By Kiana Wilburg
Since Tullow Oil struck black gold on the Orinduik Block, the fiscal terms of the Production Sharing Agreement (PSA) it signed with the Granger administration has come under the microscope. Of particular concern to transparency advocates, is the fact that the PSA allows the operator to recover a meager one percent royalty that it has to pay the government.
Earlier this week, Kaieteur News contacted Minister of Natural Resources, Raphael Trotman, to explain the reason behind allowing this provision to be included in the PSA.
Trotman who signed the deal with Tullow Oil and Eco Atlantic would only say, “I’m unable to discuss beyond saying that as with both contracts, I acted on directions, which I believe were in the best long-term strategic interest of the country.”
While Minister Trotman holds the foregoing view, there are several anticorruption advocates who stress that the recoverable one percent royalty is not in Guyana’s best interest. Specifically, University of Houston Instructor, Tom Mitro, noted that this arrangement is worse than what exists in the Stabroek Block deal.
Be that as it may, Mitro noted that the Orinduik PSA still has most of the troubling characteristics as the Exxon PSA, namely: taxes paid out of the government’s profit oil, a cost recovery cap of 75% per year, abandonment costs allowed to be recovered in advance of actual spending of the funds, interest on loans allowed to be recovered without any caps, and captive insurance company premiums allowed to be cost recovered. The Petroleum Consultant with over 30 years experience in the field noted that the Orinduik PSA also has no ringfencing provisions which ensure that costs of unsuccessful wells are not carried over to those that are successful.
The University of Houston Instructor said, “At this point, I would say the main lesson that might be learned is that taking adequate time to fully and critically review all aspects of any new Development Plan would be essential. That is the point at which the government typically has the most power to influence the ultimate results, not only the technical aspects but the costs, rates of production, the local content, contractor selection criteria, PSA interpretations, and other societal and environmental aspects.”
THE ORINDUIK PARTNERS
In January 2016, Eco signed a Petroleum Agreement and is party to a Petroleum Licence with the Government of Guyana and Tullow Oil for the Orinduik Block offshore Guyana.
Tullow Oil as the Operator of the Block paid past costs and carried Eco for the first 1000km2 of the 2550km2 3D Survey. Further, Tullow contributed an extensive 2D seismic data set and interpretation.
The Company’s 2550 km2 3D seismic survey was completed in September 2017, well within the initial four-year work commitment the Company made for the initial 1000km2.
In September 2017, Eco announced that its subsidiary, Eco Atlantic (Guyana) Inc., entered into an option agreement on its Orinduik Block with Total, a wholly owned subsidiary of Total S.A. Pursuant to the option.
Total paid an option fee of US$1 million to farm-in to the Orinduik Block. An additional payment of US$12,500,000 was made when Total exercised its option to earn 25 percent of Eco’s working interest in September 2018.
Following the exercise of the option by Total, the Block’s working interests became: Tullow – 60% (Operator), Total – 25% and Eco – 15%. Last October, the Government approved of the Total farm-in on the Orinduik Block, which has the potential for almost three billion barrels of oil equivalent.
Just a few weeks ago, however, Total sold 10 percent of its interest in the Orinduik Block to Qatar Petroleum. The government is still to grant approval for this farm-in by Qatar.
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