Oil block auction: VP assures new PSA model will be ready in time

Flashback- The fuel hose leads from the Liza Destiny to the Cap Philippe for the transfer of Guyana’s first million barrels of crude

Vice President Dr Bharrat Jagdeo on Thursday assured that the new model Production Sharing Agreement (PSA) and the regulatory document will be completed in time for potential investors to get in order to put in their final bids for the oil blocks offshore Guyana.

At least 14 oil blocks are currently up for tender including 11 in the shallow area and three in the deep-sea area. These blocks will range from 1000 square kilometres (sq. km) to 2000 sq. km but with most of the blocks being approximately 2000 sq. km.

Based on industry feedback, the Guyana Government has extended the deadline for the competitive bidding process from April to July 15, 2023. This was also done to facilitate the advanced pace of modernising the oil and gas regulatory framework.

Government is currently in the process of finalising the new PSA that will guide the terms and conditions of future oil contracts. Under new conditions, Guyana stands to benefit from as high as a US$20 million signature bonus for the deep-water blocks and US$10 million for the shallow-water blocks.

Additionally, all future PSAs will also include the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to now a 10 per cent fixed rate; the imposition of a 10 per cent corporate tax, and the lowering of the cost recovery ceiling to 65 per cent from 75 per cent.

Recognising that there is a “tight” timeline between now and the auction deadline mid-next month, Jagdeo explained that the drafting of the legislative document is taking some time. He admitted, however, that with the country on the heels of holding the long-overdue Local Government Elections on June 12, the government’s focus has been diverted.

“We’re going to return to this in earnest in a couple of days’ time. We have to get back to it,” he assured.

Nevertheless, while he opted not to explicitly commit to another extension, the Vice President hinted however that there could be one.

“I don’t want to be quoted saying there will be an extension but we made a commitment to have these two documents available to the investors before they put in final bids. We’re not going to wavier on that commitment. We believe that our word is important in the markets around the world for people to see. So, those documents will be in place and they will have adequate time to study those and make their bids, whatever the timing is,” VP Jagdeo stressed.

Already, United States oil giant, ExxonMobil, who along with its co-venturers are operating the oil-rich Stabroek Block where production is ongoing since December 2019, has indicated that is awaiting the final terms of the new PSA before it makes a decision on bidding for those oil blocks that are up for auction.

President of ExxonMobil Guyana, Alistair Routledge, previously related that the company has already registered for the bidding around and is now awaiting additional information from the Guyana Government.

Last month, Routledge told reporters “I think the government is doing a lot of work to review and update those documents [the PSA and Petroleum Act] …And I think it’s very right that the government should take the time [and] have a lot of expertise applied to that and then go through a rigorous consultation process to make sure that they have all the views on those proposed changes. So, I think it’s right that that process takes time.”

Currently, the 2016 oil contract for the Stabroek Block signed between the ExxonMobil-led co-venturers and the then APNU+AFC Government pegs cost recovery at 75 per cent. The remaining 25 per cent of revenues is spilt 50/50 between the government and the co-venturers, while the country also gets a two per cent royalty from total revenues.

This PSA has come under heavy criticisms over the years with many arguing that Guyana could have gotten a better deal. There have also been resounding calls for renegotiations of the oil contract.

But Exxon’s country Chief had argued that such a move could be “very destructive to investors’ confidence” in the Guyanese economy.

President Dr Irfaan Ali had launched the much-anticipated first auction of the remaining oil blocks offshore Guyana in December 2022 as his Government moves to have the country’s petroleum resources developed expeditiously.

In order to make this auction more competitive, the government has opened the process to both local and foreign companies/individuals, who will have to meet minimum technical and financial qualifications that will be outlined.

The Head of State has been inviting investors from countries around the world to participate in the ongoing licensing round. He has also mentioned the possibility of bilateral arrangements to develop the country’s oil blocks back.

As the world’s fastest-growing super basin in recent years, Guyana is estimated to have potential resources in excess of 25 billion barrels offshore. In the oil-rich Stabroel Block alone, there are some 11 billion barrels of oil equivalent.

To date, there have been some 35 discoveries in the Stabroek Block, where production activities have been ongoing since 2019, and a total of 40 oil finds for all blocks being explored offshore in Guyana.