– DoE commits to transparency in crude-marketing

GUYANA’s first three cargoes of crude-entitlement from the Liza Phase 1 development will be bought by Shell Western Supply and Trading Limited as the company successfully withstood the scrutiny and criteria of the Department of Energy (DoE).

The direct, short-term sale of Guyana’s Liza grade crude is aimed at preventing it from being priced downwards, due to initial uncertainty of its quality.

A little over one week ago, nine international oil companies were invited to bid for the cargo lifts. These respected companies included: ExxonMobil; China National Offshore Oil Corporation (CNOOC); Hess Corporation; BP; Chevron; Shell, Total and Eni.

In a release on Tuesday, the Department of Energy (DoE) stated that Shell came out on top following a series of face-to-face interrogative interviews and having met the strict criteria set out.

“The interested parties submitted their proposals in writing and were subjected to a face-to-face meeting with the DoE, in order to present the full scale of their capabilities. Companies were also required to lay out the details of their proposals. The face-to-face presentations made possible robust interrogation and lengthy clarifications and questions.  This was an integral part of the selection process, especially in the context of the nascent nature of Guyana’s experience with this process of crude-commercialism, given that the country is now only a few-days-old new producer,” the DE stated.

The decision was based on the following factors: competitive pricing that limits the government’s exposure to market uncertainty; the size, scale and global reach of Shell’s trading operations and the company’s high level of integration between upstream, trading and downstream.

Also considered was Shell’s strong foothold in the Latin American markets and the size and scale of their shipping and storage operations in the region, which allows for multiple options on the Liza crude-commercialisation.

The DoE also highlighted the range of new grades Shell has recently introduced into the market and their willingness to share critical refinery information with the Department, which Guyana needs in order to understand Liza crude-behaviour.

Shell has demonstrated a readiness to support the DoE in operating these cargoes, while the DoE is strengthening its structures and in-house crude commercialisation human resources.

Meanwhile, the sale has been premised on a Dated Brent price basis, which reflects the tradable, spot market value of crude oil.

Earlier in the month, DoE Director, Dr Mark Bynoe and Crude Marketing Specialist Virginia Markouizou had explained in detail that this sale would bring Phase 1 of the two-step crude-marketing process close to completion.

The first phase involves the direct sale of Guyana’s crude; the second involves an open-market Request for Proposals (RFPs) for a marketing agent to market Guyana’s crude-entitlements from the Liza 1 field on a term basis, beginning early 2020.

The DoE explained that the timeline allows for adequate preparation in structuring and completing the RFP for marketing in early 2020.

It also stated that given the accelerated timing of first oil and with Guyana’s first lift expected in February 2020, a short-term Phase 1 process became necessary.

“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 had explained.

The three cargoes will be completed approximately by mid-2020; and by the end of the third lift, the quality of the crude and any operational issues around production are expected to have stabilised.

In the release, the department committed to transparency, accountability and acquisition of best value for Guyana in all its endeavours, including in crude- marketing for Liza crude cargoes.

“The DoE looks forward to introducing this grade into the market in a stable and structured manner, and as a result realise a fair market value for the crude,” the release stated.

“The DoE intends to promote transparency in crude marketing for Liza crude cargoes and will coordinate with the Guyana Extractive Industries Transparency Initiative Secretariat to announce mechanisms and details for allowing the public access to records showing how, when and for how much its crude oil is being sold.”