…legal review, gap analysis ongoing as Gov’t looks at new round of licensing in 2020

AHEAD of proposing critical legislative changes for the oil and gas sector, the Energy Department has completed a Best Practice Production Sharing Agreement Template, as it prepares for the issuance of another round of Petroleum Prospecting Licenses in 2020 for the remaining oil blocks.

Dr. Mark Bynoe, Director of the Department of Energy made the announcement in the presence of his Energy Adviser, Matthew Wilks, during a press conference on Monday at the Ministry of Presidency.

Anticipating that the Petroleum (Exploration and Production) Act 1986 will be replaced, amended or supplemented by 2020, Dr. Bynoe said once the necessary legislative changes have been made, the Department of Energy would be able to engage in another licensing round in the first quarter of 2020.

He disclosed that last December, the department completed the development of its Best Practice Production Sharing Agreement (PSA) Template, which will be used in the new licensing round.

“Let me emphasise, it’s a template, meaning that we will vary differing conditions depending on how we are engaging. It is not a bilateral negotiation but as the words imply, as a best practice template it would be the best practice for Guyana, but if all of those requirements are enforced, we will have the best PSA, but not many investors. So it will always be a balancing act in terms of what it is Guyana wants and how Guyana intends to proceed with what Guyana wants,” Dr. Bynoe explained.

He said the template addresses best practices when dealing with issues such as royalties, profit sharing and occupational health and safety. When negotiating with investors, the department would have to determine what is contextually relevant for Guyana, that would see it receiving optimum benefits even as it remains attractive for investment in the oil and gas industry.

Giving an expert’s take on the topic, Wilks told reporters that the Best Practice PSA Template will guide the crafting of Production Sharing Contracts (PSCs) that could be applied to different investment climates.

“So for example, if you are investing in deep water with all the risks that that takes, that would be a different investment climate to investing offshore and the same for the near shore. So you could very well have three subtly different PSC (Production Sharing Contract) structures for different investment environments,” the energy adviser explained.

Wilks said it is the Energy Department’s intention to have a document in place, with a small number of biddable terms to foster a competitive environment. It was noted that the department will not be negotiating each individual PSC in its entirety, but will establish specific areas that investors could bid on in keeping with globally recognised practices.

Asked about a possible renegotiation of the 2016 PSA the Government signed with Esso Exploration and Production Guyana Limited partner of U.S. oil giant ExxonMobil now that a new template is in place, the Energy Director said the sanctity of contracts must be respected noting that it takes two to renegotiate a contract.

“Renegotiation will also impact investors’ confidence in terms of whether the Rule of Law is being adhered to or being followed and so we are not discussing renegotiation as we have been on record as indicating we continue to engage with Exxon and other operators to ensure that what Guyana receives is its maximum, possible value proposition from the resources,” Dr. Bynoe said while fielding questions from reporters.

He assured, however, that the new template will have “more favourable terms for Guyana” but emphasized that all negotiations must be contextualized.

“When that PSA started, for example, the risks involved were significantly higher than they are today. Therefore the greater the risk one would also expect the greater the returns. As a result, going forward and we have a lot more knowledge now than we had then, we are able to have conditions that are a lot more favourable to Guyana. So from that perspective there will be improvements going forward,” he further explained.

Complementing the Best Practice PSA Template is a PSA Model Tool Kit which has also been developed. Additionally the Department has developed a comprehensive Procurement Manual that is aligned with the rudiments of the National Tender & Procurement Administration (NPTA) of Guyana and multilateral donor institutions.

Meanwhile, Energy Department is in the process of conducting a Legal Review and Gap Analysis of existing legislation governing the Oil and Gas sector. The Legal Review and Gap Analysis, which will set the foundation for legislative changes, is expected to be completed at the end of this month.

With the Petroleum (Exploration and Production) Act 1986 in dire need of revision, major emphasis is being placed on it as the primary legislation.

“The 1986 Act is not currently fit for purpose in 2019, for example it is extremely silent on gas, and we do recognize that associated gas remains a significant discovery for Guyana going forward,” Dr. Bynoe said while noting that the new or revised legislation would be more robust in areas such as Local Content.

Once the review and gap analysis is completed, the Energy Department will move to the next phase of drafting a replacement or supplementary legislation. Those legislative changes will not be limited to the Petroleum (Exploration and Production) Act 1986, other legislation that govern subsidiary entities like the Guyana Revenue Authority (GRA), the Maritime Administration Department and the Environmental Protection Agency (EPA) would also need amendment to cater to the developing Oil and Gas sector.