The South American country of Guyana entered 2020 with great expectations for a bright future as oil production got underway last December and an upgrade in the offshore Stabroek Block resource estimate was announced in January along with the record 16th discovery. But this hope of prosperity is now overshadowed by a more than 4-month long election impasse that is serving to distract from key work that still needs to be done for the establishment of an effective oil and gas framework.
Management of oil revenue
While the Natural Resources Fund (NRF) has been established and an account is currently being held at the Federal Reserve Bank of New York with close to US$95 million, key elements of the fund are not yet operational, such as the Public Accountability Oversight Committee. This Committee is responsible for, among other things, monitoring and evaluating the compliance of the government with the NRF Act and ensuring that the fund is managed in a transparent manner.
The absence of Parliamentary oversight also means withdrawals are stalled, even as Guyana needs vital resources to tackle COVID-19 and bring relief to its population. The National Assembly last sat on May 23, 2019, well over a year ago and Parliament was dissolved on December 30, 2019 to facilitate the March 2, 2020 elections.
The delay in the start of the next session of Parliament is also affecting contract approval for the hiring of an Independent Administrator who will play a key role in compiling Guyana’s second report for submission to the International Secretariat of the Extractive Industries Transparency Initiative (EITI). Guyana’s first report was submitted to the International Secretariat on April 25, 2019.
The absence of a fully functional government continues to delay oil development project approvals which analysts say could eventually cost the country hundreds of millions of dollars.
Back in February, Guyana’s Department of Energy (DE) had said review of the Payara Development Project is progressing well with approval likely to come after the elections. This has now been delayed by several months and without a clear resolution to the impasse in sight, the rising uncertainty will be of growing concern to ExxonMobil and the Stabroek Block co-venturers.
Marketing of Liza Crude
Nineteen companies have been shortlisted for consideration to market Guyana’s Liza Crude after a contract was initially granted to Shell Western Supply and Trading Limited to lift the country’s first three cargoes.
While the DE has said a five-member Evaluation Committee was formed to examine these companies and make a determination on who will be contracted, Guyana’s opposition party has warned both the government and contractors about entering agreements at this time.
Should the elections body declare the opposition the winner based on results from a national recount of the ballots, that party will form the next government. It is likely to review agreements entered by the current administration, particularly those made in the lead up to and after the March 2 elections.
Award of new blocks
The development of updated petroleum legislation and the establishment of a new model Production Sharing Agreement have delayed the award of new oil blocks. Moving this process forward to conclusion will also require a fully functional government and Parliament in place.
Norway-based Rystad Energy has said from a long-term perspective, delays in the award of new blocks could be the biggest detriment to Guyana because there is a window of time in the next several years where investors will still be very interested to come to Guyana and the country should capitalize on this.