THE Ministry of Natural Resources announced last week that all 14 blocks (three deepwater and 11 shallow-water) on offer in Guyana’s first competitive licensing round garnered expressions of interest from companies.
This is a remarkable development for Guyana which has emerged as the world’s fastest-growing oil region since Exxon struck oil in 2015.
Oil and gas bidding rounds involve a process in which the government invites oil and gas companies to bid for the rights to explore, develop and produce any oil and gas found. Open bidding rounds are most often used once some discoveries have been made and global interest is high—this is the position Guyana now finds itself in.
This is the country’s first-ever competitive offshore oil and gas licensing round and serve as a guide for any future offshore investments or projects that end up reaching the production stage. The presence of so many expressions of interest are a solid indication that Guyana’s offshore real estate is highly sought after.
These new blocks will be subject to the terms of the newly updated model Production Sharing Agreement (PSA), which reflects the significant change in Guyana’s status since the Stabroek PSA was signed. At the time, generous fiscal terms helped draw in companies to invest in an unproven frontier region. Now, as Guyana can boast significant production, the terms of future deals will reflect lower risk levels and offer a higher percentage of revenues to the government.
Guyana’s initial production sharing agreement (PSA) gave the country 50 per cent of all profits with a cost recovery ceiling of 75 per cent, plus a royalty of two per cent, which is roughly average when compared to agreements with other frontier oil and gas countries, according to a 2022 analysis by Rystad Energy.
The more generous terms in contracts for frontier regions like Guyana are a way to draw in companies and entice them to take risks on unproven areas. In the case of Guyana, this method worked, and Guyana’s initial PSA attracted investment at a time when the basin was largely unproven and has now set off this incredible round of discoveries.
Now, Guyana has proven itself and is in a better position to push for additional revenues from future projects that reflect the country’s more mature status as an oil producer and the lower risk that companies will face. The fiscal terms of the new model PSA include a 10 per cent royalty rate and 65 per cent cost recovery ceiling. The profit share will remain 50/50 between the government and the contractor, with a new corporate tax of 10 per cent.
While these terms reflect a promising trajectory, Guyana is still a relatively new producer with confirmed commercial discoveries and production only on one block. That means the calculation of how much risk investors will accept is still an important one—especially at a time of global economic uncertainty.
Energy analyst Arthur Deakin noted last month that “[some] companies are scared of operating in emerging markets, especially markets that recently have had discoveries and I think that is probably the biggest deterrent to players – the risk.”
But as long as that balance between attracting investors, speeding up development, and increasing revenues is correctly managed, increased interest in Guyana will beget investments that ultimately increase the capacity for sustainable economic development if the other blocks replicate the success of the Stabroek Block.
By focusing on feasible local content policies, internationally guided regulations and smart environmental policies, the government is proactively aiming to stay ahead of the curve and ensure it remains a highly desirable location for investment.
Additionally, as the country strives to strike the right balance for its future, Guyanese are also reaping the benefits of the oil and gas sector to build capacity and position themselves and local businesses in a position to engage their emerging and rapidly developing economy. Guyana has firmly established itself in the conversation for decades to come as a potential global energy leader.
