Oil Rig, off Stavenger, Norway
Rigs to riches is the story of Norway’s rise from one of Europe’s backwater countries in 1969 to its position as one of the richest nations in Europe today. How it achieved that status in just over 40 years could be a lesson for Guyana which is now on the brink of major oil exploration, discovery and production.
The Canadian company, CGX Energy, has recently announced that it is seeking to raise US$80 million, most of which will be used to fund its drilling activities within Guyana’s territorial waters.
CGX’s confidence in the possibilities of the Guyana drilling arises from the announcement by oil companies Tullow Oil PLC and Royal Dutch Shell PLC that they have opened up a new hydrocarbon basin offshore French Guiana with the discovery of a good quality oil reservoir from their first wildcat well.
Angus McCoss, Tullow's exploration director, said the discovery is a "major step" because the geological system offshore Latin America is bigger than that of offshore Ghana. He added,"There are at least half a dozen more of these Zaedyus type traps adjacent."
Tullow and Spain's Repsol SA will start drilling the Jaguar prospect offshore Guyana in October.
For most experts, discovery and production of oil in Guyana’s now undisputed territorial waters are no longer a question of “if” but “how soon”. A maritime dispute between Guyana and its neighbour Suriname ended in 2007 when a binding Arbitration under the UN Convention on the Law of the Sea ruled for a demarcation that favoured Guyana’s legal case.
Since then, oil companies that are operating exploration licences have been looking forward to cashing-in on their investments. New companies are also showing a keen interest. Among them is Anadarko Petroleum Corporation, an independent oil and gas company in the United States of America - considered the world's largest independent oil and gas exploration and production company.
In recent years, the Guyana economy has been doing well on the back of its vast natural resources especially gold. The economy has grown annually since 2006 and, according to the Government, it grew by a further 5.9 per cent in the first half of 2011. The discovery and production of oil will catapult Guyana ahead of its neighbouring countries in the Caribbean and could transform the standard of living for the Guyanese people.
For several decades, Guyana was a Highly Indebted Poor Country and, in the Caribbean, its per capita income was higher only than Haiti’s. The country’s economic performance has steadily improved over the last five years. Extensive open-mine gold production by two Canadian companies, now negotiating contracts with the government, will earn the State close to a billion dollars once gold prices remain at about US$1,000 an ounce. Oil discovery and production will multiply that figure several times over.
What Guyana does with the revenues from oil (and gas) will be important to its short and medium-term social stability and its longer-term economic prospects.
A good model for it to emulate is Norway which discovered oil and gas on its Continental Shelf in 1969 and began production in 1971. The shelf is now dotted with rigs that produce Norway’s riches.
The Norwegians made several important decisions about the industry and its revenues over time. To begin with they established the principle of 50 per cent state ownership in each production license. Then, as they educated and trained their own people in the industry and gained knowledge and experience in it, they gave the Norwegian parliament the right to evaluate the level of state participation in each project. By 1985, the State had become a full participant in the industry, paying its share of investments and costs and earning revenues corresponding to its investment.
Since 1971, the industry has given Norway receipts of over NKR7,000 billion (US$1,230 billion) with the government getting NKR2,000 billion (US$351.6 billion). Importantly, the government did not simply spend its revenues on financing its budget. While from 1971 to the end of 2009, forty per cent of revenues has been used by the Government, sixty per cent has been put into a Petroleum Fund which is the nation’s savings account.
In April 2011, the Petroleum Fund held about NKR3 trillion (over US$500 billion) and, through its investments, the Fund owns 1 per cent of the entire world’s assets. Few other funds in the world can make such a boast.
While the government can use the interest earned from the Fund to help finance its budget, the capital has to remain in place as the nation’s pension fund. This will look after Norway long after 2060 when its oil and gas reserves are expected to deplete.
Even though the oil and gas industry presently employs about 200,000 people (about 5 per cent of the total population), revenues to the government have helped to build an exemplary State in which education is free and public health care is also free for pensioners. The UNDP has consistently ranked Norway at the top of its Human Development Index.
Unemployment is a low 3.4 per cent and the government has used its revenues from the oil and gas industry not only to provide good quality public services, but also to create employment and economic opportunities that has shielded the country from the adverse effects of the global financial crisis and recession.
Recognising that fossil fuels, such as oil and gas from which it earns its revenues, contribute harmfully to climate change and global warming, in 2010 Norway allocated to NRK15 billion (US$2.6 billion) for rainforest conservation – the sum is larger than the contributions of the US and the European Union for similar activity. The Norwegians have already contributed millions of dollars to support Guyana’s preservation of its massive rainforest. And, Norway says that “provided that the expected results are achieved and that other elements of the partnership fall into place, Norwegian support for the years up to 2015 could add up to as much as US$250 million”.
That relationship could be expanded. When rigs in Guyana begin to produce riches, Norway’s system of utilising oil revenues would be a good pattern for Guyana to follow so that all of its people could benefit for generations to come.