Guyana’s Department of Energy (DE) on Sunday issued a statement responding to concerns in sections of the media about the approach being taken to sell the country’s first three lifts of crude from the Liza Phase 1 Development set to come on stream potentially before month end.
The full statement from the DE follows:
STATEMENT ON THE PROCESS EMPLOYED FOR THE DIRECT SALE OF THE FIRST 3 LIFTS OF GUYANA’S PORTION OF FIRST CRUDE
Georgetown, Guyana – (December 15, 2019): The Department of Energy (DE) wishes to provide clarity and to debunk any uninformed comments and conspiracy theories circulating about the upcoming short-term arrangements for the direct sale of the first three lifts of Guyana’s portion of first oil from the Liza 1 programme.
Two phases of this process are envisaged. The short-term first phase beginning this week will focus on setting national benchmarks for selling Guyana’s portion of its crude in the future. Selected companies are invited to bid to buy Guyana’s product in the very short term. These companies are required to make offers from which Guyana’s team will choose the most acceptable proposals. The process currently underway is a direct sale to the companies and not the procurement of any marketing services. The second phase involving a public request for proposals (RFP), for marketing services for Guyana’s crude is in final stages of preparation currently.
This strategy was employed upon serious consideration of advice given by an international team external to the DE. The advisory team consists of the following persons, a Crude Marketing Specialist, a Commercial Specialist and an external Legal Adviser, among others. The logic is that given Guyana’s inexperience and the impending early date of the first lifts, an introduction phase of the grade was more advantageous to Guyana at this time. Here are some of the key considerations around this decision:
1) The full extent of the quality of crude is not yet known. It usually takes several lifts to determine crude only quality and the cost of refining it. Guyana is embarking on its very first new crude introduction into the market of the Liza grade. The quality of the crude and its yield have not yet been tested within a refinery system. This interim arrangement is put in place just for this period.
2) While the testing of the first crude lifted is taking place, the true economics or refined cost per barrel of the particular grade (in our case LIZA) is still being calculated. For a limited time only the DE has been advised, by the Crude Marketing Specialist, that in order to take Guyana through this limited short term phase, a few high quality IOCs with a global refining footprint and integrated oil value chains would be best given an opportunity to support the DE during this incubation and launching phase.
3) Guyana’s main incentive in taking this approach is to establish a norm in terms of quality standard and quantity availability so as to prevent any possible down-pricing. What the DE is seeking to accomplish with the short-term approach is to allow for stabilization and standardization to prevent our Liza Crude from being priced downwards due to uncertainty of the quality.
Upon careful consideration of all advice and exigencies of this moment, the DE initiated a conversation with a selected group of companies for a potential placement of ONLY the first 3 cargoes of Guyana’s entitlement. This (then) allows Guyana to sell its crude directly to the selected Operators. While this may be considered by some to be a novel approach, it is a strategic one which brings the best value to the country and one which has been used in other places. It should also be noted that the DE employed its usual consultative apparatus with the Guyana Public Procurement Commission prior to taking action.
The second phase of marketing Guyana’s portion of its crude is set to begin in January 2020. The public may recall, the Department of Energy had previously announced that in late 2019/early 2020 a full RFP would be issued, inviting companies to bid for the marketing of Guyana’s portion of oil on a longer-term basis.
The DE will issue this RFP in January 2020. It could take about 3 months to finalization. However, the process underway in the coming week is not for marketing services. It is for a direct sale of the first 3 lifts assigned to Guyana. The upcoming RFP is then intended to initiate the process of procuring a marketing firm to sell our Crude in the open market later and for the longer term.
The people of Guyana should also be aware and assured, that the Cooperative Republic of Guyana will be represented at these first oil negotiations by a full team of international experts, inclusive of its Crude Marketing Specialist, its Commercial Specialist and Legal Adviser, among others. The Department of Energy wishes to assure the Guyanese public that we continue to leave “no stone unturned “to secure the best value for our national resources. We look forward to introducing our own Liza grade oil into the market in the new year, when the full RFP has been executed.
We therefore expect and hope that the thinking public and those seeking to interpret reports without complete knowledge will now be clearer and therefore revise their reporting and desist from advancing any other interpretations which unfoundedly besmirch the good name and character of our Honourable President and by extension, all the industrious and dedicated staff of the Department of Energy and other agencies working in the best interest of Guyana.
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