Guyana’s Vice President, Dr. Bharrat Jagdeo, announced Thursday that the government settled the main fiscal terms for the new model production sharing agreement, including 10% royalty and a 65% cost recovery cap.
These terms, he explained, will apply for blocks awarded at the conclusion of the upcoming auction.
The auction, to be opened for five months, will include 14 blocks, ranging from 1,000-3,000 square kilometres (sq. km). Of those blocks, 11 will be in the shallow area, mainly from what is currently called the Orea area, and the Demerara block currently being relinquished by CGX Energy and Frontera Energy. The remaining three blocks will be in the deep area C at the northeast border with Suriname.
To determine the contract terms and other parameters to govern the auction, Jagdeo said the government approached international firms, with IHS Markit as the principal consultant.
Discussing the requirements to be considered for a block, Jagdeo said the technical and financial terms will be more stringent for the ultra-deepwater areas. Government has decided to restrict the number of awards to a company, to three blocks.
There will be a minimum signature bonus of US$20 million per block in the ultra-deepwater area, and US$10 million per block in the shallow water area.
Each bidder will be required to put up a work program, with the criteria for the bid to be weighted between the work program and the signature bonus. Companies will have to guarantee that they will meet the work program, as the government intends to institute a penalty equivalent to the unspent amounts committed to the work program.
Jagdeo said costs associated with each contract will be ringfenced around each contract area, as he noted that the blocks will be smaller than those presently held. The lack of ringfencing provisions in the Stabroek Block agreement has been a major point of contention for its critics.
The government also plans to tighten up the relinquishment provisions. Shallow water blocks will be awarded for a period of five years, and deepwater blocks for 10 years. Jagdeo explained that all contractors will hold the block for three years initially, during which they will conduct seismic tests and relinquish 50% of the acreage at the end of the period. The remaining two years for shallow water blocks will be split into two one-year exploration periods, and the remaining seven years for deepwater blocks will also be allotted for exploration.
The decisions made by Cabinet for the terms of contracts were motivated, Jagdeo said, by the need to be competitive while also securing a higher share of the value of reserves for the government. He said IHS Markit assured government that the fiscal terms will achieve these purposes.
The government has not yet set a date for the launch of the auction.