With ‘first oil’ announced, Guyana first three cargoes of oil from ExxonMobil’s Liza-1 field will be sold to selected operators which will prevent the Liza Crude from being priced downwards due to initial uncertainty of the quality.

Crude is natural mineral oil not yet processed or refined, which is stored aboard a Floating Production Storage and Offloading (FPSO) vessel and then transferred to tankers and pipelines heading ashore.

The Department of Energy (DE) has explained: “The full extent of the quality of crude is not yet known. It usually takes several lifts to determine crude only quality and the cost of refining it. Guyana is embarking on its very first new crude introduction into the market of the Liza grade. The quality of the crude and its yield have not yet been tested within a refinery system. This interim arrangement is put in place just for this period,” the Department explained.

The direct sale is short term and the International Oil Companies (IOCs) invited to bid are ExxonMobil; China National Offshore Oil Corporation (CNOOC); Hess Corporation; BP; Chevron; Shell, Total and Eni.

According to Crude Marketing Specialist, Virginia 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,” she 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. 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.

“I am happy to report that the department has been working with its sister agencies and the operator to ensure that such a process is put in place so we can ensure that it is running as efficiently as possible from day one,” Dr. Bynoe. It does not require procurement and will only require 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 soon.

GUYANA PREPARED ITSELF

When it was announced in October 2019 that ‘first oil’ would be possible in December 2019 ahead of the previously projected March 2020 date, Finance Minister, Winston Jordan stated that efforts were being made to speed up local preparations for the shipment of crude.

He confirmed then that the revenues to come from the production would be stored in an account and parked until after the March 2, 2020 elections when a new government is elected. “We had an inkling that the first oil could be in December and therefore we were working under that assumption and trying to ramp up our activities. So, it doesn’t come as a surprise to us who were working underground… we were trying to work with the World Bank and other donors who were helping us to try to put in place as much as possible the critical elements,” the Finance Minister said.

And, so said so done; a month later and before ‘first oil’, Jordan and the Governor of the Bank of Guyana (BoG), Dr. Gobind Ganga, on Wednesday, entered into an Operational Agreement for the management of the Natural Resource Fund (NRF).

The Memorandum of Understanding (MoU) was handed over to the governor at the Ministry of Finance in accordance with sections 11 and 12 of the NRF Act 2019. According to the finance minister, as part of government’s preparations towards becoming a petroleum-producing country and in anticipation of first oil, work commenced in earnest in 2017 on the drafting and consultations regarding the development of a Sovereign Wealth Fund (SWF) legislation for Guyana. He said that the signing is a significant next step in establishing strong institutional arrangements to support the effective management of the country’s petroleum revenues.

LOCAL CONTENT

At the same time, the final draft of the much-anticipated Local-Content Policy is being edited and is on course for completion this month. The DE will be looking to complete the policy so that there will be a guide for the participation and inclusion of Guyanese in the new oil-and-gas sector.

“The Local Content Policy Consultant has submitted his final report; the policy is being edited, with a completion date of December 2019 still being the aim of the DE,” said Dr. Bynoe said during a recent press briefing. The policy framework is meant to outline the guidelines by which local content will be understood, developed, measured, secured and implemented in Guyana’s petroleum sector. It also takes into consideration the urgent need for the optimisation of revenues received from oil to benefit Guyana’s economy and citizens, present and future and, although the policy is not complete, the DE has been working with operators to commence reporting on local-content performance as per the conditions of the final draft of the policy.