Axco reports that, in Guyana, “the recent discovery of offshore oil reserves has the potential to transform the economy and production is expected to begin in mid-2020. This is projected to generate approximately USD 300mn in government revenue per year. Local insurers remain optimistic that opportunities for the insurance sector will materialise from this new prosperity”.

The ExxonMobil Corporation has discovered a large number of new offshore wells and has increased the estimate of discovered recoverable resources to more than 4 billion oil barrels, within the next 3 years. Guyana will rival the world’s biggest producers such as Kuwait and Qatar in the next decade according to The Wall Street Journal.

The Lisa Prospect development operated by ExxonMobil, around 120 miles from the Stabroek Block off the shores of Guyana, was permitted by Environmental Protection Agency (EPA) in 2017. Esso has a 45% interest share of the development, along with Hess with a 30% share and CNOOC with 25%. Current development plans are being implemented and it is expected that the first oil production from the field will be in 2020. Offshore Technology has forecast that there will be a constant production of 18mn barrels per day by 2023. For Guyana and their relationship with the Caribbean single market, this could mean great economic growth as it moves away from national debt and further towards investment in infrastructure and broadening of the export market. Trading Economics reports an increased number of highly skilled migrants, as well as trade deficit. This could be overturned by the increasing need for workers in the growing oil industry.

Under the agreement, Exxon will use “75% of annual oil proceeds to recoup exploration and production costs once commercial pumping begins. Guyana gets a 2% royalty of the proceeds plus 50% of the remaining proceeds. That is on par with the world average for ‘frontier exploration’,” Carlos Bellorin, an IHS Markit Analyst mentions. Initially, Guyana will see a financial pinch in terms of local oils company taxes, meaning a slightly lower share of profits. However, this will improve over time with increased production and revenue.

Senior Vice President of ExxonMobil Corporation - Neil Chapman believes that “outstanding resource quality across these opportunities combined with industry-leading project execution capabilities will provide great value to resource owners, partners and our shareholders,” which means we will see increased Foreign Direct Investments (FDI’s). Moody’s reports that FDI increased in Guyana from $58mn in 2016 to $212Mn in 2017. The Economic Commission for Latin America and the Caribbean recently announced Guyana’s partnership with China to start works on the Belt and Road initiative, a maritime road of shipping lanes to improve foreign trade. Such partnerships will bring a greater capital inflow to Guyana and help to form multinational affiliations and improve its investment portfolio.

Due to the increase in the demand for petroleum products, these newly materialising projects and facilities create greater exposure to potential risks from extraction and exploration to refining and production. Underwriters will need to increasingly assess associated liability and provide tailored claims services to newly emerging, challenging risk territories, helping to protect the cost-intensive infrastructure, including labour, material and immaterial assets. This helps the long-term viability of oil and gas operating organisations.

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Insurance companies that are interested in expanding into Guyana's new oil market will need to be prepared for the risks involved. Find out how our risk reports can assist you with developing your products for this region, as well as other markets around the world.