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Drilling deep

By EuroWeek Editor 1
15 Oct 2019

As drilling advances off the coast of Suriname, the CEO of the state-owned oil company Staatsolie is calling for the country to prepare itself for a big oil discovery

Guyana — Suriname’s neighbour to the west — had no oil industry until recently. However, after 14 deep-water offshore oil discoveries from ExxonMobil alone since 2015, it now has more oil reserves per capita than any other country.

Interest has followed on the Surinamese side of the basin, as a host of international oil companies — including Exxon, Hess, Chevron, Apache, Tullow and Kosmos — have begun exploration activities. 

As of September this year, all the successful drills have been on the Guyanese side of the basin. Yet Rudolf Elias, chief executive of Staatsolie, Suriname’s state-owned oil company, is not deterred. 

“It is almost certain that we will have a find between now and the end of 2020,” says Elias. “We don’t know if it will be next month or the end of next year.”

Tom Fauria, vice president and country manager for Kosmos Energy Suriname, agrees there is reason for optimism. Though Guyana might currently overshadow Suriname, Fauria says that “remarkable discoveries” there validate this optimism.

“We know that the petroleum system is working, since the heavy oil found onshore in Suriname was generated far offshore and migrated to the coast,” Fauria tells GlobalMarkets.

It is still early days for Surinamese deep-water exploration, and a few unsuccessful wells “are no reason to be overly negative” about prospects, says Fauria. Kosmos’s position is one of cautious optimism.

“In this business there are no guarantees of success, and the risk in this play is higher because the traps are stratigraphic rather than structural,” he adds.

No matter, Elias has been emphatic in his message to the country: the government, businesses and people need to prepare immediately for a big oil find. Similarly to Guyana, such a find in a country of fewer than 1m people will inevitably have a huge impact.

“How we deal with an oil find needs to be a broad national discussion held before we have this find,” says Elias.

Bracing for business 

Suriname’s history with mining may serve it well in the case of a big offshore oil find. The government has already set up the Savings and Stability Fund Suriname to ensure it is saving a portion of gold revenues, and this should protect against the risk of splurging any oil windfalls.

Stephen Ogilvie, director at Standard & Poor’s, says that the government is “sophisticated in dealing with mining companies” and has a “robust royalty regime”.

Even an immediate oil find would not bring in royalties for several years, however, and the country must first face the challenge of ensuring that the investment that would follow a discovery would benefit the economy.

Staatsolie and the IOCs say they are committed to a strategy that would ensure any find brings “high impact local content development”, and they commissioned private development company DAI to carry out an industrial baseline study looking at the impact of a hypothetical find. 

DAI found that the maximum value of business for which local firms would be able to compete would be just 6.3% of the total investment. In reality, given the low competitiveness of the domestic private sector, DAI forecast that this number would be just 1.6%.

“We have a few companies that have worked for the likes of [bauxite miner] Alcoa and [gold miner] Newmont and they understand the way of working and standards required,” says Elias. “But for now there are only a few.”

One change that would sharply increase the opportunity pool for Suriname’s businesses would be if the offshore developers could set up an onshore base in the country. So far, the shore base for exploration activities in
Surinamese seas has been Trinidad, as Paramaribo’s harbour is inaccessible to large ships. 

“It is not ideal to have to go to Trinidad, and we are hoping Suriname will dredge the river to enable large supply vessels to work from a local base,” says Fauria.

Dredging the river, which would enable developers to set up a shore base in Suriname, is imminent, finance minister Gillmore Hoefdraad told GlobalMarkets, and the government signed a project loan agreement in September 2019 to finance this. The benefits would be substantial. DAI found that — with an onshore base — the maximum local content value would increase from 6.3% to 14.3% of expenditure in case of a discovery, while the forecast local content would nearly quadruple to 6.3% as Surinamese firms would be able to participate in areas like civil works, facilities management and logistics.

Work is also underway to improve Suriname’s workforce. 

“Suriname has a large enough workforce to service the offshore oil industry, but needs to update its technical schools because the employment that will be generated will require specific vocational skills,” says Fauria. “The oil industry is very much engaged in this opportunity and is helping to fund a multi-year programme to support and enhance the quality of technical education in the country.”

Staatsolie set to hit markets

As Staatsolie looks to become a joint venture partner in any oil find, the company is laying down bases to raise financing via the capital markets.

An international bond issue, likely to be a secured deal to ensure a better rating than the sovereign, of $300m, would be subject to market conditions. Proceeds would be used to pay off part of a bank loan, while Elias feels the issue would also help to put Staatsolie on the radar of the international investment community.

“We are working hard to make the company ready to IPO in case of an oil find,” he says. λ 

By EuroWeek Editor 1
15 Oct 2019