Exxon Mobile’s recent Guyana oil discovery has given the historically poor nation reason to cheer. With oil the most important commodity in the global market, the South American country expects to make a large profit from the discovery.

Exxon Mobil found the oil on their sprawling 6.6 million acre oilfield off the coast of Stabroek, Guyana.

In the Stabroek block, the company’s Liza-1 well was drilled to more than 17,000 feet. There, the company found more than 295 feet of high-quality oil-bearing sandstone reservoirs.

The oil company is encouraged by the discovery and plans to determine the potential of the other sites.

With Liza-1 being the company’s first site of many, there is a good chance of further discoveries. Also, the findings from the well will be sent for analysis to determine its full commercial potential.

Even if no further discoveries are made, Guyana’s former Minister of Natural Resources and the Environment believes any discovery of oil will greatly boost the nation’s economy.

With Guyana having the 157th largest economy in the world, the recent discovery of the highly valued commodity promises to have transformational effects on the nation. Large revenues and foreign investments will pour into the country from its oil sales.

To ensure that the money will be used wisely, the President of Guyana, David Granger, promises to create a sovereign wealth fund from the Guyana oil revenue.

A sovereign wealth fund (SWF) is a pool of a nation’s money that is set aside for investments that will benefit the country’s economy and citizens. In this case, the revenue from Guyana oil sales will be put into a fund that will be reinvested in the country.

To assist in the creation of the SWF, Guyana is turning to their neighbor to the north, Canada. Researchers at the University of Calgary are putting together plans for the creation of the SWF.

Speaking on this, Guyana’s Minister of Governance, Raphael Trotman, said, “So later in the month of November, a team is coming from the University of Calgary with the specific responsibility of putting together the mechanism for what we refer to as the Sovereign Wealth Fund.”

The minister went on to reveal that the SWF will be split into three separate sub-funds.

One will look to secure funds the nation’s wealth for the future generations. The second will be a rainy-day fund for the nation’s budget in fiscally lean years. The third will be for developmental projects or initiatives.

Trotman expanded on this, saying, “So there are three funds that comprise the Sovereign Wealth Fund, but each has a different rate at which it is supplied and different reasons or mechanisms from which it can draw down.”

The three sub-funds ensure that the Guyana oil wealth will be used to benefit the nation as a whole. It includes investments into development and plans to save for the future.

The SWF is such a popular idea among the people that during the previous election both the current President and the opposition party had plans to create one.

Upon inauguration, President Granger promised that any funds from natural resources would benefit the people through an SWF.

He believes an SWF will make sure that “children will not have to live in poverty; that no matter what happens to the resources of the country, there will always be wealth to look after their education.”

The large oil revenues pouring into the SWF ensures that Guyana will have a strong investment in the nation and its citizens.

– Andrew Wildes

Sources: Guyana Times 1, Guyana Times 2, Investopedia, Quandl
Photo: Guyanese Online