Tuesday, January 31, 2023

Oil block auction could be delayed as government finalises fiscal terms

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Guyana’s planned offshore oil block auction may come later than expected as its government works assiduously to get the fiscal terms right to ensure balanced benefit to the parties involved.

The Vice President, Dr. Bharrat Jagdeo told the press on Friday that the government has already identified the areas up for auction with 2D and 3D seismic data for specific parts. However, critical determinations still remain.

This includes whether the government will be pursuing a strategic partnership with the state oil company route, the auction, or a combination of both. These should be decided by the end of August. Crafting the fiscal terms remains at the forefront.

Guyana seeing “tremendous interest” in oil block up for auction next year – Bharrat | OilNOW

“We have to also work swiftly – and this is where we may have some delay because we now need to determine the fiscal terms for the new prospecting licenses and this brings me to that very contentious issue that we have had in the public domain, which is the fairness of the contract and what the future take for Guyana will be,” he explained.

The VP explained that the Prospecting License to successful bidders will have to outline clear fiscal terms including profit sharing and royalty among others. Dr. Jagdeo deemed the issue as “contentious” since the government has already faced public flak for the Stabroek Production Sharing Agreement (PSA) terms that has been called unfavourable to Guyana.

“So, it is trying to put all of this together in a framework that is fair to the investor, that they get a decent return on their capital, that would promote accelerated exploration and then importantly, would allow the country to enjoy a greater share of future benefits should they proceed with production agreements,” he explained further.

Guyana looking to play “passive investor role” in possible National Oil Company – Vice President | OilNOW

Among further determinations to be made by the government is whether it will allow participation from ExxonMobil in the auction and whether a cap would be put on the number of blocks it can have.

Industry experts worry that having oil majors like Exxon participate in the auction could result in a monopoly since it already has big stakes in three offshore blocks. The VP argued, however, that excluding them could spell bad news for Guyana – reducing bidders and essentially, reducing the competitiveness of the auction.

It would be the first ever for Guyana. The VP was keen to note that years before, concessions were handed out on a first-come, first-served basis. But things are about to change.

That change does not come easy though. According to Dr. Jagdeo, the government is reviewing the 1986 Petroleum Act to ensure that the legislative regime allows for an oil block auction the way government envisages.

Government’s investment prospectus mentioned the 9,600 km2 Area C, a far-out acreage bordered by the Kaieteur and Canje blocks, and the Suriname border. There is also a relinquished portion of the Canje block, with an area of about 1,352 km2.

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