By Sabrina Valle

GEORGETOWN – For the poor, small South American country of Guyana, there’s no time like the present when it comes to reaping the rewards of its offshore oil jackpot.

With sky-high oil prices, a transition to renewable energy on the horizon and 750,000 citizens desperate for better lives, Guyana is putting its foot on the gas to exploit it vast oil reserves, even if that means sacrificing some longer-term gains.

Already locked into contracts with oil firms that have been criticized for being too one-sided, Guyana had hopes of setting up a state-run oil company to manage the next development phase and conduct its own seismic surveys of unexplored fields – all with the aim of securing the best possible return.

But those plans have been shelved as the government faces up to the reality that Guyana doesn’t have the skills or resources to pull them off quickly, and is banking on speed over certainty instead, senior officials told Reuters.

“We don’t have the money or the capability,” said Vice-President Bharrat Jagdeo, speaking for the first time about the decision to drop the state oil firm plans. “A model in which the government puts in money and operates the asset is off the table.”

In a series of conversations with Reuters, Jagdeo also said the recent move to ditch the idea of Guyana doing its own surveys of unexplored blocks to attract higher bids from oil companies was driven by time and capacity too.

“We want to accelerate exploration so we can develop the economy as fast as possible,” said Jagdeo, who has previously served as president and is arguably the country’s most influential politician. “We will probably get less, but we might be able to get faster development.”

Since its first discovery back in 2015, a consortium led by U.S. oil major Exxon Mobil, along with partners Hess Corp and China’s CNOOC, has found about 11 billion barrels of oil and gas in a vast block covering 6.6 million acres about 120 miles (190 km) off the coast.

Based on current expansion plans, the group expects to pump 1.2 million barrels of oil per day from its holdings in 2027, putting Guyana ahead of neighboring Venezuela in terms of output, as well as every oil producer in Africa, bar Nigeria.

It would also give Guyana the highest oil output per capita in the world, ahead of wealthy Gulf states such as Kuwait, Qatar and Saudi Arabia.

‘AVOID THE OIL CURSE’

While Exxon pumped its first oil from Guyana in 2019 and is ramping up output, the government that came to power nearly two years ago with a wafer thin majority in parliament is under pressure to accelerate economic development.

Production sharing agreements signed by the previous administration in 2016 split the profits from the oil 50/50 between the Exxon group and Guyana, but 75% of the revenue goes first to cover the oil companies’ costs.

That leaves Guyana with just 12.5% of the production plus a 2% royalty payment. Its take will increase as and when the development costs tail off – which could be several years away.

The split is not that different from deals in African countries, for example, which had no prior oil industry or oil legislation, according to Theodore Kahn, a senior analyst at security consultancy Control Risks.

But that’s no solace to residents of the capital Georgetown, still waiting for the oil to improve their lives.

“The deal is unfair from the start,” said Michael James, a fruit vendor in Georgetown.

His nephew, a cab driver, earns a living ferrying oil executives to meetings, he said, but the rest of his family struggles from a lack of affordable housing, healthcare or education.

“The oil companies are making all this money, the government is getting paid, but I don’t see much difference in my life,” said James.

This year will be the first time the government uses oil proceeds to fund new schools, roads and a power plant. But it will operate at a deficit of about $470 million in 2022 – a decision the International Monetary Fund has warned against.

“We want to avoid the oil curse and build a resilient economy that brings prosperity to all,” Guyana President Mohamed Irfaan Ali told Reuters in a separate interview. “But as any developing country, we have many challenges.”

GRAPHIC: Exxon accelerates oil production in Guyana https://graphics.reuters.com/GUYANA-OIL/zdpxobxmevx/chart.png

GUYANA’S TALLEST BUILDING

That’s why Guyana is keen to kick-start exploration and production in untapped offshore blocks outside Exxon’s domain – potentially with better terms. The shift to renewables and the drive to slash fossil-fuel emissions is also focusing minds.

“It is important in the context of net zero to have reserves explored, discovered, proven and developed as quickly as possible,” Vice-President Jagdeo said.

However, Guyana has never held an auction of drilling rights and lacks the skills to put one together without an outside firm to run the process, he said.

The current aim is to start offering new blocks in September this year. Setting up a state-oil firm, or carrying out surveys, would have pushed back the timeline, officials said.

An alternative to an auction that is still being considered would be to choose an outside partner to fund and operate a company in which the Guyanese government has a stake, Jagdeo said.

Exxon’s more than 30 exploration successes to date have attracted several offers from other companies to invest in the unexplored areas, he said, declining to list examples.

“We licensed the blocks under a first come, first serve basis. Now, it is a totally different situation,” he said.

Earlier this year, Jagdeo told Reuters that Guyana was in talks with Middle Eastern companies about a potential partnership.

A delegation of about 40 representatives from Saudi Arabia was in Georgetown last week for an investment conference and the Gulf kingdom’s state-run oil giant Saudi Aramco was awarded a one-year contract in September to market Guyana’s oil.

Two candidates for additional contracts are Qatar Energy and Abu Dhabi’s National Oil Company, said Arthur Deakin, a co-director at Americas Market Intelligence consulting firm. The companies did not immediately reply to requests for comment.

Signs of Guyana’s new-found wealth are springing up in the seaside capital. A new 12-storey hotel built by local group Pegasus is due to open soon – and it’s now the tallest building in a former British colony that has long depended on agricultural crops such as sugar, rice and coconuts.

More hotels will follow, though the capital is still plagued by power blackouts and telecommunications are patchy.

Officials have agreed for Exxon to build a 227 km (141 mile) pipeline to bring natural gas ashore to fuel a new power plant for the capital. Exxon will be able to deduct the cost of the project from the oil revenue.

Jagdeo, who has criticized previous leaders for being unprepared for negotiations with the Exxon team, defended the decision saying the U.S. company was best suited to deliver the pipeline in the time needed.

The new $100 million power plant will slash the cost of electricity and provide a more reliable supply in a country that has long been wholly reliant on imported fuel, though the date it is due to come online has been pushed back a year to 2025.

MORE TO COME

Offshore, Exxon and its partners have grand plans. More than 300 workers are aboard the first two of what could be as many as 10 floating production vessels. Taller than the new hotel in Georgetown, the vessels cost about $2 billion each and come with living quarters, gyms, dining and entertainment areas.

Guyana’s non-oil economy will grow a healthy 7.7% this year, business consultants Ernst & Young Services estimate, though that’s far behind the 47.5% growth it expects for Guyana’s gross domestic product including oil.

The consortium was pumping 120,000 barrels of oil per day (bpd) at the start of 2022 and plans to hit 360,000 by the end of the year. It is preparing a third vessel that will add 250,000 bpd by late 2023 – six months ahead of schedule – and has floated plans to spend $10 billion to develop a fourth offshore area with another vessel.

Hess estimates that production from the four vessels will break even with oil priced at $25 to $35 per barrel. Brent crude spiked to $139 a barrel shortly after Russia’s invasion of Ukraine and is currently hovering around $100.

Combined, the four vessels should produce about 800,000 bpd by 2025 – more than the annual output of Venezuela, which has the world’s largest oil reserves. The group aims to have six vessels delivering 1.2 million bpd in 2027.

Alistair Routledge, Exxon’s most senior executive in Guyana, has said seven of up to 10 oil platforms are now confirmed. That could nearly double the $30 billion budget Exxon, Hess and CNOOC have agreed for the first four vessels and other infrastructure.

John Hess, chief executive of Hess, said last month he thinks there are many more billion barrels of oil equivalent off Guyana – on top of the 11 billion estimated so far.

“We’re in the early innings of this,” he said.

(Reporting by Sabrina Valle; Editing by Gary McWilliams and David Clarke)

By Jeffrey Dastin and Kenneth Li

REDMOND, Wash. – U.S. companies are facing a “new era” in which fewer people are entering the workforce and pressure to pay higher salaries may become permanent, Microsoft Corp’s President Brad Smith told Reuters in an interview.

At the software maker’s Redmond, Washington, headquarters, Smith highlighted one source of what he called today’s “greater economic turbulence.” In his office, he walked over to a wall-sized touchscreen device and pulled up a series of charts, showing how population growth has tumbled in the United States, Europe, China and Japan.

The trend of around 5 million people expanding the U.S. working age population every five years since 1950 has shifted, starting in the period between 2016 and 2020 when growth slowed to 2 million, and is now slowing further, said Smith late last week, citing United Nations data. Major markets overseas have seen outright labor force declines.

“That helps explain part of why you can have low growth and a labor shortage at the height at the same time. There just aren’t as many people entering the workforce,” said Smith, who helps oversee the nearly $2 trillion company selling cloud-computing services to major businesses.

Government stimulus during the pandemic, COVID-19 concerns, childcare and other factors have contributed to the current labor shortage as well.

Executives including Mark Zuckerberg, chief executive of Facebook parent Meta Platforms Inc, have recently fretted about the economy. Zuckerberg warned the United States might face “one of the worst downturns that we’ve seen in recent history,” though Smith said it would be premature to declare a recession inevitable.

Competing for limited workers, Microsoft recently boosted pay at the same time as it slowed hiring, company officials said. The software maker also trimmed a small percentage of jobs pegged to the start of its new fiscal year.

Smith said Microsoft’s business selling productivity tools, cloud services and technology with artificial intelligence, which enterprises may need in a downturn, sets it up to weather economic challenges. The company has recently faced antitrust scrutiny in Europe, and Smith said Microsoft had until October to “finalize the implementation” of changes he promised.

U.S. Department of Labor data from June showed employers broadly had continued to raise wages and hire more workers than expected. Labor force participation, however, shrank for the second time in three months, to 62.2%, showing no persistent improvement since the start of 2022.

GRAPHIC: Workforce participation gap remains large https://graphics.reuters.com/USA-ECONOMY/JOBS/gkplgerzevb/chart.png

Population growth has become a hot topic in the tech industry. Tesla Inc CEO Elon Musk, who reportedly has nine children including newborn twins, has particularly drawn attention to the low U.S. birth rate. “Doing my best to help the underpopulation crisis,” he wrote on Twitter.

Smith said he concurred with Musk “maybe in the problem. I’m not recommending the same solution.”

(Reporting by Jeffrey Dastin and Kenneth Li; Editing by Anna Driver and Richard Chang)

By Tim Hepher and David Shepardson

FARNBOROUGH, England -Boeing will seek to shore up its troubled 737 MAX 10 and 777X jetliners with orders officially worth over $15 billion from Delta Air Lines and Lufthansa this week, as the aerospace industry swelters at its largest event since COVID-19.

Industry sources said the U.S. planemaker, struggling to maintain a grip on its duopoly with Europe’s Airbus, would strike early at the Farnborough Airshow, which opens on Monday, after months of talks on its largest 737 with Delta.

Reuters first reported in March that Delta was discussing buying 100 MAX 10 and reported last week that the airline was in talks to order around 12 more Airbus A220s in a deal likely be announced on Tuesday.

Germany’s Lufthansa is likely to firm up a deal for around 10 large Boeing freighters, including seven of the recently launched cargo version of the 777X, sources said.

None of the parties commented ahead of the show, which is going ahead despite an emergency weather warning and transport disruption caused by forecasts for record high temperatures.

As Britain melts, aerospace firms will do their best to show civil demand is intact after the worst downturn in their history. Rising defence spending will also be in focus as the industry gathers under the shadow of war in Ukraine.

Boeing unveiled broadly stable civil airplane forecasts on Sunday.

Even so, many of the deals will be provisional ones or formal signings of business already in the works, and virtually all will be packaged as contributions to lower emissions in support of a common goal of net zero by 2050, delegates said.

EasyJet is set to win shareholder approval for a recent deal for 56 Airbus A320neos, placing it on Farnborough’s radar. Etihad has firmed up an order for seven A350 freighters, though it is unclear whether these will be unveiled at the show.

Poland’s LOT is studying proposals from existing suppliers Boeing and Embraer as well Airbus and engine firms, but will not make a decision at the show, a person close to the talks said, denying a report that the airline had already picked Airbus.

Demand for jets peaked in 2016 but remained buoyant until the pandemic crippled air transport. Now, travel is rebounding, passengers face long lines and some jets are back in demand.

Yet, apart from Delta’s expected MAX purchase, the big-ticket orders that dominated past events are rarer as airlines repair balance sheets weakened by COVID-19 travel restrictions.

Airbus and Boeing officials flew to India ahead of the show chasing a potential $50 billion blockbuster from Air India owner Tata Group. It is studying 200-300 narrowbodies and 30-70 wide-bodies split between suppliers, but hopes of a sizzling order to match this week’s temperature are on hold for now, sources said.

That means most attention will be on the MAX 10 and 777X which Boeing plans to fly in a scaled-down Farnborough display.

MAJOR HEADACHES

Both airplanes are the source of major headaches as Boeing wrestles with regulatory problems in the wake of a two-year safety crisis triggered by crashes of a smaller MAX.

Boeing has a December deadline to win approval for the 737 MAX 10 – the largest member of its single-aisle family – or meet new cockpit alerting requirements, unless Congress waives it.

Chief Executive Dave Calhoun has said Boeing could be forced to cancel the 737 MAX 10 – a move that could have repercussions across the industry including for rival Airbus, reluctant to be dragged into a race to develop new jets too soon.

However, the head of Boeing’s commercial division, Stan Deal, told reporters on Sunday that cancelling the MAX 10, which analysts say is needed to compete with strong sales of the Airbus A321neo, is “not a high probability path”.

Boeing is also close to delivering its first 787 in a year after a spate of regulatory and production problems, Deal said.

Aerospace leaders will also be under pressure this week to address concerns over supply chains and a spike in inflation that raise questions over both input costs and consumer demand.

Current market leader Airbus is sticking with plans to raise single-aisle A320neo output to 75 jets a month in 2025 from 50 now, but some suppliers fear supply chains may not keep up.

(Reporting by Tim Hepher, David Shepardson, Paul Sandle; Editing by Mark Potter and Cynthia Osterman)

By Elizabeth Dilts Marshall and Manya Saini

(Reuters) -Bank of America Corp beat analysts’ estimates for second-quarter profit on Monday, with healthy consumer spending and strong demand for loans limiting the hit from its investment banking business.

Executives at the second-largest U.S. bank painted an overall positive outlook for consumer spending going forward, saying that despite decades-high inflation, spending continues to grow, albeit at a slower pace.

“We observed from our data spending remains excellent, deposit balances remain high, capacity to borrow is still there, credit quality is still there,” Chief Financial Officer Alastair Borthwick said on a call.

The U.S. Federal Reserve has been hiking interest rates rapidly as it attempts to tame inflation, and though that continues to have economists calculating the risk of a recession, it meant healthy profits for banks in the second quarter.

Bank of America’s net interest income, a key measure of the difference between the interest earned on loans and the amount paid out on deposits, jumped 22%, or $2.2 billion, to $12.4 billion in the second quarter.

The bank expects it can grow NII by $900 million to $1 billion by the third quarter, Borthwick said.

With respect to its economic outlook, the bank released $48 million of reserves in the quarter, compared to rival banks JPMorgan Chase & Co and Wells Fargo & Co, which boosted loss provisions in the quarter. BofA’s total loan loss provisions as of June 30 were $500 million.

“Net interest income growth has always been its strong point and should bridge (the bank) through the oncoming recession, even if credit losses rise off of historical lows,” Viola Risk Advisors president David Hendler wrote in a note on Monday.

Bank of America’s shares, which have fallen nearly 28% so far this year, were up 0.91% at 11:45 EST (1545 GMT).

The company’s profit fell 34% to $5.93 billion, or 73 cents per share, for the quarter ended June 30. On an adjusted basis BofA earned 78 cents per share, compared with estimates of 75 cents per share, according to Refinitiv IBES data.

Bank of America’s investment banking fees fell 47% to $1.1 billion in the second quarter, as Wall Street has seen public listings and dealmaking activity slump amid volatile capital markets and geopolitical tension.

Revenue, net of interest expense, rose 6% to $22.7 billion despite a downturn in the leveraged finance markets. Borthwick said the bank will be working down leveraged loan exposure from the $300 million mark.

“Some of those deals have been funded, and we’re working through any remaining exposure to get them through the market,” Borthwick said on a call with analysts.

SPENDING & THE FED

Despite inflation hovering at levels not seen in four decades, spending by Bank of America’s 60 million household customers rose 11% to $220.5 billion over the first quarter this year.

“Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels,” Chief Executive Officer Brian Moynihan said.

Spending trends are key indicators of the financial health of consumers and Moynihan said they are seeing more customers spend on travel and fuel, due to increased prices, and less spending at retail stores. Overall, revenue for the consumer banking unit rose 12% to $9.1 billion in the reported quarter.

Total loans and leases, excluding those from the government’s Paycheck Protection Program, also grew 14% year-over-year, and it was 4% than the immediately preceding quarter.

“While all of this is good news,” Moynihan said, “it clearly makes the Fed’s job tougher when you take the statistics and combine it with a low unemployment rate.”

(Reporting by Manya Saini and Niket Nishant in Bengaluru and Elizabeth Dilts Marshall in New York; Editing by Shounak Dasgupta and Nick Zieminski)

By Alex Lawler, Julia Payne and Stephanie Kelly

LONDON/NEW YORK – Benchmark oil prices have dropped by about $15 a barrel in the past 10 days as the threat of recession clouds the demand outlook, but the physical oil trade and the futures market structure tell a quite different story.

Growing concern about the economic outlook pushed Brent crude below $100 a barrel last week for the first time since April.

But in the physical market, premiums have been at record levels. Nigerian Qua Iboe crude was offered at $11.50 a barrel above dated Brent this week, while North Sea grade Forties was bid at dated Brent plus $5.35 on Tuesday – both all-time highs.

And while the outright Brent price has fallen almost 20% since May, the premium at which the nearby contract is trading to the second month – a structure known as backwardation, which implies tight prompt supply – has widened to $4.09 a barrel.

That suggests strong underlying support for near-term prices despite the drop in the benchmark Brent contract.

“Outright prices and the structure are out of sync,” said Tamas Varga of oil broker PVM. “It implies genuine strength on the physical front that goes against the sentiment in the futures market.”

Helping to keep supply tight, outages have reduced Libyan and Nigerian production, Western sanctions are forcing a re-routing of Russian oil flows, and OPEC and its allies have been unable to meet pledged output hikes.

“While a deep recession cannot be discounted, we remain focused on the objective fact of physically tight markets,” BCA Research said in a note. That, it said, “will keep oil markets volatile and biased to the upside”.

In the United States, WTI-Midland and WTI at East Houston traded in June at a more than $3 premium to U.S. crude futures, the highest in more than 2 years.

Though both grades have since edged off those highs, they are still trading more than 60% higher than at the start of June.

U.S. crude stockpiles are at about 427.1 million barrels, about 2.4% lower than during the same time last year, Energy Information Administration data showed.

But while market tightness is, in the words of one European trader, “definitely what’s being talked about”, the risk of recession still looms large.

The tightness, says Varga, “could also mean further upside potential; however, stubbornly high global inflation and its impact on oil demand might just change the ‘buy-the-dips’ attitude to ‘sell-the-rallies’.”

(Reporting by Alex Lawler, Stephanie Kelly and Julia Payne; Editing by Jan Harvey)