–Gov’t releases draft model petroleum agreements for public consultation before finalisation

THE government on Tuesday released the draft model petroleum agreements which outline more benefits for Guyana, including a royalty rate increased from two per cent to 10 per cent, corporate tax of 10 per cent and a cap on cost oil of 65 per cent.

The agreements will now undergo a 14-day consultation period before finalisation. During this process, members of the public could send feedback on the drafts to the Minister of Natural Resources at licensinground2022@petroleum.gov.gy with the Permanent Secretary copied at jmckenzie@nre.gov.gy.

The agreements also include better provisions for the signing bonus, relinquishment terms, activities related to the abandonment of the block, and an increase in the training fee.

The new agreements cover fiscal and other terms under which the government will sign on to contractors who are awarded blocks, which Guyana will auction. Guyana is auctioning off three deep-water and 11 shallow-water blocks.

There is a separate agreement for the deep-water and shallow-water areas. The model petroleum agreements will be followed by an overhaul of the 1986 Petroleum Act and Regulations.
According to a press release from the Ministry of Natural Resources, the agreements embody rigorous research and analysis by the ministry’s internal team, and external consultants on all topics relevant to a modern petroleum agreement for Guyana.

“The process involved a comprehensive assessment of the current petroleum agreement and the identification of best practices relevant to every contractual aspect of a modern agreement grounded in the Guyana context,” the ministry said.

The release stated: “The model petroleum agreements represent the PPP/C Government’s commitment to its manifesto promise of establishing a model production sharing agreement (PSA), guided by industry standards and best practices. At the core, these are aimed at maximising the socio-economic benefits for our nation without.”

Guyana is among 65 countries that launched auctions of oil blocks, and as such the government worked along with international consultant, IHS Markit Consulting, to offer the best terms that will see the country remaining competitive while also getting a fair deal.

The new agreements would see Guyana receiving better terms and more benefit when compared to the contentious, widely disparaged 2016 Production Sharing Agreement (PSA) that was orchestrated by the A Partnership for National Unity/Alliance For Change (APNU+AFC) coalition when it was in government.

Under the deep-water blocks, the exploration period will be a maximum of 10 years, which will be divided into an initial period of three (the “First Phase”), an optional first renewal period of three years (the “Second Phase”), an optional second renewal period of two years (the “Third Phase”), and an optional third renewal period of two years (the “Fourth Phase”).

For the shallow blocks, the exploration period will be for a maximum of five years, divided into an initial period of three (the “First Phase”), an optional renewal period of two years (the “Second Phase”).

Under both agreements, the contractor’s annual rental will be US$1,000,000, and an annual training fee of US$1,000,000. The training fee marks an increase from the US$300,000 provided for in the 2016 PSA.

The signature bonus for the deep-water blocks is US$20 million, while US$10 million is for the shallow-water blocks. In both cases, the signature bonus shall not be cost recoverable.

The renewal of subsequent Petroleum Prospecting Licence would be subject to approval by the minister, and will depend on the contractor having fulfilled the obligations for the preceding phase.

However, with each subsequent renewal of the Petroleum Prospecting Licence, the contractor will be required to incrementally relinquish at least 50 per cent of the existing area. This is a marked increase from the 20 per cent provided for in Guyana’s 2016 PSA.

For commercial discoveries, the Production License will be for an initial period of 20 years. However, if the commercial discovery relates to a Natural Gas Field, the term of the initial production period shall be 30 years.

At least one year prior to the end of the Petroleum Production Licence, the contractor can request to renew the licence for an additional period of up to 10 years
The contractor will be required to submit an exploration plan to the minister that includes all of the activities provided for in the Minimum Work Programme and set out the petroleum operations and estimated expenditure that contractor proposes to undertake during the term of the prospecting licence.

A budget for the exploration period shall be submitted simultaneously with the exploration plan, and the budget for each subsequent year no later than September 30.
The contractor shall submit to the minister for approval annual work programmes for each of the petroleum operations including abandonment.

The contractor cannot transfer its rights to the block without the prior written consent of the Minister.

The contract also includes provisions for all activities related to the abandonment of the contract area. Under this provision, the contractor will be required to establish an abandonment fund, at an international financial institution to be agreed between the minister and contractor. The contractor will also have to perform all necessary site restoration and remediation.

The structure of the abandonment fund and the terms for the administration of the fund shall be mutually agreed between the minister and contractor within a one-year prior to the start of contributions.