By Kiana Wilburg
UK based Tullow Oil and its partners, French multinational Total and Eco Atlantic headquartered in Toronto, Canada, are not the only beneficiaries of a tax free ride for the oil rich Orinduik Block.
According to the contract signed with the Granger administration in January 2016, Tullow, Eco Atlantic, Total and all their sub-contractors, non-resident or otherwise, shall be permitted to import all equipment and supplies free of duty, Value Added Tax (VAT) or all or any other duties, taxes, levies or imposts.
It also has a pre-approved list of over 330 items which is with the authorities.
In addition to this, the companies are free to export these items as they deem fit without any tax or fee being applied.
Joining them on this tax free ride are all the expatriate employees of the oil companies and their sub-contractors. The expats of affiliated companies and their subcontractors will benefit too. They all shall be able to import into Guyana free of duty and taxes. They will also enjoy the right to export from Guyana, free of all duties and taxes and at any time.
Taking all this into account, Local Content Expert, Anthony Paul has said that such exemptions for foreign subcontractors can only be viewed as discriminatory to locals and should be addressed whether by law or the review of contracts.
Paul emphatically outlined these concerns in a report he wrote on the request of the United Nations Development Programme (UNDP). That international organization had commissioned this report for the Government and it was handed over in 2016. In that document, Paul stressed that such exemptions could actually undermine Guyana’s local content efforts.
The Local Content Expert recommended that the concessions which are granted to the oil sector, be reviewed to ensure that Guyana is not giving away more than it should. Paul suggested that a special Negotiating Task Force be established to handle that particular issue.
The Chatham House Advisor also cautioned that oil companies often engage local accounting firms to help them find the country’s fiscal loopholes. He said that to safeguard itself, Guyana would be wise to consider doing same, that is to say, hiring the right firms to help identify and plug the foregoing loopholes, among others, which can be used to keep significant revenue away from the national purse.
After making its first successful discovery on the Orinduik Block at the Jethro-1 well, Tullow Oil’s next target is ‘Joe’ which it began drilling on August 25. The Joe prospect is considered an Upper Tertiary target in water depths of approximately 650 metres.
The Joe Well is located in approximately 650 meters of water.
Eco Atlantic said that Joe potentially holds 150 million barrels of oil equivalent resource and has a 43.2% chance of success, as estimated in the recently published independent report produced by Gustavson Associates.
The net cost to Eco for its 15 percent Working Interest in the Joe Well is expected to be approximately US$3 million. Eco said that this is significantly less than the expected cost of the first Jethro-Lobe well, which is estimated at approximately US$6.9 million, as the cost of mobilizing and demobilizing the drilling rig have all been incorporated into the cost of the first well.
As announced on February 27, last, Eco is fully funded for the 2019 campaign and beyond, having current cash of approximately USD $19 million.
ORINDUIK JV 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%. In October, last, 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 days 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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