? I’ll be following all your answers in the comments. 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