What is the Stabroek Block Production Sharing Agreement?
The Stabroek Block Production Sharing Agreement (PSA) is the contract that governs all current offshore oil production in Guyana. It sets out the terms under which oil is explored, produced, and shared between the State and the companies operating the block.
Every barrel of oil currently produced offshore in Guyana is subject to this agreement.
Oil production is currently occurring at a rate of approximately 900,000 barrels per day.
Who are the parties to the Stabroek Block PSA and when was it signed?
The PSA was signed in 2016 between the Government of Guyana and a consortium led by ExxonMobil, alongside Hess (which was acquired by Chevron this year) and CNOOC. The agreement was concluded after the discovery of the Liza field, starting a brand new contract, bridged from the first contract signed with Exxon in 1999.
The contract applies to the entire Stabroek Block, which remains the country’s only producing oil block.
Who owns the oil under the Stabroek Block PSA?
Guyana owns the petroleum until the resource is produced and allocated in accordance with the terms of the agreement, but only oil is currently being extracted for export.
Once produced, the oil is divided between Guyana and the companies into segments, namely cost oil and profit oil.
What is cost recovery and how much oil can the companies recover each year?
Cost recovery allows the oil companies to recoup their exploration, development, and operating expenses from production. Under the Stabroek PSA, up to 75 percent of oil produced in any given year can be used for cost recovery.
This means that, before profits are shared, as much as three-quarters of annual production may be allocated to covering the companies’ costs, depending on the amount remaining unrecovered.
How is profit oil shared between Guyana and the companies?
After cost recovery, the remaining oil is classified as profit oil. This profit oil is split equally, with 50 percent going to Guyana and 50 percent to the companies.
Guyana’s revenue from the sale of its oil, combined with royalty, has resulted in billions of dollars in direct revenue to the state, paid into the Natural Resource Fund.
What royalty does Guyana receive from Stabroek oil production?
Guyana receives a royalty of 2% on oil produced and sold.
How does the Stabroek PSA affect how much money the government actually receives?
The structure of the PSA means government revenues depend on several moving parts: production levels, oil prices, and the volume of costs being recovered.
In early years, high development spending can reduce profit oil available for sharing. As projects mature and costs are recovered, Guyana’s share of profit oil will naturally increase, boosting revenues flowing into the Natural Resource Fund.
Who controls exploration, development, and production decisions?
Operational control rests with the oil companies, led by ExxonMobil as operator. The consortium plans and executes exploration, field development, and production activities, subject to regulatory approvals from Guyanese authorities.
While the government approves development plans and environmental permits, the companies manage day-to-day operations and technical decision-making.
How long does the Stabroek Block PSA last, and can it be changed?
The agreement has a long duration, covering exploration, development, and production phases, which may extend for decades. Generally, companies have a 10-year exploration period, but various terms permit the group to hold portions of the block for longer.
For example, a force majeure provision allowed for the extension of the exploration period due to COVID-19. If Exxon makes a commercial discovery, it can apply for a production license. It has thus far secured seven such licenses from the government, each valid for 20 years, and applicable to the specific discovery area converted to a development.
The PSA does not include a mechanism for unilateral renegotiation by the State; however, if all parties agree, they may amend the terms. This provides long-term security for companies that invest billions and assume significant risk in developing the resource.
