The first one million barrels of profit oil allotted to Guyana was sold directly to Shell Western Supply and Trading Limited and as such did not attract a ‘lifting fee’.
Responding to queries from OilNOW on the cost associated with Guyana’s first lift and revenue gained by the country, Director of the Department of Energy, Dr. Mark Bynoe said the government did not pay a ‘lifting fee’ since the cargo was sold directly to Shell and “revenues are only calculated a certain number of days after the cargo is lifted.” He reminded that the sale price is calculated on a dated Brent basis.
“Additionally, the price is calculated based on a basket of crude that will take into consideration quality, geography, comparable crude types etc.,” he said.
OilNOW previously reported that Guyana’s share of Liza crude will be traded at around minus US$1.50 and US$2.00 versus Dated Brent on an FOB basis. Dated Brent refers to physical cargoes of crude oil that have been assigned specific delivery dates.
A fixed price upfront would only be known if Guyana was hedging (pre-selling) its crude. This would mean that Guyana and the buyer agreed in advance on a specific price which at the time of lifting, is not affected by the market price on that given day. Experts have said that while hedging offers stability in knowing what price crude cargoes will fetch well in advance of each lift, the downside is that the seller – in this case Guyana – would be locked into that price even if it goes up on the world market. Therefore, if the agreed price is US$50/barrel but at the time of lifting the price on the market is $US55, Guyana would lose out on benefiting from the extra US$5 per barrel.
Regarding royalty, this is being calculated at 2% of gross production. According to Article 15.6 of the Production Sharing Agreement, electing to receive royalty in cash will result in such “payments being made quarterly, 30 days following the end of each calendar quarter. Within 180 days following the end of each year, assessment receipts evidencing payment of Contractor’s royalty shall be furnished by the Minister to the Contractor stating the amount and other particulars customary for such receipts.”
Guyana’s Ministry of Finance has begun generating reports on the country’s petroleum production and revenues which provide data on total oil production, sales and entitlement as well as what has been transferred to the Natural Resources Fund.
Based on the first report released on February 17, petroleum production for December 2019 (December 20-31) amounted to 427,282 barrels or 35,607 barrels per day with no operational losses for the period.