…Gov’t maintains direct sale of first oil does not require procurement
…will only need such when Guyana moves into the next phase of public Request for Proposals
…Bynoe, Marketing specialist say move best option for Guyana at this time

By Lisa Hamilton

Guyana’s crude will be sold under a Free On Board (FOB) contractual agreement to buyers at the exit point of the Floating Production Storage and Offloading (FPSO) vessel who will take responsibility for aspects such as insurance and shipping, Director of Energy Dr Mark Bynoe said on Monday.

He said this arrangement does not require procurement and will only need such when Guyana moves into the next phase of public Request for Proposals (RFP). The Department has indicated that this is likely in January 2020 and a full RFP will be issued inviting companies to bid for the marketing of Guyana’s portion of crude on a long-term basis, for at least one year with the option to renew. The entire engagement with the IOCs is expected to be completed within this week.

Dr Bynoe’s comments come against the background of criticisms by the opposition and some other individuals that government’s move to interface with potential buyers of Guyana’s first three cargoes of oil from ExxonMobil’s Liza-1 field. Bynoe said on Sunday, that the short-term arrangement is the best option for Guyana as it heads into the new industry. He had also clarified misguided reports, by confirming that the country’s decisions are being guided by a full team of international experts, internal experts and the Guyana Public Procurement Commission (PPC). The Guyana Chronicle reported on Sunday that at least half a dozen traders from Houston, Geneva and London were expected to land in Guyana over the weekend to bid on some of the first-oil cargoes to be produced here.

The report first came from Bloomberg which acknowledged that Guyana is poised to produce more oil than neighbouring Venezuela but the country has no experience in trading oil and is looking to learn the basics from its very first buyer. On Sunday the Energy Department explained that the process expected this week is not for marketing services to sell Guyana’s crude in the open market as this is not scheduled until January 2020. Instead, the selected operators will take Guyana’s initial three cargo lifts for which the quality is still being determined. It was explained that selling the crude to the open market uncertain about its quality could cause the Liza Crude to be priced downwards off the bat.

NO PUBLIC NEGOTIATION
Meanwhile, at a follow up news conference on Monday, Bynoe was questioned why the DoE had not made public its intentions for the short-term sale to international traders, to which he responded that the department is dealing with an international commercial operation which it had all intention to disclose following its success. “What we were aiming to do was to come to you when the matter was concluded not during because what it can do is weaken the government’s negotiating position. It doesn’t help for us to be transacting commercial business through the media,” he said.

He stated that the decision to sell the crude through direct sale was made by all stakeholders on Guyana’s end along with its contracted experts in the Commercial and Crude Marketing fields.

Furthermore, Crude Marketing Specialist, Virginia Markouizou explained that while Bloomberg had referred to the face-to-face meeting of traders as uncommon, this is necessary for Guyana which wants to ensure that it gets the best possible returns from the sale of its crude. “Trading of a commodity is a very global, transparent and in-the-minute business. It happens in front of screens and it happens through phones but [in these cases] this is trading of a commodity which is very well established and a grade that is very well known on the market…here [in Guyana] we’re talking about taking all the steps; establishing relationships with the market; showing a face of stability; introducing, in a paced way, a grade and holding face-to-face conversations with people who will have to give us feedback,” she said, adding: “That is not a phone conversation.”

She said that while Guyana will one day be able to conduct phone call or computer facilitated transactions, this is simply not possible in the early stage.

The traders to bid for Guyana’s first 3 million barrels of Liza Blend crude this week are well-recognised in the international market, very interested in Guyana and will bid aggressively for its crude. The International Oil Companies (IOCs) invited are ExxonMobil; China National Offshore Oil Corporation (CNOOC); Hess Corporation; BP; Chevron; Shell, Total and Eni. The media received this update on Monday from the Department of Energy (DE) at the press conference attended by Bynoe; Markouizou and Legal Officer, Joanna Simmons.

According to Markouizou the IOCs possess integrated value chains, have a global refining footprint, are accountable to stakeholders and are aware of the intricacies of introducing a new grade into the market. “They can help us introduce the grade into the market in a very standard way. This is what we’re trying to achieve here. Volatility for the Guyana Liza new grade is not good. We’re trying to create an environment whereby there is standardization and stabilization,” Markouizou said. While it is normal for the process of stabilization to take up to six months, Guyana has decided that it was prudent to shorten the period to three cargo lifts, which is to take approximately three months.

THE LIZA CRUDE
Meanwhile, the Department explained that while alternative means to the direct sale of crude were considered, the current decision has proven to be the best option to develop the Liza Crude brand. “First impressions count,” the DE Head said. “The idea is for us to work towards even making the Liza Crude a benchmark crude. To do that you don’t carry an impure product or a product that has substantial impurities to the market. That’s why we have taken this considered approach to ensure that the first instance we are protecting the value of the Guyanese crude.”

At the same time, Markouizou reminded that international markets are all looking at Guyana to see how well its grade is going to perform in these first few months of its entry into the market. She said that in a commodities market nothing stays secret which adds to the transparency of the market. Even so, she noted that IOCs are very interested in Guyana, welcome the introductory phase and will bid aggressively for Guyana’s crude.