Speaker 1: It's the big take from Bloomberg News and I Heart Radio.
Speaker 1: I'm West Kasova today. What happens when a small horror
Speaker 1: country all of a sudden strikes it fantastically rich. That
Speaker 1: country it's Guyana. If you're searching your mental map right now,
Speaker 1: Guyana is right at the top of South America, next
Speaker 1: door to Venezuela. One of the first things to know
Speaker 1: about it is that it's very, very small. There are
Speaker 1: only eight hundred thousand people in the whole country. That's
Speaker 1: my colleague Monty Real. He's an investigative reporter for Bloomberg.
Speaker 1: Monty recently spent time in Guyana. Until not too long ago,
Speaker 1: its economy was mainly agriculture and mining, and the country's
Speaker 1: gross domestic product, it's g d P, which is the
Speaker 1: total of everything it produces, didn't amount too much. So
Speaker 1: if you think about the gross domestic product, for example,
Speaker 1: of Guyana, it hit one billion dollars for the first
Speaker 1: time just within the last twenty years for the entire country.
Speaker 1: For the entire country, and to put that in perspective,
Speaker 1: that's about one tenth the size for economic output of Huntsville, Alabama.
Speaker 1: And another thing, the place is under attack from climate change.
Speaker 1: Most of Guyana's population is packed along the country's northern coastline,
Speaker 1: and much of that land is actually below sea level.
Speaker 1: So whenever you talk about Guyana and the populated areas
Speaker 1: of Guyana, you're always talking about water. And when that
Speaker 1: water rises up, and it does, the flooding can be
Speaker 1: devastating and especially bad flood in two thousand five left
Speaker 1: the capital, Georgetown under six ft of water and tanked
Speaker 1: the economy. That one flood in two thousand five wiped
Speaker 1: out of the annual GDP. The country needed to fortify
Speaker 1: its sea walls and shore up it's aging dikes and
Speaker 1: canals to keep the water at bay. It needed new
Speaker 1: roads and houses. There was just no way to pay
Speaker 1: for it. But then the country's luck took a dramatic
Speaker 1: turn because in Guyana struck oil, billions and billions and
Speaker 1: billions of barrels worth of oil money. Reel joins me
Speaker 1: now to tell the story of what happened next. So
Speaker 1: in ex On Mobile had been sending exploration crews in
Speaker 1: the waters off of Guyana's coast looking for oil, and
Speaker 1: they struck oil in and they found a lot of it.
Speaker 1: It was a massive once in a generation find how
Speaker 1: much oil did they find in there? We now know
Speaker 1: that that oil fine was the largest in recent years.
Speaker 1: In fact, if you look since the date of that
Speaker 1: discovery in t and you look at all of the
Speaker 1: oil discoveries in the world, that single discovery in Guyana
Speaker 1: accounts for more than one third of all the oil
Speaker 1: that's been discovered since. So it was just a massive
Speaker 1: cash of oil that was tapped into. And right now
Speaker 1: the proven reserves are usually estimated to be about twelve
Speaker 1: billion barrels of oil, but analysts think that that could
Speaker 1: double in the coming years because more test wells are
Speaker 1: being dug and more oil is being discovered, and that
Speaker 1: would put guy on as oil right in line with
Speaker 1: the proven reserves of China. So you think of a
Speaker 1: country like China, uh compared to Guyana. If you look
Speaker 1: at the population of the two countries, for every person
Speaker 1: in Guyana, there's one thousand, seven hundred and fifty people
Speaker 1: in China. It would be an enormous find for any country,
Speaker 1: but when you consider how small Guyana, this is just
Speaker 1: completely transformational. So what happened when they discovered this, What
Speaker 1: was the response of Guyana's government? Well, this windfall obviously
Speaker 1: means billions and billions, possibly hundreds of billions of dollars
Speaker 1: for Guyana. It's something that you know, realistically, they could
Speaker 1: not just pass up. So they came up with a
Speaker 1: plan actually and said, we're going to be a different
Speaker 1: kind of oil producer. We're going to be an environmentally friendly,
Speaker 1: environmentally sustainable oil producer. We're going to kind of chart
Speaker 1: a new course in this field. And so what they
Speaker 1: did was they came up with a plan to use
Speaker 1: the oil revenue to try to build infrastructure that one
Speaker 1: would mitigate the effects of climate change. For example, it
Speaker 1: would reinforce the sea wall, it would you know, work
Speaker 1: on upgrading the canals um so it would pay for
Speaker 1: the damage that climate change was doing to Guyana. But
Speaker 1: beyond that, they wanted to build quote unquote green infrastructure.
Speaker 1: And the centerpiece of that was building an economy that
Speaker 1: was powered by renewable energy. So they weren't actually going
Speaker 1: to use the oil to power the country. They were
Speaker 1: going to use the profits from all of that oil
Speaker 1: to create sort of a green future exactly. They wanted
Speaker 1: to diversify the economy and they wanted to build an
Speaker 1: energy grid essentially that has powered by renewable energy, so
Speaker 1: there are plans for hydro electric dams, for wind our,
Speaker 1: for solar facilities. They wanted to build a completely post
Speaker 1: oil economy. Essentially, they wanted to set that up using
Speaker 1: oil funds to put them in position to thrive when
Speaker 1: oil was no longer a business. Really, and this was
Speaker 1: sort of controversial, right, because some people in Guyana, you right,
Speaker 1: didn't want anything to do with the go They said
Speaker 1: leave it under the water because it's you know, a
Speaker 1: path to ruin. And the way they moved ahead was
Speaker 1: by saying no, no, no, we're going to use it
Speaker 1: for a better purpose. Yeah, and this is not just
Speaker 1: in Guyana, but internationally. Of course, there's a lot of
Speaker 1: people who think that new oil discoveries should be left
Speaker 1: in the ground, that oil is on its way out,
Speaker 1: we should be putting our resources and energy into renewable
Speaker 1: sources of energy. And in fact, the Secretary General of
Speaker 1: the United Nations earlier this year made a statement saying
Speaker 1: that it was economic and moral madness to invest in
Speaker 1: new fossil fuel infrastructure. So there is this, you know,
Speaker 1: current against developing new fossil fuel resources that Guyana was facing.
Speaker 1: But of course Guyana had no resources to build the
Speaker 1: green infrastructure. So it's easy for others to say you
Speaker 1: should put your resources toward a green energy, but if
Speaker 1: you have no resources, there's nothing to put there exactly.
Speaker 1: And the leaders of Guyana will point out that the
Speaker 1: developed countries of the world, the ones that have created
Speaker 1: more greenhouse gas emissions than undeveloped countries like Guyana, that
Speaker 1: they have kind of dropped the ball in terms of
Speaker 1: compensating countries like Guiana that did not really contribute to
Speaker 1: the problem. So their argument is, you know, the developed
Speaker 1: world didn't step up, we have to step up for ourselves,
Speaker 1: and to deny us the opportunity to use this resource
Speaker 1: isn't fair. Manty. You asked Guyana's president your finale about
Speaker 1: the terms of the contract. Here's what he said. They
Speaker 1: have the necessary resources to adopt the climate change. They
Speaker 1: have the necessary resources to invest in our alternative energy.
Speaker 1: They have the capital that came from the exploration of
Speaker 1: natural resources. We have a reality. We have a coastline
Speaker 1: where more than eight of the people live that is
Speaker 1: more than six ft below sea level. Who is going
Speaker 1: to pay to ensure that we have the type of
Speaker 1: mitigation and adaptation measures to prevent the catastrophic type of
Speaker 1: flooding that rising sea level can bring. We have to
Speaker 1: build this infrastructure. Where is the revenue going to come from.
Speaker 1: They'll argue that those countries in the developed world they
Speaker 1: benefited from the oil industry in the waning days of
Speaker 1: the industry, which Guyana's leaders will say, there's probably thirty
Speaker 1: more years where the world will need oil. Why shouldn't
Speaker 1: developing country like Guyana be the ones to benefit during
Speaker 1: that time? And in May of this year, you write
Speaker 1: about this dramatic speech an Independence Day for Guyana, where
Speaker 1: the president got up and spoke about the country's future. Yeah.
Speaker 1: So President Ali was up on a podium in a
Speaker 1: a Regina, a town about three hours from Georgetown, and
Speaker 1: rain was pouring down on this night. It was a
Speaker 1: flag raising ceremony where at midnight the Guyanese flag was
Speaker 1: going to raise up into the night. And before that
Speaker 1: there were bands and singers and just a celebration of Guyana,
Speaker 1: and the president really sort of tilted it as a
Speaker 1: celebration of Guyana's future. Guess me, great Anna, un privileged
Speaker 1: on behalf of the government of Guyana as your president,
Speaker 1: the stand here humbling before you, and he just kind
Speaker 1: of laid out the way Guyana would grow in a
Speaker 1: way that it has never grown before and never had
Speaker 1: the opportunity to grow thanks to oil money. As we
Speaker 1: reflect and celebrate today, it is important for us to
Speaker 1: understand that you have a government that is responsive, responsible,
Speaker 1: and through active in making the right policies to enhance
Speaker 1: the welfare of the people of our country. It sounds
Speaker 1: like a dream come true for the people of Guyana,
Speaker 1: But the story is a little bit more complicated than that.
Speaker 1: More of my conversation with monte Real after the break.
Speaker 1: So you told us about how Exon discovers this enormous
Speaker 1: field of oil and they make a deal with the
Speaker 1: government of Guyana to extract it and split the proceeds.
Speaker 1: How was that deal struck? So whenever they signed this
Speaker 1: contract in seen, it's spelled out that of the revenues,
Speaker 1: Guyana's government would get and the oil company would get.
Speaker 1: That sounds kind of low, doesn't it, Like Guyana only
Speaker 1: gets half of it. Yeah, and they also got a
Speaker 1: two percent royalty which went to the state. But if
Speaker 1: you talk to analysts, they'll say that is low. That
Speaker 1: in cases where it's known that this is a big
Speaker 1: oil find. Generally that royalty that goes to the state.
Speaker 1: If it's an even split, for example, in this case
Speaker 1: it was two percent, analysts say that they would expect
Speaker 1: that to be ten to in most cases the royalty.
Speaker 1: The royalty. Yes, And if you look at the average
Speaker 1: internationally of splits like this um there's an oil consultancy
Speaker 1: called rice Stad that says the government's take is generally
Speaker 1: about on average. So in that context of split doesn't
Speaker 1: seem that great for Guyana. Well why did the government
Speaker 1: agree to such unfavorable conditions when they were sitting on
Speaker 1: what would seem like a pretty good negotiating position. That's
Speaker 1: a big question. You know a lot of people have
Speaker 1: theorized that they were just in a hurry to get
Speaker 1: the oil as quickly as they could, to get the
Speaker 1: infrastructure built as quickly as they could, to take advantage
Speaker 1: of the revenues. Here's President Ali again. We have made
Speaker 1: it very clear arrangements would not be the same, but
Speaker 1: we are not people who are naive. Excellon came with
Speaker 1: a time where no one knew what was there, so
Speaker 1: the force arrangement the exploration had to be substantially different.
Speaker 1: But even beyond that fifty fifty split, analysts will say
Speaker 1: that this contract there are other provisions in it that
Speaker 1: really penalize the government. For example, Xon pays no taxes
Speaker 1: on the oil revenues. That's all taken care of by
Speaker 1: the state. Are you saying that the government of Guyana
Speaker 1: hays Xons taxes. There's a provision in the contract that
Speaker 1: says all the income taxes on the oil they're paid
Speaker 1: out of the government's share, so x On Mobile and
Speaker 1: its partners aren't responsible for any of that. So Guyana, though,
Speaker 1: at the same time, passes x On a receipt for
Speaker 1: the taxes that the government paid on the company's behalf,
Speaker 1: so Exxon can take those receipts and earn a foreign
Speaker 1: tax credit in the United States, for example, for taxes
Speaker 1: that the government of Guyana paid. And if you talk
Speaker 1: to analysts, they'll say that that's highly a usual provision
Speaker 1: that you don't really see in many contracts like this.
Speaker 1: There are other provisions buried in the contract that allow Exon,
Speaker 1: for example, to claim reimbursement for future expenses right off
Speaker 1: the top that if you talk to analysts, they'll say
Speaker 1: that's very unusual. But these are provisions that you just
Speaker 1: don't find in most other contracts. And the end result
Speaker 1: is that more than one analysts that I talked to
Speaker 1: said that this is the most favorable deal they've ever
Speaker 1: seen for a company who negotiated this deal on behalf
Speaker 1: of Guyana. Did they not have killer lawyers in there
Speaker 1: fighting tooth and nail with excellent Well, when you talk
Speaker 1: to people who are in Guyana's oil business, they will
Speaker 1: they'll admit that at the beginning of this process there
Speaker 1: was really no one in Guyana who had expertise in
Speaker 1: the oil sector. But with that much money at stake,
Speaker 1: you'd think they could hire somebody and fly them down
Speaker 1: from New York exactly. And what does Exxon have to
Speaker 1: say about all of this? This sort of split in
Speaker 1: these provisions are necessary because they were taking a huge risk.
Speaker 1: They basically, we're betting on a country that did have
Speaker 1: no oil infrastructure. So Exxon's you know, before the discovery,
Speaker 1: there was no guarantee at all that they weren't just
Speaker 1: throwing away money. So they argue that, you know, this
Speaker 1: is a deal that was designed to offset the risks
Speaker 1: that they had taken in a country that had no
Speaker 1: oil infrastructure. Or experience. Do the analysts you talked to
Speaker 1: say that Guyana could have gotten a better deal if
Speaker 1: they had pushed back on some of these things. Yes,
Speaker 1: they say that that Guyana should have gotten a better
Speaker 1: deal given the fact that this agreement was signed in
Speaker 1: after it was already known that this was a major,
Speaker 1: significant find. Did Guyana have a reason why it wouldn't
Speaker 1: want to push back against Exon Even though this is
Speaker 1: in comparison to other deals, you know, perhaps not a
Speaker 1: good one, it's also provides Guyana with far more money
Speaker 1: than they've ever had, So in context, you know, even
Speaker 1: though it's a bad deal for Guyana, they're getting more
Speaker 1: money than they ever could have imagined before the oil strike.
Speaker 1: But they also they are in a bit of a
Speaker 1: tricky position because they do want to auction off more
Speaker 1: oil exploration blocks to Exxon or other companies. So they
Speaker 1: don't want to, for example, now go back and renegotiate,
Speaker 1: because they don't want to scare companies off into thinking
Speaker 1: that they go back on their word after they've signed
Speaker 1: a deal. So they are in this position where they
Speaker 1: want to encourage other companies to come in and make
Speaker 1: bids on new exploration blocks and all of that money
Speaker 1: that they're making from this deal comes with a certain danger.
Speaker 1: We'll talk to Money about that when we come back.
Speaker 1: How has all this money transformed Guyana? Well, it has
Speaker 1: become the fastest growing economy in the world. If you
Speaker 1: look at the gross domestic product, the economy of Guyana
Speaker 1: has grown by almost fifty in the last year. So
Speaker 1: this is a significant supercharging effect that oil has had
Speaker 1: on Guyana's economy. And where's all that money going. What
Speaker 1: are they spending it on? A lot of it's going
Speaker 1: on construction. Capital expenses I think grew by about a
Speaker 1: hundred and seven percent last year. What are they building.
Speaker 1: They're building a lot of roads and a lot of houses,
Speaker 1: so especially housing developments and things like that. There's always
Speaker 1: been a backlog of people in Guyana who have wanted
Speaker 1: to build houses, but there just hasn't been the infrastructure.
Speaker 1: So someone might want to build a house, but there's
Speaker 1: no electricity hookup or sewage service. So now the government
Speaker 1: is building new resident chill areas, paving the way with
Speaker 1: the infrastructure that's needed for that, and so there's a
Speaker 1: lot of people building houses, and so our ordinary citizens
Speaker 1: of the country themselves benefiting or they are benefiting from
Speaker 1: the building that's going around them. It's both. So there
Speaker 1: are things like new hotels that are popping up, uh
Speaker 1: and things like that. But in terms of you know,
Speaker 1: the building of new houses, there are people who are
Speaker 1: moving into new residences, getting cars. The number of car
Speaker 1: registrations has spiked dramatically in the last two years. You're
Speaker 1: starting to see right now effects of this. You know,
Speaker 1: when I talked to people in Guyana. You know, the
Speaker 1: discovery was announced in so people have been looking forward
Speaker 1: to these changes for a long time, and in truth,
Speaker 1: they didn't really see them. There wasn't much visible effect
Speaker 1: until the last year or so. Now you see the
Speaker 1: construction popping up all over Georgetown. You see more cars
Speaker 1: on the road, you see new residence is being built.
Speaker 1: So people are starting to feel it, slowly but surely,
Speaker 1: and our average citizens in favor of it. Do they
Speaker 1: like the idea of the oil drilling or is their
Speaker 1: controversy around it? You know, if you talked to most
Speaker 1: people in Guyana, they like, of course the idea of
Speaker 1: their standard of living raising. You know, so many people
Speaker 1: in Guyana have been living essentially in poverty for so
Speaker 1: many years. The idea of new revenue, new development, that's
Speaker 1: all very attractive to most people. Of course, there are
Speaker 1: people who opposed this on environmental grounds, but if you
Speaker 1: look at, you know, kind of the average citizen in Guyana,
Speaker 1: I think most people are excited and also a little
Speaker 1: impatient about those revenues affecting their lives. They want to
Speaker 1: see the changes. So how did the government deal with
Speaker 1: this just massive influx of money. I spoke to the
Speaker 1: Vice President Barat Jugdeo, and he said, there is a
Speaker 1: lot of pressure on the government whenever you get all
Speaker 1: this new money coming in to spend it immediately. And
Speaker 1: he said it's very difficult to tell people that the
Speaker 1: government just can't do that because the risk is that
Speaker 1: the economy overheats, inflation spikes, and the net effect of
Speaker 1: all this is actually detrimental to the economy. That you're
Speaker 1: kind of wasting this influx of money if you spend
Speaker 1: it too fast. And that's kind of a hard sell
Speaker 1: for people who haven't had any money for so long
Speaker 1: to say, you know, we've got to be patient, We've
Speaker 1: got to hold onto this for a while. They've got
Speaker 1: to kind of tread that line in terms of spending
Speaker 1: the money on new projects and also not spending it
Speaker 1: too fast. One of the risks is that the economy
Speaker 1: of Guyana becomes so dependent on oil it's basically becomes
Speaker 1: a lopsided economy. So if there's ever a downturn in
Speaker 1: the market, for example, the whole economy would feel that
Speaker 1: in a potentially catastrophic way. So the government wants to
Speaker 1: take a lot of this revenue coming in to actually
Speaker 1: diversify the economy. So that's one of the things that
Speaker 1: they're always preaching in political speeches and that sort of thing,
Speaker 1: the importance of creating other industries besides oil. So Guyana's
Speaker 1: neighbor of Venezuela course, another big oil producing nation. Are
Speaker 1: other countries in the area sort of looking at Guyana
Speaker 1: and saying, huh, this is a model for what we
Speaker 1: want to do. Also, one of the interesting countries to
Speaker 1: look at is Barbados in the Caribbean. Mia Motley, she's
Speaker 1: Prime Minister of Barbados. She has become a really prominent
Speaker 1: voice in environmental circles. She was the keynote speaker of
Speaker 1: COP twenty six, the UN Climate Summit last year. Your
Speaker 1: Highness Excellence Sees distinguished Guest ladies and gentlemen. The pandemic
Speaker 1: has taught us that national solutions to global problems do
Speaker 1: not work. We come to Glasgow with global ambition to
Speaker 1: save our people and to save our planner. And one
Speaker 1: of the things that she has done in recent months
Speaker 1: is she reopened the waters of Barbados to oil exploration,
Speaker 1: and she has basically echoed Guyana's rationale. In explaining her decision,
Speaker 1: she said, you know, the developed countries of the world
Speaker 1: have not given us the resources that they pledged for
Speaker 1: us to adapt to climate change, so we have to
Speaker 1: look for this money elsewhere. And so she also is
Speaker 1: looking at the possibility of building up the oil sector.
Speaker 1: They're much as Guyana has. So, yeah, Guyana is a
Speaker 1: little bit of a model among some of its neighbors,
Speaker 1: particularly in the Caribbean, those countries that are vulnerable to
Speaker 1: the effects of for example, sea level rise. And are
Speaker 1: they a bit of a cautionary tale as well? That
Speaker 1: sure they got a lot of money, but they didn't
Speaker 1: get such a good deal that other countries might want
Speaker 1: to negotiate a little bit more when it comes to
Speaker 1: giving away the store. Sure. Yeah, there are a lot
Speaker 1: of people who look at this guy on a deal
Speaker 1: and who are critical of it. And I think that
Speaker 1: any country now that signs a new deal, if there
Speaker 1: is a discovery even close to this scale in the future,
Speaker 1: I think that they would look at this guy on
Speaker 1: a deal as a path to avoid in terms of
Speaker 1: some of the deals in the contract that we're written
Speaker 1: into it. Monty Real, thanks so much for coming on
Speaker 1: the show. Thanks very much for having me. You can
Speaker 1: read monte reel story about Guyana on Bloomberg dot com.
Speaker 1: Thanks for listening to us here at The Big Take,
Speaker 1: the daily podcast from Bloomberg and I Heart Radio. For
Speaker 1: more shows from my Heart Radio, visit the I Heart
Speaker 1: Radio app, Apple Podcasts, or wherever you listen. Read today's
Speaker 1: story and subscribe to our daily newsletter at Bloomberg dot
Speaker 1: com slash Big Take, and we'd love to hear from you.
Speaker 1: Email us with questions or comments to Big Take at
Speaker 1: Bloomberg dot net. The supervising producer of The Big Take
Speaker 1: is Vicky Burgalina. Our senior producer is Katherine Fink. Our
Speaker 1: producer is Rebecca Shasson. Our associate producer is Sam Gobauer.
Speaker 1: Hilda Garcia is our engineer. Original music by Leo Sidrin
Speaker 1: I'm West Cansova. Have a great weekend.