– Royalty increases to 10%, changes to cost oil & relinquishment clauses – VP Jagdeo
The Guyana Government has decided to auction 14 oil blocks offshore in the coming months under new fiscal conditions that can see the country benefiting from as high as a US$20 million signing bonus along with royalties more than doubling and the imposition of corporation taxes.
This was revealed by Vice President Dr Bharrat Jagdeo at a press conference on Thursday, where he also revealed changes to the cost oil formula, bidding restrictions, and more stringent relinquishment clauses.
According to Jagdeo, the bidding round will be launched soon and will last for about five months. Cabinet fine-tuned the new terms for the upcoming auction during a meeting on Thursday morning in order to ensure that Guyana enjoys maximum benefits from the booming oil sector.
It was decided that 14 offshore blocks will be up for auction – 11 in the shallow area and three in the 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.
Map showing the various oil blocks already in the hands of operators and the untapped Block C
Among the new fiscal regimes that will govern the new oil contracts from the auction as well as all future Production Sharing Agreements (PSA) 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.
This, according to Jagdeo, will bring Guyana’s total share under these new conditions to 27.5 per cent compared to 14.5 per cent with the old terms.
Additionally, the Vice President revealed that there will be a signing bonus of US$20 million for the deep-sea blocks and US$10 million for the shallow blocks. With these new conditions, the VP, reassured that Guyana will remain competitive in the global market which is currently buzzing with auctions.
“We wanted, in the beginning, a greater share of the revenue for the Government and people of Guyana, which we believe we will succeed in with this new fiscal formula. A significantly greater share of the proceeds [will come to us]. That was one of our objectives. But the second objective was to remain globally competitive and to accelerate the exploration in the context of net zero.”
“We have the consultants [London-based HIS Markit] working to strengthen the PSA to be ready before the auction is concluded… and the PSA will be amended to reflect these new fiscal terms too… The laws of the country will also be amended, where necessary, to reflect [these new terms],” Jagdeo stated.
Qualifications
Moreover, he noted that Government has also decided to make the bidding process more competitive by having the auction open to both local and foreign companies/individuals, who will have to meet minimum technical and financial qualifications that will be outlined.
However, the qualifications for the three blocks in the ultra-deep area will be more stringent than that for the shallow blocks since only a few companies have the capability and technology to explore the deep sea.
On the other hand, while there will be no restrictions on how blocks a company can bid on, there is, however, a limit of three blocks awarded to a single company.
“So, whilst you can tender for all the blocks but you’d have to do so and list all your preferences so we get more competitive bidding for all the blocks. But the award to a company will not be more than three blocks. Each bidder will be required to put up a work programme because the criteria for accessing the bids will be weighted between the price and the work programme… So, we’ll have to hold them [and] have a guarantee that they will actually meet the work programme,” the VP explained.
Relinquishment
With regards to the updated relinquishment, Jagdeo revealed that these provisions will be tightened in order to ensure there is a greater turnover of the offshore blocks. As such, an initial three years will be allotted to both the shallow and deep-sea blocks for seismic work. Upon moving onto phase two after the first three years, the operators will have to relinquish 50 per cent of the blocks.
Two one-year extensions will be given to the shallow block operators, giving them a total of five years to move onto the work programme. For the deep-sea block holders, they will get a total of 10 years given the complexities of those operations.
Jagdeo further pointed out that these companies will also be held accountable for not fulfilling commitments made in the work programme such as capital investments, and will be liable to a penalty of a $30 million remittance to Government as well as lose the block. He added too that the successful bidders will have to put up a 20 per cent guarantee of their work commitment in the contract.
“This is to prevent people taking a block and sitting on it for three years, and then at the end of the three years you hear “we can’t do anything… we need to relinquish it” … The country [would have] lost three years from potential development… We don’t want people to sit on the blocks. And if this comes back to government, it can then go in subsequent auctions,” the Vice President stated.
In addition, the Guyana Government has also taken a decision to place ring-fencing on the contracts instead of the blocks up for auction since those are small. This, he explained, is the most efficient way that will allow the developers to maximise projects within an area.
