Exxon to decide on bidding for Guyana’s oil blocks after new PSA terms
– says changing 2016 oil contract would be destructive to investors’ confidence
United States oil giant, ExxonMobil has said that it is awaiting the final terms of the new Production Sharing Agreement (PSA) before it makes a decision on bidding for the remaining oil blocks offshore Guyana that are up for auction.
During a media briefing on Thursday, President of ExxonMobil Guyana, Alistair Routledge said his company’s interest in the auction is fuelled by its successful oil finds offshore Guyana.
“Well we’re always interested in new acreage. And clearly where we’ve had some success that, you know, brings a certain degree of interest and we should be knowledgeable of it,” he said in response to a question by Guyana Times on whether the oil major will be participating in the auction.
According to Routledge, Exxon has already registered for the bidding around and is now awaiting additional information from the Guyana Government before making any decisions.
“We’re taking a look at some of the data [from] the government that they provide [on] what’s available. We’re awaiting the final terms for the new PSC (Production Sharing Contract). And when we have all of that together, then we’ll be in a position to make a decision on whether or not we bid and what we bid for,” he explained.
Currently, the 2016 oil contract for the Stabroek Block signed between the ExxonMobil-led co-venturers and the then Guyana Government pegs cost recovery at 75 per cent. The remaining 25 per cent of revenues is spilt 50/50 between the Government and the co-venturers, while the country also gets a two per cent royalty from total revenues.
This PSA has come under criticism over the years with many arguing that Guyana could have gotten a better deal. There have also been resounding calls for renegotiations of the oil contract.
But Exxon’s country Chief argued on Thursday that such a move could be destructive to investors’ confidence.
“We’ve made now over [US]$30 billion worth of investment committed to the country based on the contract as it stands. To change the contract when you’ve already made that level of commitment would be very destructive to investor confidence in the Stabroek Block and I would suspect, more widely, in the country,” Routledge told reporters.
He added, “…at the end of the day, it’s all about encouraging investment to maximise the return for the country. The current mechanism is very effective at that. These deepwater developments have a significant upfront investment cost and the current mechanism supports that sort of development.”
President Dr Irfaan Ali launched the much-anticipated first auction of the remaining oil blocks offshore Guyana in December last year as his Government moves to have the country’s petroleum resources developed expeditiously.
This competitive bidding process will see 14 oil blocks up for tender including 11 in the shallow area and three in deep-sea area. These blocks will range from 1000 square kilometres (sq km) to 2000 sq km but with most of the blocks being approximately 2000 sq km.
April 14, 2023, has been set as the deadline for the submission of bids, while the Government is hoping to award contracts by the end of the first half of this year.
Government is currently in the process of finalising the new PSA that will guide the terms and conditions of future oil contracts. Vice President Bharrat Jagdeo had disclosed in December that this document would be completed by mid-February 2023, just in time for the close of the months-long bidding process.
Under new conditions, Guyana stands to benefit from as high as US$20 million signature bonus for the deep-water blocks and US$10 million for the shallow-water blocks. Additionally, all future PSAs will also include the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to now a 10 per cent fixed rate; the imposition of a 10 per cent corporate tax, and the lowering of the cost recovery ceiling to 65 per cent from 75 per cent.
Meanwhile, in order to make this auction more competitive, Government has opened the process to both local and foreign companies/individuals, who will have to meet minimum technical and financial qualifications that will be outlined.
Only last month, President Ali invited Asian powerhouses – India and China – to participate in the ongoing licensing round. He subsequently told the international news agency, Reuters, in January that Guyana is also in talks with Qatar, the United Arab Emirates (UAE), and the United Kingdom (UK) along with India on the possibility of directly allocating oil blocks offshore Guyana in parallel with the 2022 bidding round.
The Head of State had first mentioned bilateral arrangements to develop the country’s oil blocks back in October last year but did not state the name of any nations at the time.
But on the sidelines of an energy conference in Trinidad and Tobago last month, President Ali told Reuters “We have been toying with a number of options… We have gone out publicly with the bid round (and) there is also that room we are looking at for Government-to-Government collaboration.”
As the world’s fastest-growing super basin in recent years, Guyana is estimated to have potential resources in excess of 25 billion barrels offshore. In the oil-rich Stabroek Block alone, which is operated by ExxonMobil and its co-venturers, there are nearly 11 billion barrels of oil equivalent.
To date, there have been some 35 discoveries in the Stabroek Block, where production activities have been ongoing since 2015, and a total of 40 oil finds for all blocks being explored offshore Guyana.