Guyana to create SWF ahead of oil boom

Emerging oil producer Guyana plans to establish a sovereign wealth fund by December ahead of ExxonMobil's 2020 launch of deepwater production.

The tiny South American nation has set up an energy department to take charge of the oil sector that was previously handled by the natural resources ministry and regulator GCMC.

The Inter-American Development Bank (IDB), the International Monetary Fund and the World Bank are assisting Guyana to establish the SWF.

"Stabilization is particularly important for resource-rich countries, dependent on natural resources, as commodity prices are volatile and production levels can be difficult to predict," Guyana's finance minister Winston Jordan said on 8 August.

"A key function of our sovereign wealth fund is savings to ensure the equitable distribution of assets from the extraction of non-renewable resources across current and future generations. This will allow for the transformation of a depleting asset base that is oil, to a permanent asset base."

The fund is intended to insulate the UK-sized country of 700,000 people from the resource curse often called Dutch disease that has plagued other oil producers, the government says.

The reference to "Dutch disease" is the potential for a strengthening of the local currency from a sudden overwhelming inflow of revenue from one sector, usually a natural resource. The resulting currency appreciation undermines other parts of the economy, drives up imports and generates unemployment.

These problems overtook the Dutch economy soon after the country discovered significant gas in the North Sea.

The government forecasts the country's initial oil revenue at about $375mn/yr - 10pc of its GDP in 2017. Current revenue comes from sugar and rice production, gold and bauxite mining and timber exports.

Guyana currently imports refined products from Trinidad and Tobago and the US to meet demand of about 12,800 b/d.

ExxonMobil has made several successful deepwater strikes since May 2015, and forecasts initial production of 120,000 b/d, potentially reaching 750,000 b/d by 2025.

The US major recently boosted its estimate of discovered recoverable resources for the Stabroek block to more than 4bn bl of oil equivalent.

The firm operates 6.6mn acre (26,800km2) Stabroek with a 45pc stake. US independent Hess holds 30pc, and the remaining 25pc belongs to Chinese state-owned CNOOC unit Nexen.

ExxonMobil's success has attracted other companies to Guyana, including fellow US major Chevron, France´s Total, Spain´s Repsol, Italy's ENI and Germany's DEA.

Most of Guyana's oil will be exported. Local company GuyEnergy plans to build and operate a 30,000 b/d refinery to process some of the state's share of the crude.