Kaieteur News

GEORGETOWN
EnergiesNet.com 12 12 2022

 President Irfaan Ali, on Friday, announced the commencement of Guyana’s inaugural bid round for 14 of its offshore oil blocks, estimated to hold more than 10 billion barrels of oil.

The auction will run until April 14, 2023, with contracts expected to be signed the following month.

In making the virtual announcement, the Head-of-State explained some of the key factors associated with the country’s maiden bid round for its oil blocks. He said that each interested company participating in the auction will be required to pay US$20,000 for each Block that company or individual is interested in.

Additionally, a minimum signing bonus of US$10 million will be required for the oil blocks located in shallow waters and US$20 million for the oil Blocks in the deeper water.

The President was keen to point out the difference between the two and the specific variables that will be expected during the virtual auction.

“There is different type of expertise that is required for shallow water and deepwater. There is different type of capabilities that is required for shallow water and deepwater so the criteria used in this bidding process takes that into consideration to ensure there is great transparency, that those who are participating in the bid meet the minimum requirement. But at the same time, there is enough room for greater participation in the bidding,” he explained.

To this end, President Ali noted that separate qualification requirements have been set for the deep and shallow oil blocks. For instance, he made it clear that the deeper areas require stronger capabilities including specialized technical skills and extra capital to be able to expeditiously develop the resource.

The Head-of-State also stated that there is also a strict relinquishment policy, which means that if the holder of an oil block fails to meet his work commitment, that portion must be handed back to government.

This is essential, according to President Ali “to ensure expeditious development of our oil and gas resources.” He explained, “As we have continuously stressed, we have a situation where there is a timeframe on oil and gas development. We understand the direction in which the world is going so it’s very important for us to have developers who are serious, who will in an expeditious way move towards the development of the oil and gas resources (with the) strong contractual commitments (that) are in place in this bidding round with strong relinquishment obligations.”

He said he was very pleased that the conditions and bid requirements provide a balance that ensures the country benefits more while at the same time does not compromise its competitive advantage. According to him, this position was arrived at after Government took note of the lessons learnt from the industry and its own experience.

“We promise a transparent process that imposes minimum qualification criteria that reflect international best practices and expertise at capital requirement necessary to conduct the exploration and   production activities in the shallow and deepwater areas respectively,” Ali noted.

Last month, Vice President Bharrat Jagdeo announced that 14 of the country’s oil blocks will go on auction. Jagdeo said Petroleum Agreements for these blocks will also feature new fiscal terms. These include a 10 percent royalty, 50/50 sharing of profit oil and a 10 percent Corporation Tax.  He said these terms, among others, were had, following work that was undertaken with several consultants. Jagdeo said IHS Markit, a leading information services provider headquartered in the UK is taking lead on guiding The Guyana Government on the auction.

The Vice President said, “We decided to auction 14 blocks and these would range from about 1000 square kilometres to 3000 square kilometres with the majority of them being close to 2000 square kilometres. Eleven of these will be in the shallow area and three in the deep Area C.”

In addition to the 10 percent royalty, Jagdeo said government also agreed for there to be a 65 percent cost recovery ceiling in a given year.

Importantly, Jagdeo said Guyanese will have a chance to compete alongside foreign entities for the oil blocks and that there will be minimum technical and financial qualifications that have to be met. “We don’t want it to be too onerous. The qualifications will be more stringent for the ultra deep areas because only few companies can work there,” the Vice President said.

Jagdeo said government will also tighten up relinquishment provisions for the awarded blocks. In this regard, he said companies will be able to hold the blocks for 10 years and have an initial three year period to do seismic work. Once that period expires, the company would have to give up 50 percent of the block. Two extensions, each carrying a one-year lifecycle, will be granted to execute the drilling programmes.

Meanwhile, the Stabroek Block that covers approximately 26,800 square kilometres and is operated by Exxon and its partners – Hess and CNOOC – remains bound to a separate arrangement in which it pays a mere two percent royalty, no taxes and also recovers expenses from multiple projects from the revenue earned by development, in the absence of ring-fencing provisions. It must also be noted that Exxon is allowed to deduct 75 percent of costs from Guyana’s earnings upfront to cover its expenses while the new PSA would cap cost recovery at 65 percent of earnings annually.

kaieteurnewsonline.com 12 10 2022