Irrespective of Guyana’s regulatory weaknesses, interest in exploring its oil rich basin will remain unaffected.
In fact, Fitch Solutions, an industry-leading provider of macro intelligence solutions, opines that Guyana’s offshore opportunities will remain attractive for oil companies.
The industry analyst said however that prolonged delays in addressing Guyana’s regulatory weaknesses would lead to the oil sector being underdeveloped and inefficient while leaving it prone to the abuse of power.
Specifically, Fitch Solutions said, “The increasing interest among oil producers, underpinned by the discovery surpassing expectations in the Orinduik block, proves the potential of Guyana’s offshore fields.
“However, we caution that the absence of a market regulating body may leave the sector underdeveloped and inefficient.”
Furthermore, Fitch Solutions said that even in the face of potentially higher royalties and local content laws that will increase government take from produced reserves, the next bidding round for Guyana will remain attractive to oil companies based on the previously successful exploration efforts.
Before the next licensing round however, the Energy Department has said that it wants to have an independent understanding of Guyana’s offshore reserves. This was specifically stated by Energy Department Head, Dr. Mark Bynoe.
The official had said the department is in the latter stage of recruiting a firm to complete a 2D/3D multi-client survey so that it would be able to offer packages to operators from a position of knowledge.
Dr. Bynoe explained that this survey is likely to take on average, 11 months for the shooting and processing of data. When that is completed, along with other initiatives such as the revision of the petroleum laws, then they will go back to the market.
The Energy Department Head said, “Let us be clear, there is a multiplicity of blocks out there that still require exploration. So is there an absolute need for a licensing round? No, it is important for us to have improvements as we move forward.”
The official stressed that the revision of the outdated petroleum laws is particularly necessary as he wants to see tighter provisions on decommissioning, among other issues, included.
Decommissioning is considered one of the most crucial aspects of an oil project. It involves safe well-plugging, platform removals, pipeline and power cable extractions as well as secure site clearance.
All of this takes place when a project is nearing its end. It is an expensive process that runs into billions of dollars.
But if it is not managed properly, and the right contractual provisions and policies are not in place, countries could be left to stand this cost.
As a safeguard against this, oil producing nations have moved in the direction of establishing funds which the oil company or operator makes payments. When the time for decommissioning or abandonment comes, the countries use that Fund to handle the associated expenses.
In the case of Liberia, the country ensured that ExxonMobil signed onto such an agreement.
In Guyana’s case, however, the PSA signed with Exxon for the Stabroek Block makes no provision for such a Fund, much less the foregoing provisions.
What is in place is a provision that greatly benefits Exxon. In the PSA it has with Guyana, the American oil king is allowed to tabulate a budget for abandonment, and recover a portion of that budget in the form of oil years before it is time for decommissioning.
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