Is Guyana’s Oil Boom Under Threat?

Exxon in Guyana: Politics is on Oil's Side

No one is going to rock Exxon's boat seriously in Guyana. Not with 16 discoveries and stellar first production that went online way ahead of schedule - a feat almost unheard of in the deep offshore waters and their tricky geology. 

Still, investors will be concerned, and we know because hedge funds are asking us whether they should be or not. 

It's always best to be cautious; but in this case, it's important to understand the political dynamic in Guyana. Yes, Exxon got a wonderful deal for Guyana's first oil. That's how these deals usually work out for country's that haven't produced any real oil before. Good deals bring in the biggest E&P companies to get things off the ground. 

On the eve of critical elections in Guyana, and as first production has launched, a report by Global Witness accuses the government of cheating the public out of $55 billion in the 2016 deal with Exxon. The timing of the report will play into the hands of a polarized society that will choose between two parties whose chief ambition is to control the use of those brand new oil revenues, making this election the most critical in Guyana's modern history. Guyana's two-party system is entirely based on ethnicity, with the current ruling party being the Afro-Guyanese ANPU-AFC and the opposition People's Progressive Party being Indo-Guyanese. The 2016 deal with Exxon was signed by the current government, but the opposition has made it clear that there wouldn't be any negotiating if it won elections on March 2nd. 

So is anything likely to derail the Exxon deal? No. Both parties, the ruling APNU-AFC and the opposition PPP are keen to keep the deal alive, even if it is used to score points on the campaign trail. No one will rock this boat because the key is to control the revenues, not annoy Exxon or scare off new investors. It is highly unlikely that the deal will be renegotiated.

Nor is the Global Witness report entirely forthcoming in its evaluation that the government is cheating the public out of $55 billion. This is an emerging oil nation, and the government's cut on this is in line with others emerging market E&P deals. And this isn't just about first production, either. By 2030, Rystad Energy forecasts that Guyana will be producing 1.2M bpd a day, which would be annual oil revenues of $28B using $65 oil prices, with the government's take (according to Rystad) averaging 60% (less than Brazil and more than newcomer Mozambique). 

Tesla's massive bull run

Tesla's share price skyrocketed from $560 on January 24, to a high of $961 mid-day on February 4 on the back of strong Q4 results that the electric automaker reported on January 29. And while the current $750 per share is off $200 from just a couple days ago, it's still up $200 since Jan 24. 

But this amazing run isn't the only one we're talking about - the overall trend in the last year is also remarkable, suggesting that the current run is not just a flash in the pan. Tesla stock has increased from just $256 since October - that's a gain of nearly 200% in four months. Over the course of the last twelve months, Tesla's stock has climbed 144% all together.

Is it justified? 

Some think so. Tesla's EV sales for its Model 3 were more than any other EV last year - at 300,000. Analysts disagree on whether Tesla's stock can keep up this feverish pace. Prior to January 24^th - at a time when Tesla was trading above $500, one analyst set Tesla's price target at a disappointing $325 per share. Another set the target at $550, with optimistic analysts issuing price targets of $800, with the cautionary note that the stock would continue to be volatile.

Tesla's stock did go above $800, but it certainly continues to be volatile, with swings of $200 or more in just a few short weeks. 

So prolific has Tesla's run been that Ralph Nader has said that the SEC should investigate Tesla stock for signs of insider trading, market manipulation, or Tesla's ability to clear the transaction. He also called into question the ethicality of Musk's compensation package, which is tied to Tesla's stock price. Nader was quick to point out that Tesla sold fewer than 400,000 vehicles in 2019, yet its valuation exceeds that of Volkswagen and GM combined, which collectively sold nearly 14 million vehicles last year. That's not even in the same ballpark.

For now, the run is suggestive, leading some to believe that it is in part because shorts are being covered. 

But Tesla's investors are a loyal bunch - a factor with which neither GM nor mega-auto company Volkswagen can compete. This loyalty cannot be discounted, and the current bull run is likely to continue, but with some major volatility.