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Emerging Markets

Extracting growth: oil and gold generate excitement

The opening of Suriname’s second large gold mine has played a crucial role in the country’s economic recovery, and offshore oil discoveries in neighbouring Guyana have raised hopes for similar finds in Suriname. With the government apparently conscious of the need to be wise with the windfall, natural resources have the potential to transform the country.


The head of Suriname’s state-owned oil company is excited. 

“We are on the eve of a massive oil find,” says Rudolf Elias, CEO of Staatsolie. “Suriname has just 500,000 people; this will change the landscape of the economy completely.”

Elias lists with enthusiasm the 10 international oil companies that are partners of Staatsolie through production-sharing contracts. ExxonMobil, Statoil and Hess in July became the latest to join a list that, with one or two absentees, reads like a Who’s Who of global oil giants.

“The best in the industry are with us,” says Elias.

Offshore game changer?

It is easy to understand his enthusiasm. The US Geological Survey estimates that the Suriname-Guyana basin has 13.6bn barrels of oil, which make it the second most prospective unexplored oil basin in the world.

This means little until discoveries are made and proven to be commercially viable. However ExxonMobil’s discoveries at the Liza well in 2015 and 2016, which confirmed a world-class find of over 1bn barrels, have served to “de-risk” the entire area, say experts.

Oil market observers agree that prospects are exceedingly good for Suriname, while emphasising that nothing is certain until discoveries are made.

“Suriname is right to be excited,” says Alejandro Demichelis, director of oil and gas at Hannam Partners. “However there is a big ‘but’, and it’s that people have been excited before only to be disappointed.”

In April, Apache made what Demichelis calls a “high profile failure”, failing to find commercial quantities of oil at its Kolibrie well.

“That cooled things off a little bit on the Suriname side because it pushed operators to do some soul searching,” he says. “Why is it not working on one side of the border?”

Julie Wilson, research director of global exploration at Wood Mackenzie, echoes the sentiment.

“We don’t know yet whether the Liza complex in Guyana is a one-off or whether it can be replicated,” says Wilson.

Suriname’s finance ministry is not including any offshore oil projections in its balance of payments or fiscal revenue forecasts. But despite analysts trying not to get ahead of themselves, evidence suggests that Suriname could be on the verge of potentially transformative discoveries.

“In exploration there is always risk,” says Wilson. “But then again there could be hidden fields of billions of barrels.

“Given what Exxon has achieved next door in Guyana with its string of discoveries that have exceeded expectations, there could be similar sized fields and discoveries in Suriname.”

Following Liza, Exxon also made a discovery estimated at 500m of barrels at the nearby Payara well. 

“What we’ve discovered from Liza is that the basin has an extremely good reservoir quality that will deliver high EUR (expected ultimate recovery),” adds Wilson.

Demichelis, despite his words of restraint, admits that the Guyana discoveries — which he calls “some of the largest we’ve seen worldwide in the past decade” — are extremely encouraging.

“It is very difficult in my mind to have something as big as the ExxonMobil discoveries and then have nothing else happen,” he says.

The deals with Exxon and Statoil were seen as particularly important to get the market interested in Suriname again, and London-based Tullow is gearing up to start drilling its Araku prospect in October. This raises the possibility that a first offshore discovery could be imminent.

“What we have seen in that area over the past couple of years has put Guyana and Suriname on the world oil map,” says Demichelis. “If you’re a major oil company and you’re not there, you may miss a very good chance.”

IPO in preparation


In any case, Staatsolie is busy ensuring that, if oil is struck, it will need no time to get ready.

“Our message as Staatsolie is: Suriname should not think about if we will find oil, but should know that we will,” says a bullish Elias. “This is why I say that Staatsolie must already be preparing itself for that day.”

Staatsolie can take participations of up to 20% in offshore blocks if oil is found, so one of the first things it will need is money. To finance its participation in such big finds, the company is preparing for an initial public offering of up to 20% of its shares. A cross-border bond offering would also be likely.

“We want to be ready to push the button to attract international financing,” says Elias.

The CEO says a shift in mind-set was also required, from being a production-driven company to a more value-driven one.

“We want our mind-set to be more like international oil companies so we can be equal partners in a joint venture,” he says 

In some ways, the offshore phenomenon is taking Staatsolie back to its roots, when in 1980 it was founded as an agent of the state to deal with international oil companies.

Back then, low oil prices meant low international interest, so the company therefore had to take the oil out of the ground itself. Suriname’s onshore crude — low in sulphur and metals — was ideal for fuel oil for the alumina industry that drove the country’s economy. 

Thus was born Suriname’s oil sector, which generated exports of just $150m in 2016 —10% of the country’s total. But these apparently modest beginnings could prove important.

“It is not difficult to deal with Staatsolie as it is a functioning oil company,” says Wilson at Wood Mackenzie. “Companies are not having to work with a ministry full of officials that don’t know anything about industry.”

Furthermore, according to Demichelis, having a working oil industry in Suriname means that new discoveries can be developed more quickly than somewhere like Guyana. 

“You have everything in place,” he says. “Oil services are there, and there’s a national company that knows how to do things and a government with experience.”

A golden example

But it is gold mining, not oil, that is more advanced in Suriname, dominates the country’s exports and brings employment to the local population.

Furthermore, though in a different industry, US-based Newmont Mining’s investment in Suriname is a useful example of how joint ventures can work with Staatsolie, which owns 25% of Newmont Suriname.

Albert Ramdin, senior director for external relations at Newmont Suriname, says that Newmont’s investment — which led to its Merian mine coming on line in October 2016 — has been “very successful”.

“We are on target to meet our year-end production target of 500,000 ounces; our target for the first full five years of production is around 400,000-500,00 ounces per annum,” says Ramdin. “We have now begun the second phase of investment — building the crushers that will allow us to process the rocks once we get into deeper ground, and expanding the energy capacity to run those crushers.”

Newmont’s investment in Suriname has been nearly $1bn, and the company employs 1,250 people in the country, of which fewer than 10% are expats. 

The company thinks it can be in the country for at least 13-14 years based on today’s reserves alone, but Ramdin says it would like to have a longer presence in the country and has increased its exploration area. 

Ramdin’s view on the country’s operating environment gives credence to Elias’ claim that Suriname has a history of “treating multinationals with respect, and honouring contracts”.

“As foreign investors, we have excellent relations with the government and everybody is playing by the rules of the mineral agreement that we signed in 2013,” says Newmont’s Ramdin. “We have a very open, transparent and constructive relationship with the government and our partner Staatsolie, including regular meetings with all government stakeholders.”

Newmont’s investment is, after all, quite a boon for the government. The project provides the government with income in three ways, according to Ramdin. Each month it takes a 6% royalty payment for gold produced, Staatsolie takes dividends as a 25% partner, and there is indirect income through the “multiplier effect of taxes paid by employees and contractors”.

Indeed, while offshore oil discoveries could provide the government with cash, they tend not to create local employment. In this respect, the gold industry will have a much more significant impact. 

Bearing in mind the importance of any mine’s relationship with the locals, Newmont has a co-operation agreement with the local Pamaka community. 

“In the agreement it is very clearly stated that we will for instance give preferential employment to the local communities,” says Ramdin. Newmont’s engagement with local communities also extends to a community development fund that receives $1 per ounce of gold sold.

“These efforts reaffirm our belief that a social licence to operate is not just a piece of paper but about being committed and respectful of the communities that live in the area,” says Ramdin.

Newmont is now carrying out a social and economic impact assessment at its new discovery in Sabajo.

Savouring the boom 

Suriname’s gold prospects do not start and end with Newmont. Canadian Iamgold, which has been producing gold at the Rosebel mine since 2004, has been drilling at the nearby Saramacca site and in September confirmed a “significant gold discovery” that “exceeded initial estimates”.

And irrespective of how the offshore oil explorations turn out, the prospects for the gold industry alone have driven it to approve Suriname’s first sovereign wealth fund.

Appropriate management of that could be the key to ensuring that the excitement in natural resources has a lasting effect on Suriname, especially if offshore oil discoveries come off. This probably explains Elias’s rather emotional excitement.

“I’m positive that if we have a good balanced sovereign wealth fund where we can put all the additional money that we may make, it will be able to benefit generations,” he says. “It could be the fund for my children’s children’s children.”

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