Barbados-based Shell to sell Guyana’s first 3 oil lifts

In keeping with the Department of Energy’s previously announced intentions, it has concluded a deal to sell Guyana’s first three oil lifts to a regional branch of Shell, though there is no word on what price was agreed with them.

The announcement was made by the Energy Department on Tuesday, just days after the start of first oil. The Department said that Shell Western Supply and Trading, which is Barbados’ branch for Shell International, will be selling the crude.
According to the Department, Shell was one of the nine international oil companies it invited to bid for Guyana’s crude. It was explained that the companies had face-to-face meetings with the Energy Department to pitch their proposals and answer questions.
“The companies participating in the phase 1 process included the 3 partners in the Stabroek field. All other participating companies were also International Oil Companies (IOCs) with integrated upstream, midstream and downstream value chains, global refining footprints and experience in the introduction of new crude grades from and into multiple geographies.”
“The interested parties submitted their proposals in writing and were subjected to a face-to-face meeting with the DE in order to present the full scale of their capabilities. Companies were also required to lay out the details of their proposals. The face-to-face presentations allowed for robust interrogation and lengthy clarifications and questions.”

No information
The Department explained that this was an important part of the selection process, especially in the context of Guyana’s inexperience with the crude market. Moreover, they pointed to the fact that first oil was only announced on Friday.
The Department defended the decision to choose Shell by saying that at the end of the process, Shell had the most competitive yet secure pricing. Despite this, however, the Department did not include any information on what price Shell would be offering for the crude.
They also claimed that Shell’s global trading reach, Latin America interests and willingness to share refinery info were factors in the decision. They also claimed that Shell was ready to support the Energy Department in operating the cargoes.
“The decision was based on the following criteria: A competitive pricing that limits the Government’s exposure to market uncertainty, the size, scale and global reach of the Shell trading operations’, the company’s high level of integration between Upstream, Trading and Downstream.
The Department also cited Shell’s “strong foothold in the Latin American markets and the size and scale of their shipping and storage operations in the region, allowing for multiple options on the Liza crude commercialisation. The range of new grades Shell has recently introduced into the market and their willingness to share critical refinery information with the DE which Guyana needs in order to understand Liza crude behaviour.”

First lift
Meanwhile, it was explained that Guyana is entitled to its first crude lift in February, while Shell’s three-cargo agreement should end mid-2020. Furthermore, the Department noted that the next phase is an open market request for proposals. According to the Department, this will be launched early in 2020 and will see a marketing agent marketing Guyana’s crude on a term basis.
“Phase 1 of the Department of Energy’s announced two-step crude marketing process is close to completion. The Department of Energy had previously announced a two-phased approach to lifting and marketing of Guyana’s crude,” the Energy Department explained in their press statement.
“The first phase being a direct sale process in December 2019 and the second an open market Request for Proposals (RFP) to be launched in early 2020 for a marketing agent to market Guyana’s crude entitlements from the Liza 1 field on a term basis. This was necessary to allow, amongst other things, for adequate preparation in structuring and completing the RFP for marketing in early 2020.”
The fact that Shell has decided to sell its first three crude lifts on the spot market has raised a lot of eyebrows. After the news first broke courtesy of Bloomberg, the Department had confirmed that it approached a number of IOCs with a view of having them vie to sell Guyana’s crude. These companies include Exxon, CNOOC, Hess, BP (British Petroleum), Chevron, Shell, Total, E&I.
This news was immediately criticised by Opposition Leader Bharrat Jagdeo, who has also said that companies participating in this process could be barred from doing business in Guyana should his party be elected next year. In addition, Auditor General Deodat Sharma had said in sections of the media that his department would look into the transaction.
It was only on Friday that first oil officially started in the Liza field, which has the capacity to produce 120,000 barrels of oil per day. In addition, Exxon announced its 15th oil find on Monday at the Mako-1 well.