–Vice-President says, fiscal terms still being worked out for oil block auction
WORKING out the right fiscal terms that will ensure Guyana gets the best deal in the sale of the remaining oil blocks, is one of a number of factors that has influenced the Government to delay the oil block auction, which is now slated to happen before the end of the year.
The auction of Guyana’s remaining oil blocks had initially been slated to take place in the third quarter of 2022; however, the Government has since pushed back this timeline, and, at a press conference, on Friday, at the Arthur Chung Conference Centre (ACCC), Vice-President, Dr. Bharrat Jagdeo, explained to the media some of the dynamics that led to the delay.
Other factors still being worked out include decisions on whether the Government will keep some of the oil blocks for a national oil company, how the Government will divide-up the blocks and a decision on whether or not existing companies in Guyana, particularly Exxon Mobil, will be allowed to participate in the auction and if they do participate whether or not there will be a limit to the number of blocks any one entity would be allowed to have.
“That is what is currently ongoing within the Government circles. The technical work is being done, we’re getting some external help to do all of this preparation so that when we go to auction we can maximise the benefit to the country,” Dr. Jagdeo explained.
The Government is also looking at the legislation to ensure that all procedures will be in keeping with Guyana’s existing laws.
“We are looking at the 1960 Petroleum Act to see that it allows us to pursue an auction in a manner that we wish. In the past, all the contracts were given out on a first come first serve basis. Now we’ve decided to go to auction so we have to ensure our legislation regime supports this process to secure future blocks,” the Vice-President said.
According to Dr. Jagdeo, the Government has set August month end as a deadline to reach a decision on several of the issues; however, working out the fiscal arrangement remains the biggest factor that will determine the timeline for the auction.
“It’s about putting all of this together in a framework that is fair to the investors, so that they get a decent return on their capital, that will promote accelerated exploration, and will allow the country to enjoy a greater share of future benefits should they [investors] proceed with production agreements,” Dr. Jagdeo explained.
“This is a major issue that could slow down the auction a bit. That is the biggest issue, the fiscal terms of the petroleum prospecting licence that would have to be issued to a successful bidder. That is the most contentious and what we are working through at this stage.”
It is the fiscal terms that will set out the profit sharing and taxation arrangement with the companies.
“The prospecting licences that will have to be issued to the successful bidders will have to say whether we will retain the 50/50 model where after clearing cost profit oil divided equally between investor, what the royalty rate will be and other fiscal terms in the contract,” Dr. Jagdeo said.
Guyana currently has a Production Sharing Agreement (PSA) with Exxon Mobil, currently the country’s only oil producing company, which sees the country getting 50 per cent of profit oil and a two per cent royalty.
However, there have been longstanding calls for Guyana to get better terms in any contracts with future exploration. Due to the accelerated development of the Stabroek Block, which is owned by Exxon, Guyana has gained massive attention for its oil finds.
Guyana currently has an estimated recoverable resource of 11 billion oil equivalent barrels in the Stabroek Block, which is currently the country’s only oil producing block. The block is owned by ExxonMobil, which has 45 per cent stake, in partnership with Hess (30 per cent) and China’s CNOOC (25 per cent).
It was earlier this month that Senior Vice-President and Head of Latin America for Rystad Energy, Schreiner Parker, said having the right fiscal regime will be the most important factor if Guyana is to get the most out of the sale of its remaining oil blocks at the upcoming auction.
Parker noted that Guyana stands to gain much out of the auction, given the attractiveness of the basin, but that the country could lose out if conditions are not favourable for investors.