The COVID pandemic has caused considerable damage to the economies of small, financially fragile South American countries, with the former Dutch colony of Suriname particularly affected.
In 2020, the gross domestic product of the impoverished South American nation decreased by 13.5%, the worst performance on the continent after Venezuela. Deeply impoverished Suriname now finds itself mired in a serious economic crisis that threatens an already fragile state that has only emerged from an intense political impasse in July 2020.
The depth of Suriname’s economic problem is reflected in the former Dutch colony’s debt service default for $ 675 million in sovereign debt in 2020. Since then, Paramaribo has been negotiating with creditors to remedy the default. This led the international credit agencies Fitch Ratings and S&P Global Ratings to downgrade Suriname’s credit rating.
President Chan Santokhi, who won the highest office in the small South American country in the July 2020 election, is fighting to resuscitate a struggling economy and get rid of the corruption and wrongdoing of the Bouterse administration . As in neighboring Guyana, Santokhi’s government plans to tap what appears to be Suriname’s considerable oil wealth to revitalize the economy, strengthen public finances and restore the former Dutch colony to growth.
Although Suriname has only 89 million barrels of oil reserves, the small South American nation has enormous oil potential. The impoverished country shares the Guyana Suriname basin, which the US Geological Survey estimates contains up to 35.6 billion barrels of undiscovered petroleum resources. Already, neighboring Guyana is experiencing a massive oil boom which has seen its GDP increase by an exceptional 43% in 2020.
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The high quality of Exxon oil discoveries in the Stabroek block off Guyana, with the last one at the Pinktail well, indicate even greater oil potential. Exxon and its partner, the Malaysian national oil company Petronas, which is the operator, have found the presence of hydrocarbons at the 15,682-foot Sloanea-1 exploration well in Block 52 off Suriname. The 1.6 million acre Block 52 and neighboring 1.4 million acre Block 58 would be on the same oil fairway as the prolific Stabroek Block.
This proposition is supported by the five qualities oil discoveries carried out by Apache and TotalEnergies, the operator, in block 58 where they both hold a 50% stake.
Investment bank Morgan Stanley announced in 2020 that it had modeled the oil potential of Block 58 and determined that it could contain oil resources of up to 6.5 billion barrels.
Industry consulting firm Rystad Energy estimates that the five discoveries made in Suriname’s offshore through June 2021 hold recoverable oil resources of up to 1.9 billion barrels of crude oil.
At the Suriname Energy, Oil and Gas Summit in June 2021, Eric Vosburgh, global vice president of geosciences and portfolio management at Apache, said: “What I would say is that the ultimate scale of the resource and of the production potential is large. I think I need a bigger word than fat, but it’s big. Apache and its partner TotalEnergies have committed to developing block 58. In early 2021, Apache announced that the bulk of its annual exploration budget of $ 200 million will be spent on drilling in Suriname. TotalEnergies has set an allotted 2021 exploration budget at $ 800 million, with the energy supermajor devoting a third of its exploration assessment activities to Block 58.
While the block’s development plans have not yet been released, TotalEnergies and Apache are expected to make their final investment decision during mid-2022 and work towards the first oil by 2025. The national oil company of Suriname and regulator of the industry Staatsolie has the right to exploit the block 58 and to take up to 20% of the shares, which would impose on it 1 to $ 1.5 billion in development costs. Paramaribo is also working to attract new energy investment to Suriname by recently awarding three blocks of shallow water to foreign energy supermajors. TotalEnergies and its partner Qatar Petroleum won blocks 6 and 8, adjacent to block 58, and Chevron won block 5. This region is under-explored and had considerable petroleum potential.
The medium and light crude oil found in Block 58 has similar characteristics to Liza grade crude oil pumped from the neighboring Stabroek Block. When this is combined with a low break-even price estimated at around $ 40 a barrel of Brent, it’s easy to see why offshore Suriname is particularly attractive to international energy companies.
As new oil discoveries are made, oil fields developed and infrastructure built, the break-even price for Suriname’s offshore will drop to less than $ 40 per barrel, making the region competitive against the world. neighboring offshore, Guyana and Brazil.
The deterioration in Suriname’s credit rating will make it difficult for Paramaribo to raise the capital it urgently needs, including that required by Staatsolie to exercise its optional farm for Block 58.
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The international rating agency Fitch in April 2021 announcement it had downgraded Suriname to a restricted default (RD) after the government failed to make $ 49.8 billion in payments on its 2023 and 2026 notes. According to the rating agency, this event was the third default in the Suriname since the start of the pandemic in March 2020.
These events show why Paramaribo must resolve negotiations with creditors and the potential of a sovereign debt default if it is to create new momentum for the exploitation of Suriname’s vast offshore oil resources.
The current economic crisis coupled with an economy contraction of nearly 14% last year underscores why Paramaribo needs to attract more investment from foreign energy companies so that it can experience a massive economic boom like the one underway in the Neighboring Guyana. French oil supermajor TotalEnergies is positioning itself to become a leading player in Suriname’s emerging offshore oil boom.
By Matthew Smith for Oil Octobers
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