The newly installed government in Guyana says it is seeking to change the country’s approach to oil and gas by ensuring benefits to Guyanese from the offshore resources are maximized. Officials of the now two-week old administration have said the aim is to strike a balance between the country’s interest and that of the investors who have been plugging billions of dollars up front, into offshore exploration and development activities.
The first important decision taken so far by the new administration is the review of the Payara development, approval of which has been pending since 2019, even before there was a change in government.
Vice President, Bharrat Jagdeo, told reporters last week the new administration is making it clear that its intent is not to further delay the project “but all the I’s must be dotted and the T’s crossed and we want to make sure on that issue there is a proper technical evaluation.”
While a team is currently reviewing the work that was undertaken on Payara by Bayphase Oil and Gas Consultants, the government has been highlighting other areas where changes can be expected.
Sovereign Wealth Fund (SWF)
Guyana’s version of the SWF is the Natural Resources Fund (NRF) which was enacted under the previous government and which, by way of an account held in the United States, currently has around US$100 million from the proceeds of royalty and oil exports, as well as interest gained on these revenues.
President Irfaan Ali has said his primary objective is to ensure that robust systems are in place for the management of the revenues so that benefits to current and future generations are maximized.
The first step in this direction was revealed by Mr. Jagdeo last week, who said, “The Natural Resources Fund will be very soon either…repealed or amended…through a Bill. Clearly, we have a number of issues with the Natural Resources Fund, and one of which is the overwhelming dominance of the influence of the Minister of Finance on the sector and the use of the funds.”
The government has signaled its intent to establish the long-awaited Petroleum Commission over the next 6 to 8 months. A bill was introduced for the commission in the latter part of 2017 by the last administration, but the process got stalled after it lost a vote of no-confidence the following year.
Mr. Jagdeo said the Petroleum Commission “will be mainly a technical commission” because technical oversight is needed in the oil and gas sector. “We hope Guyanese would heavily be involved here with, of course, some foreign help until we can train our people.”
Minister of Natural Resources, Vickram Bharrat, said the government will be taking steps to review and amend the Local Content Policy which was this year finalized by the previous administration. “I’ve had a chance to look at it, but I can tell you…that policy is more slanted to the investors rather than to the locals,” he said. “That is something that we need to look at and change.”
Mr. Jagdeo has since indicated that rather than just a policy, local content legislation will be put in place to ensure more benefits from oil and gas are derived by Guyanese.
“It will be mandatory on the company to comply with the legislation. So…we want to get the best technical inputs before we come up with a negotiating brief that will be cleared at the policy level and then we want to engage directly with Exxon[Mobil] to see that this happens,” Mr. Jagdeo said.
The government has since contacted Trinidadian consultant, Anthony Paul, to assist with the review of the local content policy.
Gas to Energy Project
Perhaps one of the most important steps being taken by the new government is its decision to immediately reengage stakeholders in discussions on the proposed gas-to-shore project that would provide the country with reliable and affordable power which could see a number of new industries emerging.
“Guyana would have lost a lot over the years because we couldn’t find more effective and cheaper ways of generating power,” the Minister of Natural Resources said last week.
Meetings have already been held with stakeholders, investors and companies operating in the country to examine how early this project can be implemented.
“We want to get this done urgently. So, we will of course have to be guided by technical people, all of this, we have to be guided by the best technical minds, but we want this project on the road as early as possible,” Mr. Jagdeo said.
ExxonMobil Guyana President, Alistair Routledge, in a comment to OilNOW over the weekend, said gas found at the Liza field meet the requirements of the proposed project. “Affordable, reliable and cleaner energy is essential to economic progress,” he said.
What the future holds?
As Mr. Jagdeo said last week, striking a balance between maximising benefits to the country while at the same time ensuring investors are treated fairly will be pivotal to the success of the emerging oil and gas industry.
Caution would be needed in crafting local content rules to ensure the expectations meet the reality on the ground, where the capacity to deliver services, and to do so at international standards of quality and safety, are being developed. The award of contracts through an open and competitive bidding process also plays an integral role in transparency and protecting the integrity of the process.
At the same time, the International Oil Companies (IOCs) operating in the country will have to continue supporting initiatives geared towards building the capacity and expertise of local contractors. Ramping up these initiatives could see specialized universities and other institutions of learning being established to provide Guyanese with the requisite skills that would ensure local participation grows as the industry expands.
Importantly, the government’s approach to contracts it has entered with IOCs will also be key to how it is perceived by Guyanese, who want the best deal possible, and investors, who expect terms agreed to are respected by both sides, particularly when sizeable investments and future projections are being made, based on those terms.
With over 8 billion barrels of oil equivalent resources already discovered and more exploration ongoing, Guyana’s prospects remain bright. Effective and fair management of the oil and gas industry can see the country emerging as one of the richest is the world where all Guyanese have an opportunity to benefit from its prosperity.