The small South American country has become a hot prospect for oil companies
looking to produce fossil fuels while spending less.
By Clifford Krauss
(@2020 The New York Times) The Atlantic waters off Guyana have become one of the world’s hottest oil-drilling zones. Now, international oil executives are looking at neighboring Suriname.
Exxon Mobil, Royal Dutch Shell, Total, Apache and several other companies are gearing up operations off Suriname’s coast. They hope that the South American country, which recently emerged from decades of authoritarian and corrupt governments, will be the next great oil source.
But the world has more than enough oil, and prices for petroleum products are relatively low. In addition, investor interest in oil companies is waning as concerns about climate change give momentum to electric vehicles and renewable energy.
Those concerns are not hampering interest in Suriname. Oil companies say they can make money there with oil prices as low as $30 to $40 a barrel because of lower costs. That is roughly equivalent to the threshold in Guyana and well below today’s oil price. It is also below break-even levels in many places, including some U.S. shale fields, where costs usually add up to nearly $50 a barrel.
One reason it is easier to make money is that Suriname demands a smaller cut from oil companies than several other Latin American countries, including Brazil, Bolivia and Mexico. Suriname wants to attract investment and jump-start a troubled economy, which the International Monetary Fund expects to contract by 13.1 percent this year, and fix its ailing finances.
The 30-year production-sharing agreements that Suriname is offering oil companies are also about five to 10 years longer than those offered by other Latin American nations, giving companies more time to invest, discover and produce.
“Suriname could be big,” said David Goldwyn, a consultant who was the top State Department energy diplomat in the early years of the Obama administration. “Under almost any scenario the world is going to be using less oil over time. The winners in the race to share what remains of the oil pie will be those who can produce oil at low cost.”
The recent pickup in interest in Guyana and Suriname is somewhat surprising because their promise as oil producers has often come up empty. Companies drilled more than 100 unsuccessful wells there, mostly in shallow waters, from 1950 to 2014. But after rich fields were found in the deep waters off Brazil, Exxon Mobil and other companies returned to take another look. Exxon struck a gusher in Guyanese waters in 2015, opening the current flurry of exploration.
Suriname, Guyana and Brazil are now attracting more new investment than the Gulf of Mexico and other more established oil fields. And they are helping to keep global oil prices relatively low, undermining efforts by Russia and its allies in the Organization of the Petroleum Exporting Countries, like Saudi Arabia, to manage global supply and push up prices.
In Guyana, oil companies have found more than 10 billion barrels of probable reserves of accessible oil and gas offshore, according to IHS Markit, the energy consulting firm. Production began in 2019 and is ramping up quickly. Guyana already accounts for one of the top 50 oil basins worldwide, according to consultants.
Suriname has at least three billion to four billion barrels of reserves, energy experts said, or up to half the new oil and gas discovered around the world last year.
But exploiting those reserves in a way that benefits its people could prove a challenge for Suriname, a former Dutch colony that has been politically volatile and governed for much of the last 40 years by Desire Bouterse, a former army sergeant who took power in a coup. In 1999, a court in the Netherlands convicted Mr. Bouterse of drug trafficking. In 2019, a court in Suriname convicted him for the 1982 murders of 15 political opponents and sentenced him to 20 years in prison. He lost an election and retired last year, but has not been sent to prison.
The new president, Chan Santokhi, a former police chief and justice minister, faces many challenges, including the coronavirus pandemic and a fiscal crisis. The unemployment rate last year was 11.2 percent, and inflation is extremely high; the I.M.F. expects consumer prices to jump nearly 50 percent this year.
Oil and natural gas exploration could easily lift the country of about 600,000 people, roughly Milwaukee’s population, out of poverty if Mr. Santokhi’s administration makes the right moves. But history is replete with examples of countries that failed to properly manage energy and mineral riches, a phenomenon economists call the “resource curse.”
One advantage for Suriname is that it has experience in producing small amounts of oil for domestic use and has its own national oil company, Staatsolie.
A long-running boundary dispute between Guyana and Suriname slowed exploration in Surinamese waters until a United Nations court settled the issue in 2007.
“Everybody is hoping for a repeat success of Guyana,” said Raoul LeBlanc, a vice president at IHS Markit. “Everybody wants to find oil in a breakthrough basin. Why? Because when you are willing to work in a breakthrough basin, the terms are better.”
In several contracts, Suriname has agreed to accept royalties equivalent to 6.25 percent of oil companies’ revenue. That is more than in Guyana but less than half the average rate in the developing world, roughly 16 percent. In the United States, oil companies typically pay about 12 percent for oil they find in public lands.
“Low-cost, low-carbon is the formula going forward,” said Doug Leggate, head of U.S. oil and gas equity research at Bank of America Merrill Lynch, who added that future discoveries could further drive down costs.
For oil companies, exploring in low-cost places like Suriname is essential for their profitability, especially if demand for oil peaks in a decade or two as countries adopt renewable energy and electric cars and trucks.
Exxon and the world’s other four giant nongovernment oil companies collectively wrote down nearly $70 billion of assets and slashed their exploration budgets by more than 20 percent in 2020. Those cuts largely took place in the United States and other high-cost fields. But the companies have continued to look for potentially profitable places to drill, especially in South America and Africa.
For example, Exxon Mobil, Chevron and others are investing hundreds of millions of dollars to explore for natural gas off the coast of Egypt, which has offered generous incentives to oil companies.
By contrast, the companies are avoiding higher-cost areas. A recent government auction of oil leases in the Arctic National Wildlife Refuge attracted bids from two tiny companies and the State of Alaska. Oil companies have also been reducing and writing off their investments in Canadian oil sands in recent years.
Drilling in Suriname is in its infancy but picking up fast. Apache and its partner Total have announced four important oil discoveries since last January, including one this year. Exxon Mobil and the Malaysian oil company Petronas announced a discovery in December.
Chan Santokhi, a former police chief and justice minister, won election as the new president last year and faces numerous challenges, including the coronavirus and a near-bankruptcy.Credit…Adriana Loureiro Fernandez for The New York Times
Several oil companies plan to drill at least 15 appraisal and production wells over the next two years.
In partnership with several other companies, Apache owns lease rights to nearly 2.3 million acres. Exxon, the leading producer and explorer in Guyana, and Petronas own lease rights in an area nearly as large.
“We’re in a super basin — it’s large,” John J. Christmann IV, Apache’s chief executive, said on a conference call with analysts in November. “We’ve got a really, really good rock, and we’re very pleased with where we are.”
As the main oil explorer of Surinamese waters, Apache began assessing the field eight years ago and has made Suriname a keystone of its future while spending less elsewhere. Total, a French energy giant with deep pockets and deepwater expertise, is expected to help Apache speed up drilling as the new field operator in one large area.
Other European companies are following. Royal Dutch Shell completed its acquisition of Kosmos Energy’s position in Surinamese waters last month as the Texas-based Kosmos decided to cut investments.
“We are excited about entering into a highly promising new basin in Suriname, which saw some of the largest oil discoveries in the world in 2020,” Marc Gerrits, Shell’s executive vice president for exploration, said in an email.