By Clarence Seedorf and NJ Ayuk
Suriname has put in place a producer-friendly regime that the oil and gas industry has been quick to notice
MON 01 FEB, 2021-theGBJournal- There’s no question that the COVID-19 pandemic has sent global energy markets reeling. Oil and gas has undeniably been one of the hardest-hit industries, with prices still struggling to rebound from the collapse in demand during the first quarter of 2020. Coupled with increasing concerns about climate change and its effect on conventional energy production, it seems difficult to find a bright spot.
But there is one, and it’s Suriname.
In the year since news reports first began describing a novel coronavirus in China, the resource-rich waters off the South American nation have become the target for increased drilling activity, and a growing number of producers are taking a chance on the region’s potential.
Last April, for example, Apache Corporation and Total reported a significant oil offshore discovery. The successful Sapakara West-1 well was actually Apache-Total’s second find in the 1.4 million-acre Block 58; they made Suriname’s first-ever offshore discovery at the nearby Maka Central-1 exploration well In January 2020. In fact, Apache is so convinced of the promise this region holds that it dropped its Permian Basin rigs in Texas to concentrate more fully on Suriname. And though Apache and Total may have been among the first to achieve drilling success offshore Suriname, they are clearly not alone. Exxon Mobil and Petronas announced a discovery in December 2020, and Shell has purchased Kosmos Energy’s participating interests in the region.
Friendly Fiscal Policy
With the U.S. Geological Survey putting the resource potential of the Guyana-Suriname basin at more than 13 billion barrels of oil — and only 26 wells currently in place — there’s no question why majors and independents are drawn to the area.
But what makes drilling offshore Suriname even more attractive is the favorable business environment being touted under the leadership of President Chan Santokhi, who took office last year.
Suriname has put in place a producer-friendly regime that the oil and gas industry has been quick to notice. Suriname’s 30-year production-sharing agreements are considerably longer than those offered by neighboring countries, giving oil companies more time to ramp up activities and continue producing. Suriname also takes a smaller cut of the proceeds compared to its neighbors. Combined with a lower overall cost of production, oil companies can achieve profitability even if oil trades in the $30 to $40 per barrel range.
This is all very good news, indeed. This is just the kind of strategy that’s necessary today to attract international oil companies (IOCs), and we encourage African countries to follow in Suriname’s example.
What remains unclear is how Suriname will steward the potential opportunities and revenues arising from its hydrocarbon bounty. Will it take its lead from Ghana, Norway, Guyana, Trinidad and Tobago, and other nations that are leveraging natural resource wealth to help the local population? And how can it avoid the mistakes of oil states that have seen their riches primarily line the pockets of foreign companies?
We are advocating for Suriname to harness the transformative power of oil and gas. We want to see everyday people benefit from these major oil discoveries. We envision oil-based wealth leading the country on a sustainable, profitable path. Built upon best practices from around the world — as reported in Mr. Ayuk’s book, Billions at Play: The Future of African Energy and Doing Deals — we would like Suriname’s leaders, civil society and business community to consider a plan incorporating local content, empowering women, improved governance, and more.
Local Level Impacts
Let’s focus first on how the oil and gas industry can support economic development through local content, as that has far-ranging consequences. As explained in Mr. Ayuk’s book, local content policies are derived from a simple philosophy: A nation’s natural resources belong to the people, so the people should benefit from their development. To a large extent, however, indigenous workers and supply industries have not historically reaped the kinds of economic and social rewards one would expect.
But increasingly, enlightened companies are adopting stronger local content initiatives in host companies. That includes ExxonMobil in Guyana.
In the oil and gas business, progress isn’t made overnight. Including exploration, the discoveries off the waters of Guyana were 10 years in the making. But from the start, ExxonMobil and its direct contractors prioritized local hiring. By the time production in the Stabroek Block began in December 2019, 1,700 Guyanese were among the company’s rank-and-file, comprising more than half the total local workforce, in fact. Since first oil in 2015, ExxonMobil and its direct contractors have spent $180 million with more than 630 local suppliers, setting the economy ablaze. Predictions by the International Monetary Fund (IMF) that Guyana’s economy would expand by 86% in 2020, compared to just 4.4% a year earlier, are now being tested by the coronavirus outbreak. However, an eventual return to business as usual could still result in unparalleled economic and gross domestic product growth.
Unfortunately, we can’t always rely on businesses to do enough of the right thing without encouragement—and regulations that safeguard against exploitation. Governments that create clear, reasonable local content regulations, develop resource corridors and special economic zones, provide tax relief, address skills gaps, and create a strong framework for industry partnerships can help oil and gas companies move local content practices forward.
In a growing number of countries, local content isn’t being left to chance or the benevolence of Big Oil. For example, in 2010, acting President Goodluck Jonathan signed the Nigerian Oil and Gas Industry Local Content Development Bill 2010 into law. Designed to build the capacity of indigenous firms, the law obligated upstream oil companies to provide opportunities for participation by local companies and workers. That included backward linkages through procurement of locally produced materials.
Other countries, including Kuwait, Iran, Iraq, Bahrain, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE), have all incorporated local content requirements into their legal frameworks through various avenues, including legislation, regulations, guidelines, industry contracts, and bidding practices. As Billions at Play notes, Tanzania requires a succession plan where foreign workers will be replaced by nationals. The government of Ghana will only permit a company to be labeled as “indigenous” when 80% of its executives and senior managers are Ghanaian citizens.
Employment is just one area where local content is being legislated, however. To support state-controlled training programs for indigenous personnel, the government of Angola levies a tax on petroleum production, refining and processing companies equal to US$0.15 per barrel produced. Companies engaged in prospecting must contribute an annual fixed amount of US$100,000; for companies in the exploration stage, that number jumps to US$300,000.
Comprehensive Strategy
Local content development is essential, but it’s just part of what Suriname must do to capitalize on its new-found resource wealth. We believe leaders must also:
Establish gender diversity policies for extractive industries. I think we can all agree that there is a serious lack of women working in oil and gas at all levels, but particularly in leadership roles, and the dearth is detrimental to companies as well as the countries where they operate. But the government of Suriname doesn’t have to submit to the same old standard. The country can require that companies working within their borders hire women, compensate them fairly, use women-owned suppliers and subcontractors, provide adequate family leave protections, and create education and training for girls and women, including STEM.
Ensure strong governance. National oil company Staatsolie should follow Guyana’s lead and create an oil and gas industry regulator, removing itself from any oversight role. In addition, Suriname must refuse to allow corruption and authoritarianism to continue within its borders. This is hardly an isolated issue. As described in Mr. Ayuk’s book, during the period from 2000 to 2011, high oil and gas prices sent Africa’s economic growth to new levels. Yet most of the money never made it to the people. Instead, it was siphoned off by political elites through shell companies. The world is watching how Suriname will manage its oil revenues, especially as it rebounds from the economic slump of 2017-2018.
Promote industrialization. Suriname can take a page from Trinidad and Tobago’s playbook. The twin nation’s robust natural gas industry and monetization strategies have enabled the development of a strong manufacturing sector, including the Port of Point Lisas Industrial Estate. For decades, Trinidad’s ample natural gas reserves were considered nothing more than a cheap way to keep its oil production, refining, and power generation facilities going. With Port of Point Lisas, Trinidad is attracting natural gas users who consume large amounts for both export and downstream industries. In Suriname’s case, oil can be used as feedstock for petrochemicals, creating jobs and injecting cash into the national economy.
Form strategic partnerships with neighboring nations. Trinidad and Tobago has also been a major exporter of liquefied natural gas (LNG) from offshore areas. But when output began declining, the country sought a new supply source for its LNG plants, which it found offshore Venezuela. A 2007 agreement between the two nations allows for cross-border reservoir exploitation.
Apply Lessons Learned
Trinidad Prime Minister Dr. Keith Rowley recently said the Caribbean is “being heralded as the next major oil and gas province,” and the discoveries in Guyana and Suriname further bolster his claim. But to take full advantage of the economic opportunities they present, the Surinamese government, Citizens, civil society, and business community needs to apply lessons learned from other areas and to consider the expertise of those who have helped those nations reach their potential. Only then can Suriname’s people be assured that the celebration around new oil includes them, as well.
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