Guyana could do with an infusion of oil revenue

by David Renwick

Will our friends in Guyana, CARICOM’s second poorest country after Haiti, finally discover oil this year after 78 years of trying? Clearly, everyone in CARICOM’s headquarters territory hopes that will be the case.
If any country in the region could do with an infusion of oil revenue, it’s Guyana, which has extensive development potential but no money with which to realise it.

Oil companies have come and gone from Guyana over the decades and all have failed to find commercially recoverable deposits of crude. The most promising exploratory well was Shell’s Abary One offshore in 1974-1975, which did encounter oil and gas but was not tested due to "difficulties", as the Guyana Geology and Mines Commission (GGMC) describes it. Ironically, Abary was drilled right in the area currently in dispute between Guyana and Suriname and which has held up all offshore exploration in recent years.
The most recent exploratory well was Horseshoe One in 2000, drilled by Canada’s CGX Energy in the Corentyne block, after its rig had been driven off the Eagle prospect in the same area by a gunboat sent in by the then Suriname government. While the Eagle prospect was said to contain a possible 850 mm barrels of oil, Horseshoe, however, turned up dry.

It is the same company involved in the Corentyne block that will be making the attempt referred to in the opening paragraph of this column yet again to find oil. CGX has exhibited remarkable faith in Guyana, despite not having earned a cent from the country so far. It has had to write off the costs of both Eagle and Horseshoe and raise more money from its shareholders to continue on in the country but shows little sign so far of wanting to give up.
Canadian companies these days seem to be specialising in trying to open-up new oil provinces in the Caribbean-look at the effort they have made in Cuba, for example. They are also now increasingly involved in the one mature oil location in the region -- Trinidad and Tobago -- as Talisman’s presence and the results of the recent offshore block bid round, where both Petro-Canada and Canadian Superior emerged triumphant, clearly demonstrate. CGX not only holds 100 % of the Corentyne, Corentyne Annexe and Pomeroon blocks, but also 25 % of the Georgetown block of which Repsol-YPF is the operator.

No exploratory drilling, other than the Horseshoe well, has taken place in any of those blocks yet and we will come back to that in a moment, but it is notable that the exploratory well to be drilled before year’s end, will be on land, in a new block called Berbice which is an amalgamation of the on-shore portion of the Corentyne block and government acreage amounting to about 800,000 acres.
CGX has set up a Guyana-registered subsidiary called ON Energy, in which it holds 84.6 %, the rest being in the hands of local investors, to operate the Berbice concession. The $ 3.2 mm it raised in a rights issue to shareholders of the parent company last year in order to fund activity in the Berbice block has so far been used to acquire 100,000 km of earlier aeromagnetic data over the area from Paterson, Grant and Watson of Toronto, geo-microbial sampling by GMT of Oklahoma which identified 22 anomalous leads, a 75-sample geo-chemical programme and a 182 km 2D seismic survey by Seis Pros of Houston.

The results of the seismic are currently being interpreted and the first wildcat is expected to be spudded in September-October. CGX/ON Energy are bolstered in their confidence in the Berbice block by the fact that an exploratory well was drilled at Banana Landing, Rosehall Township in the area by Trinidad Leaseholds in 1941-1942, with evidence of heavy oil. The well was subsequently abandoned and the licence relinquished.
If exploratory drilling in Berbice is successful, it is possible that CGX would want partners to farm in to the block to help with the development costs, which could provide investment opportunities for smaller Trinidad and Tobagen companies, such as the ones involved in Petrotrin’s lease operatorship (LO) and farm-out (FO) ventures.

Dr Edris (Kamal) Dookie, a director of CGX and ON Energy, told me recently that an attempt had been made last year to raise risk capital in Trinidad and Tobago for the exploration phase in Berbice, using CMMB Securities as agents "but that did not work out."
Trinidad and Tobago investors would presumably not be averse to participating in the less risky development phase once oil reserves were established. Whatever the outcome of the exploratory programme on land, CGX still has to decide where it goes in the offshore-it can’t simply hang on to acreage indefinitely without doing anything.

It’s true any activity in Corentyne remains stymied, now that Guyana has formally referred the maritime border dispute with Suriname to the Hamburg-based United Nations International Tribunal on the Convention of the Law of the Sea for a ruling. But there are the Corentyne Annexe and Pomeroon blocks, the first of which has never been encumbered by the maritime disputes and the second of which was "released for exploration" -- so to speak-by President Hugo Chavez Frias on his visit to Guyana last February when he said that Venezuela would not "hinder any project that will be conducted in that region (Essequibo county, to which Caracas has a historic claim) whose purpose is to benefit the inhabitants of the area."
This has been interpreted to mean that Guyana can undertake oil exploration activity in Essequibo without having to worry about a hostile Venezuelan reaction. Since the claim to the land portion also involves the offshore territorial waters and the exclusive economic zone (EEZ) extending outwards from Essequibo county where Pomeroon is located, Chavez’s statement would seem to pave the way for hassle-free offshore activity in Pomeroon.

CGX will presumably want to give some thought to Pomeroon, once it determines the hydrocarbon potential of Berbice. It did go to the expense of acquiring last year the portion of Pomeroon that former holder, Century Oil, had retained but had been reluctant to explore because of the boundary dispute.
The work obligation in Pomeroon is only one exploratory well, which could perhaps be funded from future cash flow, if any, from Berbice.