Wednesday, February 8, 2023

Oil block auction opens for South America’s high-value basin, 25 billion barrels at stake

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Guyana President Dr. Mohamed Irfaan Ali announced the opening of the country’s first competitive offshore bidding, early Friday morning, offering “25 billion potential barrels” to entrants.

The round will be open until April 14, 2023. Evaluations and negotiations will follow, with a timeline for awards set in May 2023. At open of the auction, participants will pay a US$20,000 fee that gives them access to the government’s data room.

“We are hoping that there will be maximum participation and that Guyana would be part of a partnership that creates greater benefit and greater wins for our country and our people,” Ali said.

The improved fiscal terms, he explained, provide greater balance of the share of revenue between the government and contractor, while maintaining Guyana’s competitive edge in the region globally.

The President said the Guyana basin has captivated the attention of the world, now labeled as the fastest growing super-basin. At the same time, he stressed that government understands that the current environment has complicated and increased access to capital. Hence, the auction and its associated model agreement have been crafted with these in mind.

A 10% royalty rate will head the new agreement, up from the 2% granted to Exxon for the Stabroek Block. The 75% cost recovery ceiling has been lowered to 65%. The sharing of profits after cost recovery will remain 50/50 between government and contractor. And a corporate tax of 10% will be instituted, where there was none before. The new terms have set government’s take from initial production, at 27.5% plus corporate tax.

Of the 14 blocks to be put up for auction, 11 will be situated in the shallow water, and three in the ultra-deepwater acreage called Area C. Shallow water blocks will be awarded for a period of five years, and deepwater blocks for 10 years. All contractors will hold the blocks for three years initially, during which they are expected to conduct seismic tests and relinquish 50% of the acreage at the end of the period. The remaining two years for shallow water blocks will be split into two one-year exploration periods, and the remaining seven years for deepwater blocks will also be allotted for exploration.

“Strong contractual commitments are in place for this bidding round [with] strong relinquishment obligations,” Ali explained.

Vice President Dr. Bharrat Jagdeo had said that the new contract includes safeguards to prevent companies sitting on the blocks without doing work. The government plans to financially penalise breaches of contractual work commitments.

“We understand the direction in which the world is going,” Ali said. “So, it’s very important for us to have developers who are serious, who will in an expeditious way move towards a development of the oil and gas resources.”

Vice President Jagdeo has scheduled a press conference later today for further discussion.

11 billion oil-equivalent barrels have been discovered in Guyana’s Stabroek Block since 2015.

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