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Petrobras must be awarded future oil blocks, regardless

by GHK Lall

News reports have surfaced that there are several big-name bidders for available oil blocks in Guyana waiting to be awarded.  This should not come as a surprise, given the continuing discoveries by ExxonMobil of one rich field after another; the majors want a piece of the action in what is a diminishing global environment of new finds.  The government of Guyana now has the opportunity, through its soon-to-be-finalized and unveiled Department of Energy, to do what is right, sensible, and rewarding for this country.

There are three things that come to mind, and which should be pursued as part of a broad long-term strategic positioning of this precious depleting national resource.  It is not a matter of choice, but imperative that Guyana sticks to a certain path.

First, there is the opportunity for diversification of the much-needed foreign oil presences.  Through such action this country will not allow itself to be backed into a corner by being tied to any single supranational, which could end up with unwelcomed leverage, hold the country hostage, and drain out a steep expensive ransom.  A gargantuan monopolistic presence is avoided, and there is the commensurate spreading around of the local oil wealth.  This much ought to be obvious and be beyond dispute.

Second, Guyana (not too long ago a colonial subject and still an insignificant Third World nation) finds itself in the rare, perhaps unprecedented, position of being in the driver’s seat and able to regulate to some extent its oil traffic.  It can do so by setting the tone, and its own expectations in keenly contested negotiations with potential suitors.  All the so-called mistakes made (according to the critics, most of whom doggedly ignore context and realities) and the many valuable lessons learned must serve to enlighten now and strengthen now.  Strengthen this nation’s willingness to draw a hard bargain and demand the last droplets of benefits from those interested in participating in the burgeoning oil finds and riches.  There ought to be neither reluctance nor resistance in establishing a minimum nonnegotiable starting point in terms of royalties, production sharing, pricing developments, environmental protections, local content, and so on and so forth.  There must be no hesitancy in pitting the oil behemoths against one other to obtain the best deal possible for this country.  After all, it is only business (and oil is a known cutthroat business) and the product is a wasting asset to boot.

Third, most importantly, and notwithstanding all of what is presented above, future oil block awards must go to the neighboring oil giant Petrobras.  It must be a significant stake; this is executed out of sheer necessity, as made mandatory by circumstances.  Guyana has to do so, being fully cognizant of the geopolitical, petro-political, and national interests considerations.  It is a patented no-brainer.  Petrobras is from Brazil, and a Brazilian icon of tremendous stature.  No more should have to be said, but let it be.

Brazil stands as the de facto resident superpower in the region.  It stands as a counterweight for Guyana, or at least a restraining presence, in that unsettled and unsettling border matter with another.  There have been mutterings emanating from Brazil over the years; it is time to tie down the relationship through cementing an oil deal with a flagship Brazilian entity.  There is no better way to realign the diplomatic chessboard in Guyana’s favor.  The goodwill and good feelings initiated by His Excellency, President Granger, during his recent visit must be maximized to the hilt.  The moment is waiting to be seized.  Petrobras is it.  For emphasis, it is submitted that there is no better way, no more powerful interweaving of interests than to be linked in such a tangible manner with a friendly and strong neighbor.  In making Petrobras a partner and beneficiary in those oil blocks, and this has to said bluntly, Brazil would be committed to having a dog in any fight that arises.  That is not only priceless, but immeasurably so.

Further, it puts meaningful deeds to the words and postures (still solidifying) of Guyana’s current leader.  It forms the springboard for much more explorations in many other economic fields.  In the scheme of things Guyana, it is no great wisdom to contract with Petrobras.  Rather, it simply just good sense, and plain old commonsense at that.  It is about survival in a world of sharks and covetousness.  Petrobras, it must be.  Even if the company is not the most rewarding bidder, the recommendation is that this Brazilian group must be the winner.  When Petrobras wins, Guyana wins.  A victory is overdue.