Shadow oil minister says selective application of new contract terms blocking oil development

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Kemol King
Kemol King is a journalist with six years of experience in Guyana's media landscape. He covers the oil & gas sector and its impact on the country's development.

Guyana’s shadow oil minister, David Patterson, has complained that the application of Guyana’s new fiscal terms to offshore contracts, among other things, has created an uneven playing field. This issue, Patterson pointed out during an October 6 press conference, is notably evident when contrasting the experiences of CGX Energy with industry giant, ExxonMobil.

CGX Energy, in its recent exploration effort, has made a significant discovery in the Corentyne Block, at the Wei-1 exploration well. Drilling operations have unveiled hydrocarbon-bearing sandstone reservoirs within the Maastrichtian, Campanian, and Santonian intervals. Specifically, the Maastrichtian and Campanian intervals have demonstrated a substantial net pay of 77 feet (23.5 metres). Preliminary studies have identified 210 feet (64 metres) of hydrocarbon-bearing sands in the Santonian. 

The Wei-1 discovery builds on the prior Kawa-1 discovery, which formed the basis for the appraisal programme of which Wei-1 forms part. At Kawa-1, the Corentyne operator had found 228 feet of net oil pay. Yet, even with such promising results, CGX Energy has not proposed a development.

Patterson believes this has to do with the fact that CGX would have to abide by new fiscal terms. “They’re asking companies to come under a new fiscal regime… but you’re not asking the existing persons who have benefited to come under that regime,” he said, alluding to ExxonMobil. The new terms would give the government a higher take of the proceeds of hydrocarbon production.

“CGX… they have… made discoveries and haven’t even had a development put forward as yet… because, it is claimed, that they are trying to give them… conditions that are not the same as the existing operator,” stated Patterson. 

Before the new government launched the offshore licensing round in 2022, it had introduced new fiscal terms. While Exxon continues to benefit from a 2% royalty, 75% cost recovery cap, and a tax-free regime under the Stabroek Block agreement, other players, including CGX, would be subjected to the newly introduced terms. These include a 10% royalty rate, a reduced 65% cost recovery ceiling, and a 10% corporate tax. 

“They have been complaining about that,” Patterson said, referencing CGX. “But of course, no one complains publicly, as we’ve stated so frankly because it’s a very vindictive environment, they operate in.”

However, Patterson is not advocating for CGX to get the terms Exxon is currently benefitting from. Rather, the Alliance for Change (AFC), the political party to which Patterson forms part, had called for Exxon’s Stabroek Block Production Sharing Agreement (PSA) to also be subjected to the new terms.

When Patterson was in government, that administration had profusely rejected calls for Exxon’s PSA to be renegotiated. Likewise, the current Irfaan Ali government has decided to defend the sanctity of the Stabroek Block deal, on which five sanctioned oil developments now rest. No other operator has discovered commercial oil, as Exxon has at Stabroek. Exxon’s Canje block, for example, would be subjected to the new terms, if it is proven to have commercial oil in the future.

When it comes to CGX, the company has not said publicly whether it has taken issue with the new terms. However, it has decided it needs additional time to confirm net pay at the Santonian interval, its primary target at the Wei-1 well. To the public, this is the reason CGX has not yet said whether it finds the Wei-1 discovery to be commercial. The Ministry of Natural Resources had said it would take another 2-3 months for the studies to be concluded, allowing CGX the information it needed to determine total net pay at Wei-1. That time has since elapsed. The ball is in CGX’s court.

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