It's the big take from Bloomberg News and I Heart Radio. I'm West Kasova today. What happens when a small horror country all of a sudden strikes it fantastically rich. That country it's Guyana. If you're searching your mental map right now, Guyana is right at the top of South America, next door to Venezuela. One of the first things to know about it is that it's very, very small. There are only eight hundred thousand people in the whole country. That's
my colleague Monty Real. He's an investigative reporter for Bloomberg. Monty recently spent time in Guyana. Until not too long ago, its economy was mainly agriculture and mining, and the country's gross domestic product, it's g d P, which is the total of everything it produces, didn't amount too much. So if you think about the gross domestic product, for example, of Guyana, it hit one billion dollars for the first time just within the last twenty years for the entire country.
For the entire country, and to put that in perspective, that's about one tenth the size for economic output of Huntsville, Alabama. And another thing, the place is under attack from climate change. Most of Guyana's population is packed along the country's northern coastline, and much of that land is actually below sea level. So whenever you talk about Guyana and the populated areas
of Guyana, you're always talking about water. And when that water rises up, and it does, the flooding can be devastating and especially bad flood in two thousand five left the capital, Georgetown under six ft of water and tanked the economy. That one flood in two thousand five wiped out of the annual GDP. The country needed to fortify its sea walls and shore up it's aging dikes and canals to keep the water at bay. It needed new roads and houses. There was just no way to pay
for it. But then the country's luck took a dramatic turn because in Guyana struck oil, billions and billions and billions of barrels worth of oil money. Reel joins me now to tell the story of what happened next. So in ex On Mobile had been sending exploration crews in the waters off of Guyana's coast looking for oil, and they struck oil in and they found a lot of it. It was a massive once in a generation find how
much oil did they find in there? We now know that that oil fine was the largest in recent years. In fact, if you look since the date of that discovery in t and you look at all of the oil discoveries in the world, that single discovery in Guyana accounts for more than one third of all the oil that's been discovered since. So it was just a massive
cash of oil that was tapped into. And right now the proven reserves are usually estimated to be about twelve billion barrels of oil, but analysts think that that could double in the coming years because more test wells are being dug and more oil is being discovered, and that would put guy on as oil right in line with the proven reserves of China. So you think of a
country like China, uh compared to Guyana. If you look at the population of the two countries, for every person in Guyana, there's one thousand, seven hundred and fifty people in China. It would be an enormous find for any country, but when you consider how small Guyana, this is just completely transformational. So what happened when they discovered this, What
was the response of Guyana's government? Well, this windfall obviously means billions and billions, possibly hundreds of billions of dollars for Guyana. It's something that you know, realistically, they could not just pass up. So they came up with a plan actually and said, we're going to be a different kind of oil producer. We're going to be an environmentally friendly, environmentally sustainable oil producer. We're going to kind of chart
a new course in this field. And so what they did was they came up with a plan to use the oil revenue to try to build infrastructure that one would mitigate the effects of climate change. For example, it would reinforce the sea wall, it would you know, work on upgrading the canals um so it would pay for the damage that climate change was doing to Guyana. But beyond that, they wanted to build quote unquote green infrastructure. And the centerpiece of that was building an economy that
was powered by renewable energy. So they weren't actually going to use the oil to power the country. They were going to use the profits from all of that oil to create sort of a green future exactly. They wanted to diversify the economy and they wanted to build an energy grid essentially that has powered by renewable energy, so there are plans for hydro electric dams, for wind our, for solar facilities. They wanted to build a completely post
oil economy. Essentially, they wanted to set that up using oil funds to put them in position to thrive when oil was no longer a business. Really, and this was sort of controversial, right, because some people in Guyana, you right, didn't want anything to do with the go They said leave it under the water because it's you know, a path to ruin. And the way they moved ahead was by saying no, no, no, we're going to use it for a better purpose. Yeah, and this is not just
in Guyana, but internationally. Of course, there's a lot of people who think that new oil discoveries should be left in the ground, that oil is on its way out, we should be putting our resources and energy into renewable sources of energy. And in fact, the Secretary General of the United Nations earlier this year made a statement saying that it was economic and moral madness to invest in
new fossil fuel infrastructure. So there is this, you know, current against developing new fossil fuel resources that Guyana was facing. But of course Guyana had no resources to build the green infrastructure. So it's easy for others to say you should put your resources toward a green energy, but if you have no resources, there's nothing to put there exactly.
And the leaders of Guyana will point out that the developed countries of the world, the ones that have created more greenhouse gas emissions than undeveloped countries like Guyana, that they have kind of dropped the ball in terms of compensating countries like Guiana that did not really contribute to the problem. So their argument is, you know, the developed world didn't step up, we have to step up for ourselves, and to deny us the opportunity to use this resource
isn't fair. Manty. You asked Guyana's president your finale about the terms of the contract. Here's what he said. They have the necessary resources to adopt the climate change. They have the necessary resources to invest in our alternative energy. They have the capital that came from the exploration of natural resources. We have a reality. We have a coastline where more than eight of the people live that is
more than six ft below sea level. Who is going to pay to ensure that we have the type of mitigation and adaptation measures to prevent the catastrophic type of flooding that rising sea level can bring. We have to build this infrastructure. Where is the revenue going to come from. They'll argue that those countries in the developed world they benefited from the oil industry in the waning days of the industry, which Guyana's leaders will say, there's probably thirty
more years where the world will need oil. Why shouldn't developing country like Guyana be the ones to benefit during that time? And in May of this year, you write about this dramatic speech an Independence Day for Guyana, where the president got up and spoke about the country's future. Yeah. So President Ali was up on a podium in a a Regina, a town about three hours from Georgetown, and rain was pouring down on this night. It was a flag raising ceremony where at midnight the Guyanese flag was
going to raise up into the night. And before that there were bands and singers and just a celebration of Guyana, and the president really sort of tilted it as a celebration of Guyana's future. Guess me, great Anna, un privileged on behalf of the government of Guyana as your president, the stand here humbling before you, and he just kind of laid out the way Guyana would grow in a way that it has never grown before and never had
the opportunity to grow thanks to oil money. As we reflect and celebrate today, it is important for us to understand that you have a government that is responsive, responsible, and through active in making the right policies to enhance the welfare of the people of our country. It sounds like a dream come true for the people of Guyana, But the story is a little bit more complicated than that. More of my conversation with monte Real after the break.
So you told us about how Exon discovers this enormous field of oil and they make a deal with the government of Guyana to extract it and split the proceeds. How was that deal struck? So whenever they signed this contract in seen, it's spelled out that of the revenues, Guyana's government would get and the oil company would get. That sounds kind of low, doesn't it, Like Guyana only gets half of it. Yeah, and they also got a two percent royalty which went to the state. But if
you talk to analysts, they'll say that is low. That in cases where it's known that this is a big oil find. Generally that royalty that goes to the state. If it's an even split, for example, in this case it was two percent, analysts say that they would expect that to be ten to in most cases the royalty. The royalty. Yes, And if you look at the average internationally of splits like this um there's an oil consultancy called rice Stad that says the government's take is generally
about on average. So in that context of split doesn't seem that great for Guyana. Well why did the government agree to such unfavorable conditions when they were sitting on what would seem like a pretty good negotiating position. That's a big question. You know a lot of people have theorized that they were just in a hurry to get the oil as quickly as they could, to get the infrastructure built as quickly as they could, to take advantage
of the revenues. Here's President Ali again. We have made it very clear arrangements would not be the same, but we are not people who are naive. Excellon came with a time where no one knew what was there, so the force arrangement the exploration had to be substantially different. But even beyond that fifty fifty split, analysts will say that this contract there are other provisions in it that really penalize the government. For example, Xon pays no taxes
on the oil revenues. That's all taken care of by the state. Are you saying that the government of Guyana hays Xons taxes. There's a provision in the contract that says all the income taxes on the oil they're paid out of the government's share, so x On Mobile and
its partners aren't responsible for any of that. So Guyana, though, at the same time, passes x On a receipt for the taxes that the government paid on the company's behalf, so Exxon can take those receipts and earn a foreign tax credit in the United States, for example, for taxes that the government of Guyana paid. And if you talk to analysts, they'll say that that's highly a usual provision that you don't really see in many contracts like this.
There are other provisions buried in the contract that allow Exon, for example, to claim reimbursement for future expenses right off the top that if you talk to analysts, they'll say that's very unusual. But these are provisions that you just don't find in most other contracts. And the end result is that more than one analysts that I talked to said that this is the most favorable deal they've ever seen for a company who negotiated this deal on behalf
of Guyana. Did they not have killer lawyers in there fighting tooth and nail with excellent Well, when you talk to people who are in Guyana's oil business, they will they'll admit that at the beginning of this process there was really no one in Guyana who had expertise in the oil sector. But with that much money at stake, you'd think they could hire somebody and fly them down from New York exactly. And what does Exxon have to
say about all of this? This sort of split in these provisions are necessary because they were taking a huge risk. They basically, we're betting on a country that did have no oil infrastructure. So Exxon's you know, before the discovery, there was no guarantee at all that they weren't just throwing away money. So they argue that, you know, this is a deal that was designed to offset the risks that they had taken in a country that had no
oil infrastructure. Or experience. Do the analysts you talked to say that Guyana could have gotten a better deal if they had pushed back on some of these things. Yes, they say that that Guyana should have gotten a better deal given the fact that this agreement was signed in after it was already known that this was a major,
significant find. Did Guyana have a reason why it wouldn't want to push back against Exon Even though this is in comparison to other deals, you know, perhaps not a good one, it's also provides Guyana with far more money than they've ever had, So in context, you know, even though it's a bad deal for Guyana, they're getting more money than they ever could have imagined before the oil strike. But they also they are in a bit of a tricky position because they do want to auction off more
oil exploration blocks to Exxon or other companies. So they don't want to, for example, now go back and renegotiate, because they don't want to scare companies off into thinking that they go back on their word after they've signed a deal. So they are in this position where they want to encourage other companies to come in and make bids on new exploration blocks and all of that money that they're making from this deal comes with a certain danger. We'll talk to Money about that when we come back.
How has all this money transformed Guyana? Well, it has become the fastest growing economy in the world. If you look at the gross domestic product, the economy of Guyana has grown by almost fifty in the last year. So this is a significant supercharging effect that oil has had on Guyana's economy. And where's all that money going. What are they spending it on? A lot of it's going on construction. Capital expenses I think grew by about a hundred and seven percent last year. What are they building.
They're building a lot of roads and a lot of houses, so especially housing developments and things like that. There's always been a backlog of people in Guyana who have wanted to build houses, but there just hasn't been the infrastructure. So someone might want to build a house, but there's
no electricity hookup or sewage service. So now the government is building new resident chill areas, paving the way with the infrastructure that's needed for that, and so there's a lot of people building houses, and so our ordinary citizens of the country themselves benefiting or they are benefiting from the building that's going around them. It's both. So there are things like new hotels that are popping up, uh
and things like that. But in terms of you know, the building of new houses, there are people who are moving into new residences, getting cars. The number of car registrations has spiked dramatically in the last two years. You're starting to see right now effects of this. You know, when I talked to people in Guyana. You know, the discovery was announced in so people have been looking forward to these changes for a long time, and in truth,
they didn't really see them. There wasn't much visible effect until the last year or so. Now you see the construction popping up all over Georgetown. You see more cars on the road, you see new residence is being built. So people are starting to feel it, slowly but surely, and our average citizens in favor of it. Do they like the idea of the oil drilling or is their controversy around it? You know, if you talked to most people in Guyana, they like, of course the idea of
their standard of living raising. You know, so many people in Guyana have been living essentially in poverty for so many years. The idea of new revenue, new development, that's all very attractive to most people. Of course, there are people who opposed this on environmental grounds, but if you look at, you know, kind of the average citizen in Guyana, I think most people are excited and also a little impatient about those revenues affecting their lives. They want to
see the changes. So how did the government deal with this just massive influx of money. I spoke to the Vice President Barat Jugdeo, and he said, there is a lot of pressure on the government whenever you get all this new money coming in to spend it immediately. And he said it's very difficult to tell people that the government just can't do that because the risk is that the economy overheats, inflation spikes, and the net effect of
all this is actually detrimental to the economy. That you're kind of wasting this influx of money if you spend it too fast. And that's kind of a hard sell for people who haven't had any money for so long to say, you know, we've got to be patient, We've got to hold onto this for a while. They've got to kind of tread that line in terms of spending the money on new projects and also not spending it
too fast. One of the risks is that the economy of Guyana becomes so dependent on oil it's basically becomes a lopsided economy. So if there's ever a downturn in the market, for example, the whole economy would feel that in a potentially catastrophic way. So the government wants to take a lot of this revenue coming in to actually diversify the economy. So that's one of the things that they're always preaching in political speeches and that sort of thing,
the importance of creating other industries besides oil. So Guyana's neighbor of Venezuela course, another big oil producing nation. Are other countries in the area sort of looking at Guyana and saying, huh, this is a model for what we want to do. Also, one of the interesting countries to look at is Barbados in the Caribbean. Mia Motley, she's Prime Minister of Barbados. She has become a really prominent voice in environmental circles. She was the keynote speaker of
COP twenty six, the UN Climate Summit last year. Your Highness Excellence Sees distinguished Guest ladies and gentlemen. The pandemic has taught us that national solutions to global problems do not work. We come to Glasgow with global ambition to save our people and to save our planner. And one of the things that she has done in recent months is she reopened the waters of Barbados to oil exploration,
and she has basically echoed Guyana's rationale. In explaining her decision, she said, you know, the developed countries of the world have not given us the resources that they pledged for us to adapt to climate change, so we have to look for this money elsewhere. And so she also is looking at the possibility of building up the oil sector.
They're much as Guyana has. So, yeah, Guyana is a little bit of a model among some of its neighbors, particularly in the Caribbean, those countries that are vulnerable to the effects of for example, sea level rise. And are they a bit of a cautionary tale as well? That sure they got a lot of money, but they didn't get such a good deal that other countries might want to negotiate a little bit more when it comes to
giving away the store. Sure. Yeah, there are a lot of people who look at this guy on a deal and who are critical of it. And I think that any country now that signs a new deal, if there is a discovery even close to this scale in the future, I think that they would look at this guy on a deal as a path to avoid in terms of some of the deals in the contract that we're written into it. Monty Real, thanks so much for coming on
the show. Thanks very much for having me. You can read monte reel story about Guyana on Bloomberg dot com. Thanks for listening to us here at The Big Take, the daily podcast from Bloomberg and I Heart Radio. For more shows from my Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you listen. Read today's story and subscribe to our daily newsletter at Bloomberg dot com slash Big Take, and we'd love to hear from you. Email us with questions or comments to Big Take at
Bloomberg dot net. The supervising producer of The Big Take is Vicky Burgalina. Our senior producer is Katherine Fink. Our producer is Rebecca Shasson. Our associate producer is Sam Gobauer. Hilda Garcia is our engineer. Original music by Leo Sidrin I'm West Cansova. Have a great weekend.