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For over a century, Guyana depended on sugar as its main export. The small South American state has since found another sweet crop: light crude. US oil producer ExxonMobil has discovered 11.4bnbn barrels of oil since 2015, one of the largest finds this century. The oilfields of the offshore Stabroek block produce over 500,000 barrels daily.
This could be one reason for Venezuela’s hostile interest in the Essequibo region of Guyana. President Nicolás Maduro believes his country can annex Essequibo, bringing Stabroek into Venezuela territory.
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A disputed referendum this month declared that Venezuelans want control of the area. For all the sabre-rattling, oil traders have merely shrugged. Prices have fallen this month.
Essequibo is 160,000 sq km of land west of the eponymous river that splits Guyana. Maduro has an election to contest next year. A dust-up with a smaller neighbour would distract Venezuelans from the dire economy. Inflation runs at over 280 per cent annually, according to the central bank.
Venezuela already has over 300bn barrels of reserves. But a lot of this is heavy, difficult to recover and hard to export. State oil company PDVSA has relevant expertise but needs investment. Some of that could come from US oil companies, such as Chevron, which operates there together with PDVSA, exporting an average of 124,000 barrels per day this year so far.
Venezuela needs more hard currency to shore up its finances. But a land grab in Guyana would go down badly with the US, particularly if its oil companies lose extraction rights. Exxon owns 45 per cent of Stabroek. Hess, which Chevron is buying, owns another 35 per cent. China’s Cnooc holds the balance.
An annexation of Essequibo could mean renegotiating the three partners’ deal. This includes a favourable 60 per cent tax take, according to Rystad Energy.
A renegotiation could hold back Exxon and Chevron shares. Investors should keep their nerve for now. Venezuela has more to lose than gain. If Maduro needs evidence of the dire consequences of invading a neighbour, he need look no further than Russia, a fellow member of OPEC+.
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