Citi Perspectives Fall 2019

Citi Perspectives  | 23 22 | Treasury and Trade Solutions Guyana There are also substantial opportunities emerging in Guyana. Deep-water oil production is due to come on stream in 2020, with the potential to multiply GDP and increase tax revenues. In particular, Exxon Mobil announced new oil discoveries in Guyana in April 2019 soon after the government announced that an oil-bidding round would take place in the first quarter of 2020. 6 Exxon’s Guyana’s operations has the potential to generate nearly $20 billion in oil revenue annually by the end of the next decade, roughly equivalent to the revenues of the much-larger Colombia. 6 Colombia and Ecuador In Colombia, on- and offshore opportunities are attracting a diverse and wide ecosystem of small and midsize companies who are successfully reducing costs throughout the entire supply chain. As a result, these fields have become highly competitive. “We believe the interest in Colombia acreage is only going to increase over time, but it is predominantly going to be more of an M&A focused market.” — Pedro Medeiros In June 2019, during the first bidding auction for five years, seven companies bid for 11 contracts, with anticipated revenues of $1.5 billion from this round of bidding in addition to a permanent bidding process that was recently launched. 7 Latin America also has substantial untapped proven gas reserves, amounting to 4.1 percent of the total and technically recoverable resources, 8 which further increases its attractiveness. However, with more than 70 percent of these resources located in Venezuela, 9 investors are poised to take advantage of new opportunities as they occur in the future. Ecuador is also very attractive to investors due to an offering of shared-profit agreements that are potentially more lucrative for oil firms than fee-for-service contracts that prevented companies from benefiting from oil price gains. 2 Venezuela 1965 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2019 2016 2013 2010 2007 2004 2001 1998 1995 1992 1989 1986 1983 1980 1977 1974 1971 1968 million barrels/day Source: Citi Research “With substantial undeveloped reserves of oil and gas, significant further investment by the energy industry in Latin America is a near certainty. Sustainable expansion across the region is already underway, from the pre- salt in Brazil, to offshore Guyana, to unconventional in Argentina and the new licensing rounds in Colombia and Ecuador. Though stalled for the present, significant capital is committed to Mexico for concessions granted in the early years of reform. Longer term, under the right circumstances, investment in oil and gas in Venezuela could be immense. Almost every oil major and many other international energy companies, as well as ambitious local names, have a stake in the region.” — Jim Reilly Venezuela Venezuela has the largest oil reserves in the world, but oil production has been in sharp decline since the mid-2000s, due to a drop in investments. High oil prices through 2010-14 supported activity and production, but the oil price crash in 2014 and subsequent underinvestment in the oil sector led to declines in production, falling to 1.5 million barrels per day in 2018.