1% royalty only small part of contract – Tullow

Oil and gas sector

…says production sharing main revenue source for Guyana

In the wake of public discussions about Guyana’s deal with Tullow and the one per cent recoverable royalty, Tullow’s Head of Communications, George Cazenove, has reminded that most of Guyana’s earnings will come from production sharing and not royalties.

Cazenove made the comment during an exclusive interview with this newspaper on Tullow’s agreement with Guyana. While the one per cent royalty has been heavily criticised, he urged that persons look at the “bigger picture”.
“It’s important when looking at oil contracts that you look at the entirety of the contract. You have to understand the balance between the contractor and the State. And I think that the royalty is a part of that State take,” Cazenove said.
“So when you look at the production sharing agreement, you have a system where 50 to 60 per cent of production is shared with the Government. And it’s important to see that the royalty is just a small aspect of the overall take of the State that it can expect.”
He also noted that Tullow and Guyana are still in the early stages of developing oil fields. Cazenove pointed to the fact that Guyana, because it has released its oil contracts in these early stages, is at an advantage.
“We’re at the very beginning of our time in Guyana. And these sorts of discussions about contracts are way off into the future. And Guyana starts with an advantage around oil contracts, which is they are public,” Cazenove added.
“In a lot of countries around the world, oil contracts are not public. So the public and the media do not have an opportunity to ask the Government or oil companies about their relationships and how production is being shared. I think it’s to Guyana’s credit and it’s really important to holding us to account, that they are public.”
When asked if Tullow would be open to discussions with the Government, should they reach out to the British oil company in order to negotiate parts of the contract, Cazenove was unable to say.
It was only recently that in a matter of weeks, Tullow found oil in two wells – Jethro and Joe. At the same time, it was reported that the one per cent royalty will be recoverable to the company as cost oil.
Finance Minister, Winston Jordan has said publicly that the recoverable royalty is not good for the country. For his part, Natural Resource Minister Raphael Trotman has said he was under orders to accept the 1 per cent royalty.
It is understood that the company has billed Government US$300,000 in pre-contract costs it would have incurred in the years preceding the 2016 contract.
The Orinduik oil block is just a few kilometres from Exxon’s discoveries in the Liza and Payara fields. It is under the administration of Eco Guyana and Tullow, who signed a 10-year Petroleum Prospecting license and Production Sharing Agreement with Guyana in 2016. French firm Total E&P Activities Petrolieres entered the fray in 2017, partnering with Eco with the option to get a 25 per cent share in the block.
Tullow Guyana BV is the operator of the Orinduik Block, with a 60 per cent stake. Besides the 25 per cent held by Total E&P Guyana, the remaining 15 per cent is held by Eco (Atlantic) Guyana Inc.