In 2014, Shell exited its Guyana business in South America and a medium-sized but ambitious oil company, Hess, bought its shares. It wasn’t an expensive deal: Hess bought the shares for about $30-million.

Guyana is a country, by the way. It’s up in the northern bulge on the Atlantic side, next door to Venezuela and another country you may or may not have heard of: Suriname. For the uninitiated, Suriname is one of the few countries in the world whose official language is very similar to Afrikaans. Dutch heritage and all that.

Anyway, in Guyana, Hess became a partner to Exxon in around 2015. Shell pulled out because dozens of exploratory wells had come up dry. But shortly after the partnership with Hess, 32 of the 37 wells drilled by Exxon came up with oil.

This is the oil industry for you — it’s slightly akin to roulette; sometimes your number just comes up. Things then took off slowly, as they do, because actually putting down an oil well is an astounding feat of engineering. Most people don’t know this. Still, the job got done and since 2018, Guyana (population: about 800,000), has been pumping oil.

The consequences for the country have been miraculous. Guyana has been the fastest-growing economy in the world in terms of real GDP growth since 2018. About 40% of the population live under the poverty line, but the main hotel now charges $750 for a room for a night. Its economy grew by about 27.14% in each of the last five years, including an anticipated growth of 62.3% in 2023.

This too is the oil business: very little for a long time, and then a colossal, almost uncontrollable gush of wealth. Guyana’s government revenue has doubled, then doubled again. Oil revenues will generate $10-billion a year, but that figure is expected to rise to $157-billion by 2040. Is it possible even to conceive of that kind of money? Guyana will at that point be the world’s fourth-largest offshore oil producer, placing it ahead of Qatar, the US, Mexico and Norway. The find is so great that Hess just last week was acquired by oil major Chevron for $54-billion.

Now, of course, notwithstanding this extraordinary windfall, questions are being asked about the deal between Exxon and Guyana. Is Guyana getting a fair deal? The NGO Global Witness has estimated that Guyana will earn about $50-billion less than it would have done under a more common type of agreement. Technically, the agreement is a 50/50 profit split between the government and Exxon/Hess.

However, the agreement allows Exxon to deduct up to 75% of the earnings from its Guyanese wells as costs before the split to pay for the setup. The deal was struck after the test sites found oil, so both sides knew there was a resource to exploit. Guyana will get more out of the deal than the oil companies after this deduction because there is also a 2% royalty on turnover.

This is all tangentially relevant to SA because Parliament has just passed the Upstream Petroleum Resources Development Bill. This legislation was introduced after the government tried to amend the Mineral and Petroleum Resources Development Act about 10 years ago to take account of oil exploration.

The government set-aside at this point was simply ludicrous; it was set at 50% but there would be an additional BEE component, which would mean the oil company would get only around 25% of the equity. That was eventually scrapped and the new proposal is that PetroSA will get a 20% free carry and the BEE component will be around 10%. That took 10 years. Not quick, our government.

But, by comparison, that doesn’t seem too bad; many countries, including Norway, have government “set-asides” – essentially, free equity. Many other countries, however, don’t do it, like the UK. But there is a problem here: no oil has been discovered in SA yet.

According to James Lorimer, the DA’s shadow minister of mineral resources, the most promising area seems to be on the west coast, right near the border with Namibia. We know this because there has been some drilling on the Namibian side of the border, which has been moderately successful. Oil majors Total and Shell have found the field contains some 5 billion barrels of oil. The same geological feature that contains that oil extends into South African waters and right down our coastline to Cape Town.

Consequently, it seems likely, but is by no means certain, that SA could have reserves of another 5 billion barrels of oil, and between SA and Namibia, about 50 trillion cubic feet of gas. Just for comparison, the Mossgas project delivered thousands of barrels of liquid fuel for more than 20 years on a field of 1 trillion cubic feet.

But here’s the rub. Namibia’s legislation has a 10% automatic government set-aside. Now if you were an oil company looking at this geological formation, would you focus on Namibia or SA? This is so instructive, because it reveals the SA’s government perception of its own entitlement, and once again, its massive overestimation of its bargaining position.

Maybe SA doesn’t actually want a flourishing oil industry because of the global climate crisis but, if so, why bother passing legislation at all? In the early stages of oil exploration, the cards are stacked in favour of oil companies; failing to recognise that means the oil and gas just won’t get exploited. It’s hubris. If it’s a success, then the leverage moves, but only once you have an industry to speak of. 

“Passing this Bill will ensure the ANC’s usual toxic combination of greed, ignorance and ideology will continue to keep South Africans in poverty,” Lorimer said. DM