Suriname hopes to become South America’s newest oil exporter

As Guyana prepares to become a major oil-producing nation, the spotlight is firmly on the Guyana-Suriname basin and Suriname, the former British colony’s neighbor. After decades of poor drilling results, ExxonMobil’s string of major high-quality oil discoveries in the Stabroek block off Guyana has rekindled interest in the oil potential of the Guyana-Suriname basin. Suriname, which shares the estimated 32.6 billion barrels of oil resources, is desperate to replicate Guyana’s success after the COVID-19 pandemic hit its economy and public finances particularly hard. According to the International Monetary Fund, Suriname’s gross domestic product contracted 13.5% in 2020, South America’s worst performance after the exclusion of Venezuela.

The fallout from the pandemic is putting considerable pressure on an already cash-strapped national government in Paramaribo. There are growing fears that the deeply impoverished South American nation, which only emerged late last year from a protracted political crisis, is facing financial ruin. By the end of March 2021, Suriname had defaulted on its sovereign debt. The government of the former Dutch colony in Paramaribo failed to make a $ 50 million payment on March 31, 2021 on $ 675 million of US dollar-denominated bonds maturing in 2023 and 2026. This led the agency international Fitch rating at downgrade Suriname currency issuer’s rating ranging from C to RD, or narrow default, that is, where the agency says the issuer of the debt instrument has suffered an unsecured default. According to Fitch, this is Last Name’s third default since the pandemic was declared in March 2020. Paramaribo has been negotiating with creditors for some time to delay payments, and earlier this month got a deal with around 90% of 2023 and 2026 bondholders to delay payments until July 30. Even more worrying is that Suriname’s economy, although set to return to growth in 2021, will only grow by one. paltry 0.7%, the worst forecast for South America after Venezuela. These developments highlight Paramaribo’s precarious budgetary situation and why the development of Suriname’s considerable oil potential is so important.

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In November 2020, the state-controlled oil company and hydrocarbons regulator Staatsolie, a poor country in South America, launched the 2020/21 offshore auction round submissions expected by April 30, 2021. The round offered eight shallow, under-explored offshore blocks south of deep water Block 58 where Apache and its 50% partner Total, which is now oil discoveries since early 2020. Block 58 is located next to ExxonMobil’s prolific Guyana Stabroek offshore block and could hold up to 6.5 billion barrels of oil-equivalent resources, according to modeling by investment bank Morgan Stanley. Total, which budgeted $ 800 million for exploration in 2021, has pledged to develop Block 58, targeting up to nine wells this year and anticipates the block’s first oil by 2025.

Source. Total, Results and outlook February 2021.

Exxon with 50% partner and operator of the Malaysian national oil company Petronas, hydrocarbon discovery with the Slonea-1 well in block 52 off Suriname. This discovery has not yet been fully assessed, but geological analysis shows Block 52 to be in the channel for hydrocarbon production and highlights Suriname’s considerable offshore oil potential. Towards the end of last month Petronas contracted Geodata specialist Fugro will perform fieldwork, including a seepage survey and geochemical sweep in Block 48, north of Block 58, aimed at optimizing exploration activities.

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By the end of 2020, integrated energy supermajor Shell, which has a long history of operating offshore Brazil, had entered the fray in Suriname by accepting a firm offer with the explorer and oil producer Kosmos. Shell, for an upfront cash payment of $ 95 million and contingent payments of up to $ 100 million, acquired one-third interest in Block 42 where Hess and Chevron each own 33.3% and 50% of Block 45 , Chevron holding the other half. The deal came after Kosmos failed to uncover commercial quantities of hydrocarbons with the Pontoenoe-1 and the Anapai-1A exploration wells drilled in 2018 in blocks 42 and 45 respectively.

Source: Staatsolie.

Note: Kosmos’ interest in blocks 42 and 45 is now controlled by Shell.

The last dry hole, Tullow Oil’s highly prized Goliathberg-Voltzberg North wild cat good drilled in block 47 which only had small oil exposures, will not derail Suriname’s emerging oil boom. The crude oil discovered to date has been characterized as light with API gravities of 34 to 43 degrees and to be relatively low in sulfur, meaning it is cheaper and easier to refine into high quality fuels. Importantly, in a world where peak oil demand is expected to crush oil prices, Suriname has some of the lowest forecast breakeven prices in South America. Analysts estimate the average break-even price at around $ 45 a barrel, which, while higher than neighboring Guyana, is lower than other jurisdictions in South America. The breakeven point will fall as new oil discoveries are made, the infrastructure necessary to support Suriname’s offshore oil boom is built, and drilling technology and expertise improve.

Paramaribo has established a regulatory framework which is favorable for energy companies, reinforcing the attractiveness of Suriname as a place of foreign investment. It includes 30-year production-sharing agreements, which are longer than in most other Latin American jurisdictions, giving energy companies greater certainty and business continuity. Suriname has also established a low royalty rate of 6.5%, which, with the exception of Guyana, is significantly lower than that of other countries in the region. This makes the former Dutch colony an attractive destination for foreign energy companies. If Suriname can replicate Guyana’s success, government revenues will increase once production begins in 2025 and increase from new oil discoveries and developed offshore assets. This could transform the former Dutch colony and lift its 600,000 inhabitants out of poverty, if the oil boom is handled properly.

By Matthew Smith for Oil Octobers

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