Interest from investors in Guyana’s upcoming bid round is expected to be favourable despite revised fiscal terms in the new Production-Sharing Agreement (PSA) that will see more revenue going to the South American country.
“I do not see those fiscal terms would discourage any player from participating. I think that they are fine just the way they are,” said Arthur Deakin, Director of Energy Practice at Americas Market Intelligence (AMI).
Guyana’s 2016 Stabroek Block Agreement has been criticized for being too favourable to the ExxonMobil-led consortium. The terms provide for a 50/50 spilt of the profits and two percent royalty, with a cost recovery ceiling of 75%.
The new terms will feature a 10% royalty rate. The 75% cost recovery ceiling has been lowered to 65%. The sharing of profits after cost recovery will remain 50/50 between the government and the contractor. Additionally, a corporate tax of 10% will be instituted, where there was none before.
First draft of Guyana’s new model PSA expected in February | OilNOW
Those terms will apply for blocks issued from the ongoing licensing round and will also be imposed on any current contracts outside of the Stabroek Block if a discovery is made and moves to production. The new terms will not apply to the existing Stabroek Block agreement.
Deakin explained however, that one main deterrent to participation in Guyana’s licensing round could be the hesitancy related to oil exploration in new frontiers.
“Some companies are scared of operating in emerging markets, especially markets that recently have had discoveries and I think that is probably the biggest deterrent to players – the risk,” he explained.
And while some companies might take the risk, others may not. Take Royal Dutch Shell for example. The British multinational was ExxonMobil’s partner in the Stabroek Block prior to 2015, with a 50% stake. But looking at the data at the time, the chances of success at Stabroek were slim and Shell decided that it was not willing to take such a risk. It made a calculated decision to back out and voluntarily gave up its shares in 2014 – a decision that was also underpinned by territorial controversies between Guyana and both of its immediate neighbours at the time, Venezuela and Suriname. This had seen exploration vessels being seized and evicted.
The very next year, Exxon made the first discovery at Stabroek at the Liza reservoir.
To date, the US multi-national has discovered over 11 billion oil equivalent barrels of recoverable resources.
And Guyana is looking to see that success replicated in other offshore blocks. It has 14 blocks up for grabs in the licensing round, ranging from 1,000-3,000 square kilometres (sq. km). Of those blocks, 11 will be in the shallow area, mainly from what was known as the Oreo area, and the Demerara block, which was relinquished by CGX Energy and Frontera Energy. The remaining three blocks will be in the deep area C at the northeast border with Suriname.
A total of 25 billion potential barrels are at stake.
Get more information on the upcoming bid round here: Guyana Licensing Round 2022 – Ministry of Natural Resources | OilNOW