Critical government and national oil company role in their petroleum resource development: lessons for Guyana petroleum sector

Abstract

The discovery of vast deposits of petroleum resources in any state can arguably lead to many positive outcomes for the country, but for this favourable outcome to be actualised individual players have to perform some significant roles in achieving this goal. It has been proven that some economic development can be achieved through petroleum resources. Some studies have shown the vital roles governments, and national oil companies play in their domestic petroleum sector and even in the global petroleum sector. Recently, the national oil company model of managing petroleum resources has come under scrutiny and has been viewed as a medium of waste and corruption. This paper identifies that the national oil company model can lead to some positive outcomes for the economy of Guyana. Also, this paper identifies and analyses the critical roles a government and a national oil company play in the successful petroleum resource governance and the positive outcomes that can come from transparent and effective management of these resources. Furthermore, this paper argues the case for the presence of a national oil company in Guyana, considering that they are today considered to be a petroleum-rich state due to the sizeable recent petroleum discovery in the country.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 See ‘Government Support Schemes For COVID-19’ (TMF Group, 2020) <https://www.tmf-group.com/en/news-insights/coronavirus/government-support-schemes/> accessed 1 May 2020. See also, Aimee Manning, ‘COVID-19 Updates: US Federal & State Government Relief Programs’ (Linnworks, 2020) <https://blog.linnworks.com/covid-19-us-government-relief-programs> accessed 1 May 2020.

2 In this paper, ‘petroleum’ resources are used to refer to ‘oil and gas’ resources. Petroleum resources are predominantly defined as all liquid and gaseous hydrocarbons existing in their natural state below ground, as well as the associated substances with hydrocarbon resources. See, Bernard Taverne, Petroleum, industry and Governments (2nd edn, Wolters Kluwer 2013) 1–5. See also, ‘Petroleum | Energy, Products, & Facts’ (Encyclopedia Britannica, 2018) <https://www.britannica.com/science/petroleum> accessed 3 December 2018, and ‘Petroleum – Schlumberger Oilfield Glossary’ (Glossary.oilfield.slb.com, 2018) <http://www.glossary.oilfield.slb.com/en/Terms/p/petroleum.aspx> accessed 3 May 2018.

3 R.W. Bentham, ‘The international Legal Structure of Petroleum Exploration’ in Judith Rees and P. R Odell (eds), The International Oil industry (Macmillan 1987) 62-66.

4 Silvana Tordo, Brandon S Tracy and Noora Arfaa, National Oil Companies and Value Creation (World Bank 2011) xi-xiii. See also María José Paz Antolín and Juan Manuel Ramírez Cendrero, ‘How Important Are National Companies for Oil and Gas Sector Performance? Lessons from the Bolivia and Brazil Case Studies’ (2013) 61 Energy Policy 707 and Patrick R.P. Heller, Paasha Mahdavi and Johannes Schreuder, ‘Reforming National Oil Companies: Nine Recommendations’ [2014] Natural Resource Governance institute <https://resourcegovernance.org/sites/default/files/documents/nrgi_9recs_eng_v3.pdf> accessed 8 November 2018.

5 See Andrew C. Inkpen and Michael H Moffett, The Global Oil & Gas Industry: Management, Strategy and Finance (PennWell Books 2011) 63; Patrick R P Heller, ‘Doubling Down: National Oil Companies as Instruments of Risk and Reward’ (2017) 81 UNU-WIDER <https://www.wider.unu.edu/sites/default/files/wp2017-81.pdf> accessed 14 March 2018 and David R Mares, ‘Resource Nationalism and Energy Security in Latin America: Implications for Global Oil Supplies’ (Scholarship.rice.edu, 2010) <https://scholarship.rice.edu/bitstream/handle/1911/91400/EF-pub-MaresResourceNationalismWorkPaper-012010.pdf?sequence=1> accessed 4 March 2018.

6 Tina Hunter, ‘Redefining Energy Security: The New Prize in a Time of Arctic Petroleum Resources and Technological Development’ in Slawomir Raszewski (ed), The International Political Economy of Oil And Gas (Palgrave Macmillan 2018) 12-15. See also, ‘The Oil and Gas Industry in Energy Transition’ (IEA - World Energy Outlook Special Report, 2020) <https://www.iea.org/reports/the-oil-and-gas-industry-in-energy-transitions> accessed 5 March 2020, and Anthony J. Venables, ‘Using Natural Resources for Development: Why Has It Proven so Difficult?’ (2016) 30 Journal of Economic Perspectives 161.

7 See Dylan Baddour, ‘Massive Guyana Oil Find Continues to Grow with Fresh Exxon Discovery’ (Forbes, 2020) <https://www.forbes.com/sites/dylanbaddour/2020/01/27/massive-guyana-oil-find-continues-to-grow-with-fresh-exxon-discovery/#5dcd47f62781> accessed 29 February 2020. See also ‘Global Oil and Gas Discoveries Reach Four-Year High in 2019, Boosted By Exxonmobil’s Guyana Success’ (Rystad Energy, 2019) <https://www.rystadenergy.com/newsevents/news/press-releases/global-oil-and-gas-discoveries-reach-four-year-high-in-2019/> accessed 1 May 2020.

8 Jan Mangal, ‘Regulatory & Risk: Securing Guyana’s Future the Opportunities and the Risks’ (Guyana Petroleum Summit, 2019) <https://www.guyanapetroleumsummit.com/home> accessed 30 April 2020.

9 See Anara Khan, ‘Guyana Begins Receiving Royalty from Oil on April 30’ (Department of Public information, 2020) <https://dpi.gov.gy/guyana-begins-receiving-royalty-from-oil-on-april-30/> accessed 1 May 2020.

10 Svein S Andersen, The Struggle over North Sea Oil and Gas: Government Strategies in Denmark, Britain and Norway (Scandinavian University Press 1993) 2.

11 Evelyn Dietsche, Sector Legal Frameworks and Resource Property Rights in Wojciech Ostrowski and Roland Dannreuther (eds), Global Resources Conflict And Cooperation (Palgrave Macmillan 2013) 159.

12 Ibid., 159-62.

13 Ibid., 161. See also, John van Schaik, ‘How Governments Sell Their Oil’ (Resourcegovernance.org, 2012) <https://resourcegovernance.org/sites/default/files/OilSales-HowGovtsSellOil.pdf> accessed 20 February 2020.

14 Ibid., 7-8. See also Alan H Gelb, Oil Windfalls: Blessing or Curse (Oxford University Press 1988) 3.

15 David G Victor, David R Hults and Mark Thurber (eds) Oil and Governance (Cambridge University Press 2014) 5.

16 Ibid. See also, Bassam Fattouh, ‘OPEC Pricing Power: The Need for a New Perspective’ [2007] Oxford institute for Energy Studies WPM 31.

17 Leslie E Grayson, National Oil Companies (John Wiley & Sons Ltd 1981) 1-3, 18-20.

18 See Coby van der Linde, The State and the International Oil Market (Kluwer Academic Publishers 2000) 9.

19 Ibid.

20 Thomas W Wälde, ‘International Energy Law: Concepts, Context and Players: A Preliminary Introduction’ (2003) 1 OGEL.

21 See Bernard Taverne, An introduction to the Regulation of the Petroleum industry (Graham & Trotman 1994) 97–100.

22 Neil Gunningham, ‘Regulation, Economic Instruments and Sustainable Energy’ in Andreas Goldthau The Handbook of Global Energy Policy (John Wiley & Sons inc 2013) 305. See also, Ralf Boscheck, ‘The Governance of Oil Supply: An institutional Perspective on NOC Control and the Questions It Poses’ (2007) 1 International Journal of Energy Sector Management 366.

23 See Thomas Walde, ‘Investment Policies in the International Petroleum Industry: Responses to the Current Crisis’ in Khan (ed), Petroleum Resources and Development (Belhaven 1988) 32.

24 Bernard Taverne (n 19) 115.

25 See Øystein Noreng, ‘Global Resource Scramble and New Energy Frontiers’ in Andreas Goldthau (n 21) 171. See also Dr. S.K. Date-Bah and Makbul Rahim, Promoting Petroleum Exploration and Development: Issues for Government Action in Khan (ed) (n 24) 106-9.

26 Bianca Sarbu Ownership and Control of Oil: Explaining Policy Choices Across Producing Countries (Routledge 2014) 26-7.

27 Ibid.

28 See Andrew Bauer and Juan Carlos Quiroz, ‘Resource Governance’ in Andreas Goldthau (n 21) 245-6.

29 John Mitchell, Valerie Marcel and Beth Mitchell, ‘What Next for the Oil and Gas industry’ (Chatham House, 2012) <https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas.pdf> accessed 10 February 2018.

30 See Jonathan Gant, ‘Signed Away: How Exxon’s Exploitative Deal Deprived Guyana of up to US$55 Billion | Global Witness’ (Global Witness, 2020) <https://www.globalwitness.org/en-gb/campaigns/oil-gas-and-mining/signed-away-exxons-exploitative-deal-deprived-guyana/> accessed 9 February 2020.

31 Bianca Sarbu (n 25) 26-7.

32 Honoré Le Leuch, ‘Recent Trends in Upstream Petroleum Agreements: Policy, Contractual, Fiscal, and Legal Issues’ in Andreas Goldthau (n 21) 127.

33 Ibid. (n 23) 130.

34 Honoré Le Leuch in Andreas Goldthau (n 21) 130.

35 Ibid.

36 Ibid.

37 Bianca Sarbu (n 25) 26-27.

38 Ibid.

39 . The following are the three main types of agreements used in the petroleum industry: Concession Agreement, Production Sharing Contract (PSC) and Risk Service Contract (RSC) See Honoré Le Leuch, ‘Recent Trends in Upstream Petroleum Agreements: Policy, Contractual, Fiscal, and Legal Issues’ in Andreas Goldthau (n 21) 132-4.

40 Honoré Le Leuch in Andreas Goldthau (n 21) 129.

41 Ibid.

42 Coby van der Linde (n 17) 27-35.

43 Ibid. See also, Richard A. Posner, ‘Theories of Economic Regulation’ (1974) 5 Bell Journal of Economic 335; Gilbert Becker, ‘The Public Interest Hypothesis Revisited: A New Test of Peltzman’s Theory of Regulation’ (1986) 49 Public Choice 223; Theodore E. Keeler, ‘Theories of Regulation and the Deregulation Movement’ (1984) 44 Public Choice 103, and Michael Hantke-Domas, ‘The Public Interest Theory of Regulation: Non-Existence or Misinterpretation?’ (2003) 15 European Journal of Law and Economics 165.

44 Ibid. See also, Andrei Shleifer, ‘Understanding Regulation’ (2005) 11 European Financial Management 439, and Oliver James, ‘Regulation Inside Government: Public Interest Justifications and Regulatory Failures’ (2000) 78 Public Administration 327.

45 Coby van der Linde (n 17) 27-35.

46 Svein S Andersen ( n 10) 63.

47 Coby van der Linde (n 17) 27-35.

48 Stacy L. Eller, Peter R. Hartley and Kenneth B. Medlock, ‘Empirical Evidence on the Operational Efficiency of National Oil Companies’ (2010) 40 Empirical Economics. See also, Chidi Basil Ike and Hyunjung Lee, ‘Measurement of the Efficiency and Productivity of National Oil Companies and Its Determinants’ (2014) 17 Geosystem Engineering; Peter Hartley and Kenneth B. Medlock, ‘A Model of the Operation and Development of a National Oil Company’ (2008) 30 Energy Economics 2460; Paul Markwell and others, ‘The New Frontier for National Oil Companies’ [2014] SSRN Electronic Journal.

49 In 1914 the government of the United Kingdom purchased 51% ownership share in Anglo-Persian Oil Company (which later became British Petroleum). See Daniel Yergin, The Prize (Simon & Schuster 2012) 130 and Andrew C. Inkpen and Michael H Moffett (n 5) 52-5.

50 Charles Mcpherson and World Bank Group, ‘National Oil Companies Evolution, Issues, Outlook National Oil Companies Workshop Current Roles and Future Prospects’ (World Bank Washington D.C. 2003).

51 See Roland Dannreuther, Geopolitics and International Relations of Resources in Wojciech Ostrowski and Roland Dannreuther (eds.), Global Resources Conflict and Cooperation (Palgrave Macmillan 2013) 79-81 and Caroline Kuzemko, Andrew Lawrence and Matthew Watson, ‘New Directions in the international Political Economy of Energy’ (2019) 26 Review of international Political Economy 1.

52 Lindsay Whitfield and Lars Buur, ‘The Politics of Industrial Policy: Ruling Elites and Their Alliances’ (2014) 35 Third World Quarterly 126.

53 See Charles Mcpherson in Andreas Goldthau (n 21) 151-2.

54 Ibid.

55 Eze Emem Chioma, ‘How Has the Ability of the NNPC to Make a Profit Been Hampered by the Retention of Its Corporate Status as a Statutory Body Rather than as a Separate Legal Entity Under the NNPC Act 1977?’ (2015) 8 International Energy Law Review 304.

56 V. K. Moorthy, ‘The Malaysian National Oil Corporation — Is it a Government instrumentality?’ (1981) 30 International and Comparative Law Quarterly 638 and Eze Emem Chioma n 54.

57 Oystein Noreng n 24.

58 Additionally, the type of NOC also defines the decision-making area of responsibility of the government in the states oil and gas industry. See Bianca Sarbu (n 25) 24.

59 Valérie Marcel and John V Mitchell, Oil Titans: National Oil Companies in the Middle East (Chatham House 2006) 3-4. See also, Dag Harald Claes, The Politics of Oil-Producer Cooperation (Routledge 2018) 2.

60 Valérie Marcel and John V Mitchell (n 58) 4.

61 Leslie E Grayson (n 16) 5.

62 Paul Stevens, ‘National Oil Companies: Good Or Bad’ (2003) <https://pdfs.semanticscholar.org/49e9/e0b16dd0bb57fbb6c996ec0f5c5cfb2babbd.pdf> accessed 4 February 2018.

63 See ‘National Oil Companies (NOCs)’ (Extractives Hub, 2020) <https://extractiveshub.org/servefile/getFile/id/4220> accessed 27 February 2020.

64 See Stacy L. Eller, Peter R. Hartley and Kenneth B. Medlock, ‘Empirical Evidence on the Operational Efficiency of National Oil Companies’ (2010) 40 Empirical Economics.

65 Harley Balzer, ‘The Putin Thesis and Russian Energy Policy’ (2005) 21 Post-Soviet Affairs 210.

66 Ibid.

67 Ibid.

68 Coby van der Linde (n 17) 12-13.

69 See the National Oil Company Database: Report (National Oil Company Database, 2019) <https://www.nationaloilcompanydata.org/api/publications/content/NFinSnhdYNC4ntCohaYqok1u2jHAG4vvLXK1jwrL.pdf> accessed 25 June 2019.

70 See Dylan Baddour, ‘Massive Guyana Oil Find Continues to Grow with Fresh Exxon Discovery’ (Forbes, 2020) <https://www.forbes.com/sites/dylanbaddour/2020/01/27/massive-guyana-oil-find-continues-to-grow-with-fresh-exxon-discovery/#5dcd47f62781> accessed 29 February 2020. See also, Clifford Krauss, ‘With a Major Oil Discovery, Guyana Is Poised to Become a Top Producer’ (the New York Times, 2017) <https://www.nytimes.com/2017/01/13/business/energy-environment/major-oil-find-guyana-exxon-mobile-hess.html> accessed 1 May 2020.

71 David Mihalyi and Andrew Bauer, ‘Challenges and Opportunities in Managing Guyana’s Oil Wealth’ (2020) 18 OGEL. See also ‘Guyana’s Dodgy Poll Is All About Oil’ (The Economist, 2020) <https://www.economist.com/leaders/2020/03/19/guyanas-dodgy-poll-is-all-about-oil> accessed 23 March 2020.

72 Kevin Ramnarine, ‘Considerations for a Regulatory Framework to Granting E&P Rights a Regional Perspective’ (Guyana Petroleum Summit, 2019) <https://www.guyanapetroleumsummit.com/page/1421919/presentations> accessed 30 April 2020.

73 See ‘Guyana: Country Review’ (CountryWatch, 2019) <http://www.countrywatch.com/intelligence/countryreviews?countryid=72> accessed 30 April 2020. See also Eric N. Smith, ‘A Status Report on Economic and Political Conditions in Guyana, a World Class Hydrocarbon Discovery’ (2020) 18 OGEL.

74 See Ramez Abubakr Badeeb, Hooi Hooi Lean and Jeremy Clark, ‘The Evolution of the Natural Resource Curse thesis: A Critical Literature Survey’ (2017) 51 Resources Policy 123. See also Robert Deacon, ‘The Political Economy of the Natural Resources Curse: A Survey of Theory and Evidence’ (2011) 7 Foundations and Trends® in Microeconomics 111; Jeffrey A. Frankel, ‘The Natural Resource Curse: A Survey’ [2010] National Bureau of Economic Research Working Paper No. 15836; Anthony J. Venables n 2; Frederick van der Ploeg, ‘Natural Resources: Curse or Blessing?’ (2011) 49 Journal of Economic Literature 366 and Hajime Takatsuka, Dao-Zhi Zeng and Laixun Zhao, ‘Resource-Based Cities and the Dutch Disease’ (2015) 40 Resource and Energy Economics 57.

75 See Daron Acemoglu, Simon H. Johnson and James A. Robinson, ‘An African Success Story: Botswana’ (2001) Working Paper 01-37 SSRN Electronic Journal 1. See also, Peter Cameron and Michael Stanley, The Extractive Industries Sourcebook (World Bank Group 2017) 4-6, and Maria Sarraf and Moortaza Jiwanji, ‘Beating the Resource Curse: The Case of Botswana’ (The World Bank, 2001) <https://openknowledge.worldbank.org/bitstream/handle/10986/18304/multi0page.pdf?sequence=1> accessed 7 March 2019. See also Anthony J. Venables, ‘Using Natural Resources for Development: Why Has It Proven so Difficult?’ (2016) 30 Journal of Economic Perspectives 161.

76 David Mihalyi and Andrew Bauer, ‘Challenges and Opportunities in Managing Guyana’s Oil Wealth’ (2020) 18 OGEL.

77 See Morgan D. Bazilian and Paasha Mahdavi, ‘New Oil Finds Could Mean a Tripling of Guyana’s GDP’ (Foreign Policy, 2020) <https://foreignpolicy.com/2019/11/26/new-oil-finds-triple-guyana-gdp-avoid-resource-curse/> accessed 1 March 2020. See also, Christopher M. Matthews and Kejal Vyas, ‘World’s Biggest New Oil Find Turns Guyana Upside Down’ (the Wall Street Journal, 2020) <https://www.wsj.com/articles/worlds-biggest-new-oil-find-turns-guyana-upside-down-11582909332?redirect=amp#click=https://t.co/PBMgPbuRXS> accessed 29 February 2020.

78 See Ian Bremmer, ‘The End of the Free Market: Who Wins the War Between States and Corporations?’ (2010) 24 Ethics & international Affairs 249-52.

79 Serik Orazgaliyev, ‘State Ownership and Nationalization in Energy Sector: The Case of Kazakhstan’s Oil industry’ [2019] Asian Development Bank institute Working Paper No. 1042.

80 See ‘Who’s Who in the Oil and Gas Sector in Guyana’ (OilNow, 2020) <https://oilnow.gy/profiles/companies/whos-who-in-the-oil-and-gas-sector-in-guyana/> accessed 30 April 2020.

81 Alicia Elias-Roberts, ‘A Review of the Legal Framework of Local Content Provisions in Guyana’ (2020) 18 OGEL.

82 Charles Ramson Jr., ‘Guyana Missed Golden Opportunities to Have National Oil Company with interest in offshore Blocks’ (Kaieteur News, 2019) <https://www.kaieteurnewsonline.com/2019/04/12/guyana-missed-golden-opportunities-to-have-national-oil-company-with-interest-in-offshore-blocks-ramson-jr/> accessed 30 April 2020.

83 Ibid., See ‘Guyana to Establish National Oil Company Soon – Guyana Chronicle’ (Guyana Chronicle, 2018) <http://guyanachronicle.com/2018/05/20/guyana-to-establish-national-oil-company-soon> accessed 30 April 2020.

84 See Bianca Sarbu (n 25) 36.

85 Ibid.

86 Valérie Marcel and John V Mitchell (n 58) 29-30.

87 David G Victor, David R Hults and Mark Thurber (eds) (n 15) 8-9. See also, Ole Gunnar Austvik, ‘Landlord and Entrepreneur: The Shifting Roles of the State in Norwegian Oil and Gas Policy’ (2011) 25 Governance 315, and Paul Stevens n 43.

88 See Patrick Heller, ‘National Oil Company Database: Global Launch’ (National Resources Governance institute, 2019) <https://www.nationaloilcompanydata.org/api/publications/content/MvBx7qBCgtu0iILVzQGU2yhswUiFrmxxdwNuaT9C.pdf> accessed 25 June 2019. See also, Saud M. Al-Fattah, ‘National Oil Companies: Business Models, Challenges, and Emerging Trends’ (2013) 11(1) SSRN Electronic Journal 727-36.

89 See Steve LeVine, ‘The Surprising Next Oil Superpower’ (AXIOS, 2019) <https://www.axios.com/guyana-could-become-the-next-wealthy-oil-nation-b7d7c831-10ae-4a40-bfe5-cb4e9c58d10f.html> accessed 6 May 2020. See also, Anatoly Kurmanaev, ‘Crisis Deepens in Tiny Guyana, The World’S Newest Petro State’ (The New York Times, 2020) <https://www.nytimes.com/2020/03/06/world/americas/Guyana-election.html> accessed 10 March 2020.

90 Charles Mcpherson in Andreas Goldthau (n 21) 146. See Leonardo Maugeri, ‘Oil: The Next Revolution’ [2012] The Geopolitics of Energy Project <http://indianstrategicknowledgeonline.com/web/Oil-%20the%20Next%20Revolution.pdf> accessed 8 November 2018.

91 Bernard Mommer, Global Oil and the Nation State (Oxford University Press 2002) 183.

92 Ibid.

93 See the National Oil Company Database: Report (National Oil Company Database, 2019) <https://www.nationaloilcompanydata.org/api/publications/content/NFinSnhdYNC4ntCohaYqok1u2jHAG4vvLXK1jwrL.pdf> accessed 25 June 2019.

Additional information

Notes on contributors

Victor C. Azubike

Victor C. Azubike is currently a Doctoral Law Researcher in the fields of Oil and Gas Law at Robert Gordon University Aberdeen, Scotland. Also, a Business Law lecturer at Robert Gordon University, Aberdeen. He obtained a Bachelors of Laws degree from the University of Nigeria (UNN) and a Master's of Laws Degree (LLM) in Oil and Gas Law from Robert Gordon University, Aberdeen Scotland. He is a member of the Nigerian Bar Association (NBA), Association of International Petroleum Negotiators (AIPN), Energy Institute (EI) and an academic member of the Chartered Institute of Arbitrators (CIArb).