Weeks after its own self-imposed deadline expired, the Guyana Government has begun the process of releasing the contracts between the State and other oil companies – beginning with Canadian company CGX Resources Incorporated.
Under the Article 11 ‘Cost Recovery and Production sharing’ heading of the
contract, the Government agreed to a one per cent royalty. In addition, a 53 per cent share of profit oil and gas; after recoverable costs have been satisfied was negotiated. This is providing the company moves from exploration to production.
The contract states that “All recoverable contract costs incurred by the contractor shall, subject to the terms and conditions of any agreement relating to non-associated gas… be recovered from the value… of a volume of crude oil or natural gas produced from the contract area and limited in any month to an amount which equals 75 per cent of the total production from the contract area for such month…” This is a greater share than the 50 per cent share the coalition Government would come to negotiate with ExxonMobil three years later. The one per cent royalty was, in fact, contained in the original 1999 Exxon agreement, until it was increased by one per cent by the coalition in 2016.
Oil companies, in this case CGX, are expected to use revenue from its production in order to make back its capital investment. This will be categorised as “cost oil”. Whatever remains of this is the ‘profit oil’ Guyana will have to spilt between the oil company and its associates, if there are any.
Apparent in the CGX contract is that the Canadian company relinquishment clause is a comprehensive one.
Article Five of the contract states “If, prior to the end of the initial period of the Petroleum Prospecting Licence issued to the contractor under Article 3.1, an application is made by the contractor for renewal of the Licence under section 24 (1) of the Act, the contractor shall relinquish at the end of the initial period an area equal to at least 15 per cent of the original contract area…” It goes on to say that “If prior to the end of the first renewal period… an application is made by the contractor for a second renewal of the licence, under section 24 (1) of the Act, the contractor shall then relinquish at the end of the first renewal period an area equal to at least 25 per cent of the original contract area…”
This was invoked last year when the Canadian company gave up 25 per cent of its concessions after renegotiating its work commitments. As a consequence, its blocks in Corentyne and Demerara reverted back to the State.
In a statement that accompanied the news that the contract was released, the Natural Resources Ministry promised that “over the coming weeks and months, as all aspects for the release are worked out with the operators, the remaining agreements will be released in similar fashion.”
CGX’s entire portfolio is focused on Guyana, in both the onshore and offshore basins. The company has stakes in blocks located offshore and onshore of Corentyne, Berbice and Demerara. The Corentyne licence applies to 1.5 million acres, while the Demerara licence covers one million acres. Both of these operations are fully owned by CGX. Onshore, the company holds a majority stake in the Berbice Block, through the ON Energy joint venture, owned 62.5 per cent by CGX Energy and 37.5 per cent by local investors.
However, exploration results on the block have so far not yielded the success of Exxon, with three dry holes drilled in 2005. Moving offshore, it has a 100 per cent stake in three offshore blocks – Corentyne, Corentyne Annex and Pomeroon.
In 2012, CGX participated in two offshore wells – the Eagle-1 well was drilled on the Corentyne Licence and the Jaguar-1 well was drilled on the Georgetown Licence. The Eagle-1 well had oil and gas, and the Jaguar-1 well sampled light oil in two zones. Both wells were abandoned. Eagle-1 as a dry hole and Jaguar-1 for safety concerns.