Govt. still finalizing new oil agreement

Feb 22, 2023 News

Kaieteur News – One week after the promised release date for a new Production Sharing Agreement (PSA), the Government of Guyana (GoG) is still in the process of finalizing the document.

Minister of Natural Resources, Vickram Bharrat in a brief comment said that the new oil agreement was being finalized, but did not say when it would be released to the public. Up to yesterday there was no sight of the agreement on the government’s website.

Initially, the GoG said a draft of the new PSA, set to govern 14 oil blocks presently on auction and all future agreements with oil companies, would have been released on February 13.

Natural Resources Minister, Vickram Bharrat

The release was to trigger a two weeks public consultation on the new model agreement, slated to have been completed on February 28, 2023. The final PSA was to be publicised on March 8, 2023 according to a Licensing Round Schedule posted by the Natural Resources Ministry.

Companies interested in the auction of Guyana’s 14 oil blocks were awaiting the new terms to finalize participation. At least this was so for ExxonMobil Guyana President, Alistair Routledge.

He said at a press conference earlier this month that Exxon is waiting on the final terms of the new model Production Sharing Agreement that will be used for these blocks “and when we have all of that, we will be in a position to make a decision on whether we bid or not.”

It is unclear whether the delayed release of the model contract would impact the estimated time for exploration activity to commence in the prospective oil blocks. President Irfaan Ali had said contracts would be awarded by May 31 this year.

In the meantime, political opposition party, the People’s National Congress Reform (PNCR) has renewed calls for the new PSA to be released.

Economic Advisor to the Opposition Leader, Elson Low in an invited comment shared, “Government’s failure to release the new model PSA by its stated deadline of February 13, is yet another example of the government’s incompetence and desire to keep this PSA out of the public eye.”

Low added that Vice President, Bharrat Jagdeo said during the International Energy Conference and Expo, that there will be no ring-fencing provision for 14 oil blocks on auction. This however he said is worrying and highlights the need for the new model contract to be released, since this contract will also govern other oil blocks already awarded.

A ring-fencing provision would allow for one project to pay back the oil company for its investment to develop the resources in that particular field. In the absence of this clause, oil companies can deduct expenses for projects that are yet to commence production activities, thereby shortening profits received on the functional project.

Low reminded that the new agreement will also govern acreage presently being explored in the Kaieteur and Canje Blocks for example, which are larger than those on auction.

Economic Advisor to the Opposition Leader, Elson Low

“The Vice President mentioned that there would be no ring-fencing for this new PSA, given the small size of oil blocks now being auctioned, but given existing block awards are also to be governed under these terms does this mean they will also not be ring fenced? These are the types of details we need to see, which is why the PSA must be released now,” he explained.

During Guyana’s Energy Conference hosted between February 14 and 17 this year, Jagdeo announced that ring-fencing will not be included in the new PSA that will govern the 14 oil blocks presently on auction.

According to him, “We said there was a need for ring-fencing but given the size of the future blocks we decided against ring-fencing because they are small, especially those Blocks that are going out to tender.”

Jagdeo explained, “We also said that we are going to change the fiscal terms from those enjoyed in the PSA that was signed by Exxon in the Stabroek Block. We had 10 contracts that were signed that had the old fiscal terms…these new fiscal terms will be applicable to all of the nine other contracts that were signed in the past.”

The new PSA according to the VP, will feature improved fiscal terms for Guyana including a 10 percent royalty, 65 percent cost recovery ceiling, 50/50 sharing of profit oil and a 10 percent Corporation Tax.  He said these terms, among others, had work that was undertaken with several consultants. Jagdeo said IHS Markit, a leading information services provider headquartered in the UK, is taking lead on guiding the Guyana government on the auction.

• agreement, Auction, Oil blocks, oil contract, PSA