In Management Themes (Part 3), we discussed matters relating to the discovery of petroleum and highlighted the significant allotments of time, activities and expenditure that exploration operations may require without guaranteeing a discovery. We also noted that when a discovery is made, there are various requirements under the Petroleum Activities Act 17 of 2023 (PAA) that must be complied with by a licence holder. These requirements not only inform the licence holder, but also provide critical information regarding Guyana’s petroleum resources to the minister. We highlighted the concept of “potential commercial interest” and looked at one of its key activities – the appraisal. In this publication we will conclude our review of the discovery phase of exploration operations and begin looking at development and production, continuing under the Management Theme – Maximising Access to Petroleum Resources.
Management Theme – Maximising Access to Petroleum Resources (cont’d)
Discovery
Matters pertaining to a discovery are addressed in part III, sections 25 to 30 of the PAA.
- Discovery of Petroleum of No Potential Commercial Interest
Where the evaluated test results in relation to a discovery required by section 25(2)(c) have been submitted to the minister, the licence holder is then required to notify the Minister within thirty days of this submission, whether the discovery is of potential commercial interest. It is the licence holder who makes this determination of potential commercial interest, and not the minister.
Where the licence holder notifies the minister that the discovery of petroleum is not of potential commercial interest, the minister may direct that the exploration licence shall cease to have effect within such period as is specified in the minister’s notice – section 28.
- Retention of Discovery (Likely to be of Potential Commercial Interest)
Under section 29, if a discovery of petroleum is considered by the licence holder not to be of potential commercial interest at the time of the discovery, but is likely to be commercial within five years of the notice of discovery served on the minister as required by section 26, the licence holder is required to make an application to the minister for the grant of an authorisation to retain the discovery area.
The retention of a discovery –
- is at the sole discretion of the minister,
- may be authorised on the terms and conditions the minister considers necessary and in accordance with the exploration licence or petroleum agreement,
- shall be conditional upon the licence holder undertaking studies and work obligations to establish the commerciality of the discovery, and
- is subject to the payment of fees.
- Commercial Discovery
Section 27 gives the licence holder the option to submit an appraisal programme to the minister for approval, within six months of giving notice that the discovery is of potential commercial interest. Where the minister has approved the licence holder’s appraisal programme, the minister may nonetheless also direct the licence holder to carry out any other investigations and studies for the appraisal. Further to the appraisal process, section 30 requires the licence holder to submit a declaration to the minister, within the approved appraisal period, stating whether or not the discovery constitutes a commercial discovery.
At this point of the discovery evaluation process, where the licence holder declares that the discovery does not constitute a commercial discovery, the exploration licence shall cease to have effect in respect of the discovery area within twelve months from the date of the declaration – section 30(2).
- Grant of Extension of Time to make a Declaration of Commerciality
Section 30 also provides for the licence holder to make an application to the minister for the grant of an extension of time to (i) make a declaration of commerciality and (ii) apply for the grant of a petroleum production licence. The licence holder must apply prior to the expiration of the appraisal period and the extension may only be granted where the minister believes that there are reasonable grounds for doing so.
Development and Production
Matters pertaining to the development and production of a discovery are addressed in part IV, sections 32 to 40 of the PAA.
Development
Section 2 of the PAA defines development as … “all work associated with (a) planning, procurement, design, and execution related to the drilling and completion of development wells; and (b) planning, design, construction, installation, and commissioning of facilities for the production of petroleum including the purchase or leasing of all materials and equipment which are required for production, treatment, waste disposal, transport, storage and lifting of petroleum and for reservoir pressure maintenance, injection, recycling and secondary and tertiary recovery projects.
Production
Petroleum production cannot take place without the development work which may take some time to complete. Petroleum production is the removal or extraction of the petroleum from the reservoir where it was discovered. The petroleum is brought up to the surface to be sold and used in different ways.
The Petroleum Production Licence
Both development and production activities must be carried out under a Petroleum Production Licence.
- Application
Under section 30, the development and production of a discovery may take place where (i) a licence holder who has made a declaration of commercial discovery applies for the grant of a petroleum production licence, and (ii) the minister solicits applications for a petroleum production licence in relation to a surrendered exploration area in which a discovery has been made. If the licence holder fails to apply for a petroleum production licence, the minister may direct that the petroleum exploration licence shall cease to have effect in respect of the discovery area.
Project Update on Guyana Operations from Alistair Routledge, President, ExxonMobil Guyana Limited
In our next publication, we will continue our review of key legislative provisions relating to the development and production of a discovery under the Management Theme – Maximising Access to Petroleum Resources.
DISCLAIMER: This series is not intended to serve as a replacement for the Petroleum Activities Act 17 of 2023, nor is it a substitute for legal or other professional advice in any manner whatsoever.
