Remaining oil blocks: Approval process to be strengthened to avoid “flipping”

…VP wants to see local consortium bidding

With Guyana expected to auction off the remaining oil blocks offshore later this year, Vice President Bharrat Jagdeo is of the view that a local consortium of Guyanese, with backing of the necessary capital and expertise, should be allowed to participate in the process and bid for the opportunity to operate offshore.
He made this remark during a press conference on Friday last when he was asked about opportunities for Guyanese in the much-anticipated auctioning of the available oil blocks offshore. According to Jagdeo, this would be more feasible if there were to be a consortium of locals rather than just individual Guyanese bidding for the blocks.
“If we could have a big consortium of Guyanese individuals, I personally – I don’t know what the Cabinet would say – [but] I would say, let’s give them a chance to prove what they’re saying [and] how we can go about it in this sector. That they can raise the money, they can give better fiscal terms to the country and still make a lot of money… But not an individual, not individuals – unless they participate in the auction, and with some maybe backing of expertise. But individuals, it would be hard for us to do,” the Vice President stated.
Jagdeo related his position after much pressing. Initially, he posited that it would be good to have this issue debated in the public domain so Government can get the views of and feedback from stakeholders on the pros and cons before determining its position on allowing Guyanese to participate in the auction.
The Vice President outlined that there is a lot to consider in making such a decision.
“Do we give people who don’t have any expertise or capital to develop these blocks because we want Guyanese to grow or do we make the criteria so exclusive that the only companies that have requisite expertise, capital, and maybe deep-sea experience which limits the group even further because very few companies have deep water exploration and capability for extraction in deep water. So, that’s a key variable,” he contended.

Always criticism
Nevertheless, VP Jagdeo went on to note that no matter what the decision of the Government is, there will always be criticism on whatever position it takes.
“If you include the Guyanese, people would say, ‘Oh, we’re giving people an opportunity to enrich themselves here’ because they don’t have the requisite expertise, they would only flip the blocks. And then if you don’t bring them in, you say ‘Oh, the opportunities are excluding Guyanese.’ So, it would be interesting to start a debate of that nature without taking a position on the matter,” he asserted.
Moreover, the Vice President further outlined that the Government has to also determine whether to limit the number of blocks operators have offshore, particularly, the major companies such as United States oil giant, ExxonMobil.
“The idea is not to have more concentration [of] the big players,” he stated.
In this regard, Jagdeo said that Government would have to look at putting certain safeguards in place to ensure that, if there were to be a limit, then there is no way that other bidders at the upcoming auction would later flip their blocks and hand them over to those major operators.

“We must strengthen the approval process that people have to get before they can flip [the block]. So, if they were to flip to someone who is excluded from the auction, the approval process that they have to seek from the Ministry would say ‘no, you can’t do that’. So, that could be controlled at that level, or you could put [the safeguards] in the bid itself, the bid document to say you can’t do that,” the VP noted.
He further outlined, however, that Government has to also consider that persons bidding for and securing the blocks may want to flip it in the future after paying whatever dues the State is entitled to.
According to Jagdeo, “a lot of those issues have to be [ironed out] … Those are the contentious issues and often, no matter what you decide, you’d have people oppose it one way or another.”
Initially, Government was expected to hold the highly-anticipated auction in September of this year. But VP Jagdeo explained during Friday’s press conference that the process has been delayed due to ongoing efforts to iron out the terms and conditions of the new prospecting licences that would be signed with successful bidders when the available blocks go on auction.
“[We have to determine] whether we will retain the 50/50 model, that is, after preparing costs, the profit oil will be divided equally between the investor and the Government; what the royalty rate will be [and] what will be the other fiscal terms in the contract,” he stated.
The Vice President noted that these details, though contentious, need to be determined very early and so Government is swiftly working on a number of pieces. He noted that the aim is to put together a framework that is fair to the investor so that they get a decent return on their capital; and that would promote accelerated exploration; while at the same time allow Guyana to enjoy a greater share of future benefits.
In addition to deciding on whether to allow existing offshore operators to participate in the auction and whether there would be a limit to the number of blocks they could have, the Guyana Government is on a strict timeline to also determine on how to divide the available areas offshore Guyana into potential blocks, and what sizes the blocks should be.
Further, a decision will also have to be made on whether to pursue a strategic Government/private partnership or put all the blocks up for auction or do a combination of both. All of these matters will have to be ironed out by the end of August, Jagdeo indicated.
Earlier this year, the Vice President had disclosed that Guyana has gotten significant interest, particularly from Middle Eastern companies, to partner with the State in developing the country’s remaining blocks. India has also expressed interest in potentially participating in the auction as well. (G8)