Oil blocks auction to close on September 12 – VP Jagdeo

… says Repsol cannot reclaim US$500M investment in Kanuku Block

The auction process for some 14 oil blocks offshore Guyana is coming to an end, with companies having until September 12 to submit their bids.
Auctioning of the blocks had been pushed back, as the Government signalled its intentions to improve the sector’s regulatory framework before potential investors put in their final bids.
Some 14 oil blocks were up for tender – 11 in the shallow area and three in the deep-sea area. The sizes of the oil blocks on auction range from 1000 to 3000 square kilometres (sq km).
Vice President Bharrat Jagdeo during his weekly press conference on Thursday indicated that the auction would close on September 12.
When this process wraps up, evaluations and negotiations will follow before the blocks can be awarded. The Vice President had previously indicated that there were several areas remaining offshore that were not put up to be auctioned off in the current exercise.
Under new conditions, Guyana stands to benefit from signature bonuses as high as US$20 million for the deep-water blocks and US$10 million for the shallow-water blocks.
Additionally, all future Production Sharing Agreements (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 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.

Repsol
Meanwhile, the Vice President has clarified that in relation to Spanish oil company Repsol Exploration, the Government has reacquired the Kanuku Block. He indicated that the US$500 million invested by the company over the span of its licence could not be reclaimed, and moreover, a fresh licence would have to be issued should a decision be made for the block to be returned to that company’s possession.
“If the Cabinet decides to work with them to issue a new licence, not a renewal for this block, then all the new conditions would apply. It would be the same as a person coming there for the first time. There would be no carried interests across,” Jagdeo stated.
“If you move to a production licence, then you can claim the cost for exploration as part of the cost back because you are earning. If there is no production, then you can’t come to the country and say ‘We spent US$500 million here; the licence has come to an end. I haven’t moved to production, so I want back my money’. “
In September of 2019, Repsol had started drilling the Carapa-1 well in the Kanuku Block. That well alone was reported to cost US$20 million and was drilled using the Valaris EXL II jack-up rig. However, while approximately four metres of net oil pay was found, British-owned Tullow Oil, which owns a stake in the Kanuku Block alongside Repsol, had announced that it would not be commercialising the well.
Repsol was the operator of the Kanuku Block, with a 37.5 per cent stake. Tullow Guyana BV also held an equal 37.5 per cent stake while Total E&P Guyana BV had the remaining 25 per cent.

Discoveries
Guyana has been declared one of the fastest-growing economies in the hemisphere, with growth projections of 47 per cent, on the back of the oil industry offshore Guyana and specifically, the oil discoveries in the Stabroek Block.
ExxonMobil has said it anticipated at least six projects offshore Guyana would be online by 2027. The Liza Phase One project has been producing oil since 2019 and production started this year on the Liza Phase Two project. It is expected that production will increase to 220,000 barrels of oil per day with the Liza Unity Floating Production, Storage, and Offloading (FPSO) vessel.
The third project –the Payara Development – will meanwhile target an estimated resource base of about 600 million oil-equivalent barrels and was at one point considered to be the largest single planned investment in the history of Guyana.
Meanwhile, the Yellowtail development, which will be oil giant ExxonMobil’s fourth development in Guyana’s waters, is now slated to be the single largest development so far in terms of barrels per day of oil, with a mammoth 250,000 targeted.
A relinquishment clause is typically included in contracts so that companies can relinquish a portion of the block when the renewable period is up, thereby allowing other companies to buy into the respective blocks.
For the Stabroek and Canje Blocks, operators are required to relinquish 20 per cent of their blocks after the first renewal period; while those of the Demerara and Corentyne Blocks are expected to relinquish 15 per cent within this period.
The Kaieteur Block’s relinquishment provision is said to be 25 per cent, then 20 per cent by the first renewal; with the Mahaicony and Roraima Blocks at 25 per cent. By the time of the first renewal for the Orinduik Block, the operators are not expected to relinquish any portion. (G-12)