GUYANA is planning to move ahead with its oil block auction, or “bid round,” with the intention of keeping with international best practices around transparency and competitiveness. More importantly, the country is hoping to attract partners to explore additional areas offshore. This bid round will be different than previous rounds because Guyana’s prolific Stabroek Block is already a world class asset. Nevertheless, there is significant competition for a limited amount of exploration capital. In addition, while other blocks have shown promise, there has been no production or final investment decisions outside the Stabroek Block, meaning that exploration activities remain a risky enterprise to undertake.

Guyana is working to find a balance between maximising the “government take” and bringing in partners with the capacity and risk appetite to generate new production. Open oil and gas bidding rounds are a process where the government sends out an invitation to oil and gas companies regarding an opportunity to explore in the country’s regions. Companies bid for the rights to explore, and if there is a discovery, can obtain a production licence. Open bidding rounds are most often used once some discoveries have been made and global interest is high—thankfully this is the position Guyana now finds itself in.

The government is seeking to generate investment but doing so requires a careful balance of the fiscal terms and non-fiscal factors. In oil and gas producing countries, fiscal terms are what govern the relationship between various operating parties such as private companies and governments to determine how to divide up both the financial benefits and risks of exploratory projects. In the Stabroek Block contract for instance, the risks of finding nothing in Guyana fell entirely to the companies. If no discoveries were made, they would have had to absorb those costs entirely without the government investing anything. Since discoveries were made, companies are able to recover exploration and development costs, profits are split evenly, and Guyana receives a pre-cost royalty from revenues.

Maximising value to the country through fiscal variables in the fiscal scheme is key to getting the best outcomes from the auction. Contract terms that strongly favour the government are politically popular, but they carry significant risks. In some cases, companies choose not to bid or invest in costly oil projects if the profits are too low (or absent altogether). A higher share of hypothetical revenues means nothing if companies refuse to actually produce oil under those terms.

An example of the high stakes in this space is Suriname, which held a bid round for shallow water blocks back in 2021 that was met with little interest and only three of eight blocks received bids. At least 60% of Suriname’s offshore acreage remains unlicensed. Despite several commercial discoveries, no companies have committed to develop any wells to production. As a result, Suriname has yet to see any revenues from its offshore oil finds and is unlikely to in the near future, despite promising geology.

There are trade-offs throughout this process that can attract or push away investments, speed or slow development, or increase or decrease revenues. For example, a blockwide ringfencing provision might lower a country’s overall take by allowing companies to recoup costs from unsuccessful projects. At the same time, it can serve to increase drilling activity by reducing overall risks. If the riskier wells are successful, the country will benefit through additional investments and revenues. These kinds of tradeoffs require difficult decisions when bid rounds are organised.

While Guyana is aiming to receive the best prices for the blocks, non-fiscal terms need to be considered as well, including local content policies, regulations and policy issues like ringfencing. To maximise the potential for widespread benefits in the country from oil and gas, it’s imperative that the combination of regulations, including licensing, taxation, depletion, and pricing policies are in place to attract investors, develop resources and generate revenues.

Examples like Suriname stand in sharp contrast to the double-digit growth Guyana has experienced and this next block auction likely will only increase that growth, as Guyana remains a highly desirable destination for investment. But continuing to get this balance right will require a careful consideration of all the factors necessary to strike the right balance between increasing investments, industry competitiveness, and transparent processes that benefit the country.