National Oil Company may get more support if Guyana gets more revenue – VP

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Vice President Dr Bharrat Jagdeo

The People’s Progressive Party/Civic (PPP/C) Government is leaning towards a strategic passive shareholder model partnership with oil companies, for ownership of oil blocks that have been allocated.

During a press conference on Monday, Vice President Bharrat Jagdeo spoke about the issue of a national oil company. He noted that the Government is aware of all the concerns and further, encouraged healthy debates on the issue.

Jagdeo explained that the Government is currently not in favour of the traditionally styled oil company, which takes on the fiscal risks of developing oil blocks themselves. Further, he noted that if they vest the remaining oil blocks in a national oil company, it can slow down the exploration process.

“From our side, we’ve been putting some additional concerns about national oil companies. Not the most obvious ones I mentioned that have been written about by everyone. And not the fact that the IMF said we shouldn’t do it, because we don’t take IMF lectures as gospel in this country.”

“From our own and what we have been looking at, an examination of the situation, we believe that having an old-styled model for a national oil company could present major difficulties… with net-zero by 2050, it becomes harder to raise money globally for national oil companies,” Jagdeo explained.

He explained that this can work with the Government getting a strategic partner they have no control over except through shareholder access. He stressed, however, that the only thing that may tilt the Government in the direction of establishing such an oil company is if they can get more revenue through a modified PSA.

“How does that work? We just simply say that we’re getting a strategic partner, we’re taking a share of the company, but we have no control over operations or management, except for the control given to shareholders through passive ownership. I’m just telling you this because I want you to understand the thinking of the Government.”

“But no decision has been made. We have a lot of cons and a few pros. And the only pro that would tilt this in the establishment of a NOC with a more passive form of ownership is whether we can get more revenue for the country that will come from a modified PSA,” Jagdeo said.

It had been previously reported that Guyana has already been the recipient of significant interest, particularly from Middle Eastern companies, to partner with the State in developing the available oil blocks.

Countries getting into the business side of oil and gas is nothing new. In neighbouring Brazil, Petrobras is a well-known example of a State-owned oil company. Venezuela also has its own State-owned oil company, Petroleos de Venezuela (PDVSA). There is also the Petroleum Company of Trinidad and Tobago Limited (PETROTRIN).

However, the latter two companies have not fared well, with PETROTRIN closing its refinery and laying off thousands and PDVSA closing and then reopening, amid Venezuela’s economic meltdown.

Guyana has long been expected to go out and auction oil blocks, both untapped and relinquished. Considering the more than 25 oil finds that have been made by oil giant ExxonMobil in the Stabroek Block, the country is likely to be in a good position to leverage the value of those blocks when the context of the global oil and gas industry is considered.

The relinquishment clause is typically included in contracts so that companies can relinquish a portion of the block when the renewable period is up, thereby allowing other companies to buy into the respective blocks.

For the Stabroek and Canje Blocks, operators are required to relinquish 20 per cent of their blocks after the first renewal period; while those of the Demerara and Corentyne Blocks are expected to relinquish 15 per cent within this period.

The Kaieteur Block’s relinquishment provision is said to be 25 per cent, then 20 per cent by the first renewal; with the Mahaicony and Roraima Blocks at 25 per cent. By the time of the first renewal for the Orinduik Block, the operators are not expected to relinquish any portion.