Americas Market Intelligence (AMI) co-director and analyst Arthur Deakin believes that oil majors looking to grab up prime blocks in Guyana’s first-ever licensing round may need to include a few attractive incentives to increase their chances of being selected.
Compared to other auctions, like in neighbouring Brazil where signing bonuses and cost oil differ by block, Guyana has set fixed signing bonuses for the shallow and deep water blocks. This, according to Deakin, prevents companies from offering a higher percentage of profit oil in their bids.
The signature bonus is also part of a slew of other terms which characterise the new fiscal regime for Production Sharing Agreements (PSA). The other terms include a 10% royalty, a 50/50 profit oil sharing between government and contractor, a 10% corporation tax and a 65% cost recovery ceiling.
But incentives could give them the winning boost they need.
Deakin pointed out that one option is to provide guarantees of socially or environmentally impactful investments in local communities with a percentage of the profit oil. This would be especially beneficial since while Guyana is pursuing its rapid oil agenda, it still adheres to set climate goals.
The AMI analyst added that another option is to form a bidding consortium that is “extremely well capitalised, diverse, and experienced, creating leverage for the Guyanese government.” His third suggestion was to offer accelerated payment conditions to increase the governments’ access to liquidity.
For prospective oil investors, Deakin noted that a work program that abides by Guyana’s local content rules would be beneficial. It should include milestones that show the inclusion of local employees in relevant services.
Guyana’s Local Content Policy has been in place for over a year, as a measure to ensure that Guyanese are able to tap into opportunities in the oil gas sector.
The bid round offers up 11 shallow blocks and three in the deep waters, the latter being the most sought-after.
Click here to get more details on the Licensing Round: https://oilnow.gy/glr2022/
