Guyana’s deepwater investment climate is expected to remain regionally competitive over the next five years, despite the South American country’s plans to adjust its upstream fiscal regime and to establish a national oil company (NOC).
A report released on May 29 by London-based IHS Markit states that successful exploration drilling led by ExxonMobil and its partners has begun to de-risk Guyana as a deepwater hydrocarbon province. “Guyana’s transition to an emerging producer is prompting the authorities to consider certain adjustments to the upstream fiscal system and changes in the way unlicensed acreage is awarded. To date, Guyana has awarded upstream contracts via direct negotiation – a common method of awarding licences in frontier countries,” IHS said.
IHS Markit cited a report by the International Monetary Fund (IMF) that recommended Guyana modernises its petroleum fiscal regime, taxation structure and Production Sharing Agreements (PSAs). In 2017 the IMF was invited by the country’s government to conduct a review, and subsequently prepared, “A Reform Agenda for Petroleum Taxation and Revenue Management” report. The IMF also suggested that Guyana consider temporarily halting new licensing until a revised fiscal regime is enacted.
Guyana’s Minister of Finance, Winston Jordan, has since indicated that government will be taking on board some of the recommendations made by the IMF.
IHS Markit said it expects that any changes to Guyana’s upstream fiscal regime will not materially hinder the country’s ability to stay regionally competitive with other countries in Latin America. “The fact that contracts extended in 2016 feature a fiscal stabilisation (or rebalancing) clause underscores the commitment on the part of local authorities to honouring the fiscal terms of signed contracts,” IHS said.
“We anticipate that upstream investors will be able to access unlicensed areas through multiple pathways entailing operated and non-operated equity positions. However, Guyana will likely seek to enact a series of changes to upstream policy before licensing new areas through bid rounds or direct negotiations,” IHS further added.
Achieving all these objectives will require at least 12 months based on the experiences of other countries in the region, the IHS report pointed out. “Importantly, a newly created Guyanese NOC will lack technical and financial capabilities required for deepwater exploration and production. Guyana therefore will remain entirely reliant on foreign companies to operate projects and provide the requisite capital through the medium term.”
ExxonMobil along with joint venture partners Hess and CNOOC will begin oil production in Guyana in less than 2 years. The US supermajor announced on June 12 that the development phase for the Liza phase 1 project had begun and the consortium was rapidly moving towards first oil.