Over US$1.2M in royalty for NRF by month end…Liza production surpasses 1.7 million barrels in January

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Oil production from the Liza Phase 1 Development at Guyana’s Stabroek Block amounted to 1,745,930 barrels for the month of January which is equivalent to 56,320 barrels of oil per day.

Guyana’s Ministry of Finance said on Thursday in its Report on Petroleum Production and Revenue (RPPR) for the month of January, that of the 1,745,930 barrels produced, a total of 1,020 barrels was used for facility fill.

The Ministry said as noted in RPPR for December, “as a result of the first lift of crude oil in January 2020, this volume of crude will remain in the hose and piping between cargo tanks and the crude offloading hose point that connects to the offloading vessel. There was no change in the volume of crude used as ballast in the cargo tanks. Additionally, there were no operational losses reported for this period and no crude was used for fuel or transportation in petroleum operations.”

The production after losses and operations (PALO) during January 2020 was 1,744,910 barrels, i.e. 1,745,930 – 1,020. This was the volume available to be lifted in January 2020.

Sales and Entitlement

During January 2020, there was one cargo lifted from Liza Destiny, by ExxonMobil, which amounted to 1,046,897 barrels.

This lift included the 21,592 barrels of Marine Gas Oil and Intermediate Fuel Oil that was loaded onto the Liza Destiny in Singapore for commissioning activities, as outlined in the RPPR for December. The remaining 1,025,305 barrels of crude lifted in January 2020, i.e. 1,046,897 – 21,592, was produced from the Liza field.

According to Article 11.2 of the Petroleum Agreement for the Stabroek Block, in any month during which crude is produced and sold, a maximum of 75 percent of crude produced after losses and operations can be allocated to permissible recoverable costs incurred by the Contractor. In January 2020, this cost recovery ceiling amounted to 1,308,682 barrels, i.e. 75 percent of 1,744,910.

“Given that recoverable costs are far in excess of the cost recovery ceiling for January 2020, all 1,025,305 barrels produced and sold from the Liza field was allocated to cost oil,” the report stated.

Since Government was not allocated any cargoes in January 2020, they would have under-lifted 359,802 barrels during that month, which, when combined with the previous month’s under lift of 92,633 barrels, gives a cumulative under lift of 452,435 barrels at the end of January.

On the other hand, the Contractor lifted one cargo in January 2020, but was still under-lifted by 338,211 barrels, i.e. 1,025,305 + 359,802 – 1,046,897. When combined with the previous month’s under lift of 71,040 BBL, the Contractor, cumulatively, under lifted 409,251 barrels at the end of January 2020.

“As noted previously, Government has elected to receive its 2 percent royalty in cash, which will be paid from the Contractor’s share of profit oil. The royalty due to Government for January 2020 will be based on 2 percent of the volume produced and sold in that month, which is 20,506 barrels, i.e. 2 percent of 1,025,305. This amount will be valued in accordance with Article 13 of the Petroleum Agreement for the Stabroek Block,” the report said.

Transfers to the NRF

In January 2020, there were no transfers to the Natural Resources Fund (NRF) since the Government lifted no petroleum in that month; hence, there were no revenues due to them from their share of profit oil. Additionally, there were no royalty payments due in January 2020 as no petroleum was produced and sold in the previous quarter.

“However, since the Contractor lifted crude, Government is entitled to a royalty of 2 percent of all crude produced and sold in January 2020…this amounts to 20,506 barrels of crude, which the Government has elected to receive in cash. The cash-based value of the royalty will be determined using the average fair market price of a barrel of crude for January 2020, calculated in accordance with Article 13 of the Petroleum Agreement for the Stabroek Block,” the report stated.

While the Government and the Contractor were still finalising the procedures to give effect to Article 13 of the Agreement at the time the report was published, “based on the current draft of the procedure, the average fair market price of crude for January 2020 would be US$61.87 per barrel. Using this price, the value of the royalty for January 2020 would be US$1,268,706,” the report pointed out.

However, while royalties are estimated on a monthly basis, Article 15.6 of the Petroleum Agreement stipulates that the monies will be transferred to the Government quarterly – 30 days after the end of each calendar quarter. As such, the royalty payments for January, February and March 2020 will be transferred to the NRF by April 30, 2020.

Oil production began at the Stabroek Block on December 20, 2019 as part of the first of multiple developments that will see production ramping up to over 750,000 barrels per day by 2025.

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