…Dr. Bynoe says lifting agreement to be completed this week
…crude will be sold more or less at a million barrels per lift.

By Lisa Hamilton

GUYANA’S Crude Lifting Agreement (CLA) is expected to be completed in the coming week even as the country is working towards its first lifting of crude by late February or March 2020.

At a news conference on Wednesday hosted at the National Communications Network (NCN), Director of the Department of Energy (DoE), Dr. Mark Bynoe, said that crude will be sold – more or less – at a million barrels per lift. By the time the country is producing at a peak of 120 barrels of oil per day, a new lift would be anticipated every 8 to 10 days.
Should ‘first oil’ be possible in December, Guyana would not lift its first volume of crude until one month after. Dr. Bynoe also explained that the first entitlement of crude will go to ExxonMobil.

He stated, “ExxonMobil is not only a lifter, they’re not only an operator, but they also have refineries. My understanding is, the first lift often comes with a fair amount of impurities. Impurities in your crude can affect the price that you get for that crude which will not only impact that batch but it could impact subsequent batches.” He said that it is therefore plausible for ExxonMobil to take and process the first batch so that the integrity of Guyana’s crude can be preserved.

IT’S A PROCESS

Even while the country does not yet have its entitlement, from the beginning of ‘first oil’, Guyana will still begin receiving two per cent royalty. Its first entitlement or profit oil will see the country receiving 12.5 per cent of revenues according to the Production Sharing Agreement (PSA). Altogether, the country will receive a minimum of 14.5 per cent and benefits to Guyana will increase as production progresses. Like Minister of Finance, Winston Jordan, Dr. Bynoe reminded that there are four stakeholders in the operations – Guyana, ExxonMobil, HESS and its third partner, CNOOC Petroleum Guyana Limited – which are all entitled to certain quantum of crude.

How soon each stakeholder benefits is also dependent on the speed at which they can liquidate the cost pool – the investment costs incurred by the companies. “Guyana’s lift or their entitlement, their share of the oil is not expected until late February, maybe Early March and the reason for that is…the first lift is going to take about a month for the FPSO to be filled up,” he said. “It will take time for us to begin to see all the benefits we all dream of. Yes, you hear Guyana can become a Qatar [but] Qatar didn’t get to where it is overnight. It took years for them to get there.”

The DoE is working along with the operator and its co-ventures for agreement on the market price, determination procedure and provisional crude oil basket for marketing.
According to the United States Energy Information Administration (EIA), brent crude oil [sweet light crude oil] spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. The EIA forecasts that brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020.

The DoE and Ministry of Finance are also working with the operator and its co-ventures to agree on a process of entitlement reconciliation, in keeping with PSA. Guyana’s crude will be sold under a Free On Board (FOB) contractual agreement which will see the crude being sold to the buyer at the exit point of the Floating Production Storage and Offloading (FPSO) vessel, with the buyer taking responsibility for aspects such as insurance and shipping.

Meanwhile, Guyana’s share of exported crude will be sold on a Fee-Per-Barrel basis while the Guyana National Bureau of Standards (GNBS) is providing expertise for oversight with regards to measurement, calibration and testing functions.
“The entity is already receiving bilateral assistance in this regard, inclusive of training under an American Petroleum Institute programme and soon-to-be signed contract with Bureau Veritas,” Dr. Bynoe said. Bureau Veritas is a recognised world leader in testing, inspection and certification services.

GETTING IT RIGHT

Back in July, Dr. Bynoe had stated that the department is aware of the risk associated with not getting this right. In all its efforts, the department has stated that industry-standard documents, based on the Association of International Petroleum Negotiators Crude Lifting Agreement (CLA), is being applied.

The CLA is a document used throughout the industry worldwide to set up mechanisms for allocating the schedule of crude cargo liftings based upon volume entitlements which consider the cost recovery rules of the Petroleum Agreement. “The Crude Lifting Agreement is being finalised and has advanced significantly. The CLA is expected to be completed in the new week and government will be a signatory as a lifter of crude along with the Stabroek co-ventures…it is being applied and customised to take the Guyanese context into consideration,” the energy director said.

The CLA will detail guidelines in relation to the use of facilities, technology and how crude samples will be stored on the FPSO. The government intends to pursue a third-party verifier on the FPSO which would ensure that all aspects of the agreement are adhered to.
Dr. Bynoe explained: “Even outside of what is stated within the Crude Lifting Agreement, to be able to preserve the integrity of the system and also to reduce potential value leakage is for us to have someone who could verify. So, in the event there is any issue when the fuel is shipped whether quality or quantity wise, we will be able to have our own evidence to push back against that.”

He also noted that workshops, trainings, dry-runs and inspections have been conducted to ensure that the process involving the FPSO will run efficiently from day one. To market government’s share of crude oil, tender for a Marketing Agent/Company will be issued within the final quarter of the year on a fee-based marketing service. Added to this, a contract has been signed with a Crude Marketing Specialist through the World Bank Project and a Commercial Specialist who will assist the Department in ‘first oil’ preparations.
The media was made aware that the selling of crude has to take place some two months prior to the expected lift. Similar contracts are being sought out for a Petroleum Accounting Specialist and a contract Administration Specialist.

Dr. Bynoe stated that significant works on the part of ExxonMobil, its partners and the DoE, must be completed to make ‘first oil’ in December a reality. These include the installation of water injection lines and production umbilicals, as well as commissioning which involves the process of ensuring all operational requirements are met.

The department is building its own staff compliment by working closely with the Guyana Revenue Authority, Guyana Geology and Mines Commission (GGMC) Petroleum Unit, GNBS, the Maritime Administration Department (MARAD), the Civil Defence Commission (CDC), the Guyana Civil Aviation Authority (GCAA) and several government ministries. “Ultimately, we want to be able to provide the Guyanese people with a level of comfort that what we’re doing would always be in their best interest,” the director said.