Despite “significant interest” in Guyana’s remaining deep water oil blocks, the Department of Energy (DoE) has no immediate plans to grant any concessions until it completes an oil and gas model contract for future Production Sharing Agreements (PSAs), which could take just over a year.
“We do not envisage a possible licensing round maybe ’til early 2020 and that’s being realistic in terms of where we are going,” Head of the Department of Energy, Dr. Mark Bynoe yesterday told a press conference; the first he has held since taking the position on August 1st of this year.
The DoE head said that there has been “significant interest” in the ultra-deep area referred to as Block C but stressed that government is not “anxious to allocate Block C just yet until we have these complementary pieces in place…such as a model PSA, revision to the legislation and so forth.”
Bynoe explained that currently his department is working to ensure that before new concession and licensing agreements are made, Guyana has a strong legislative framework.
“We’re designing a new model contract that will be used for future PSAs as well as elaborating a model tool kit to allow for probabilistic scenario modeling of current and future PSA contracts. The Department recognises the need for strong legislative frameworks. But in doing so, it understands the need for us to first review where we are. In keeping with this, the Department is reviewing the current legal and regulatory framework for the petroleum sector, inclusive of the 1986 Petroleum Act, the shape and proposals for revision and possible replacement of some existing legislation,” he said while noting that government is cognisant that it has to hire expert legal assistance if it wants maximum net returns for its people.
Earlier this year, Minis-ter of Natural Resources Raphael Trotman, who was at the time responsible for the oil and gas sector, had disclosed that US oil major Chevron, Brazil’s Petro-bras and France’s Total were among nine companies seeking remaining oil blocks here
Guyana Geology and Mines Commission (GGMC) Head Newell Dennison previously explained to this newspaper that from rough determinations, approximately 9,500 sq. km are available within the coastal environment, 24,000 sq. km within the environment of the continental shelf, 10,000 sq. km within the deep water environment and 9,000 sq. km within the ultra-deep water environment.
The country has two demarcated basins that have hydrocarbon potential–the Stabroek Basin, which is partly onshore and offshore Guyana, and the Takutu Basin, which is in the Rupununi.
However, most interest has been in the offshore area and particularly in the deep sea following the major discoveries there by ExxonMobil.
Bynoe said that he was considering offering data packages to stimulate investor interest in those areas.
According to a GGMC map that was updated in February last year, there are not many deep water areas left that have not been contracted out to companies. The companies that have blocks in the deep water area, offshore Guyana, are: Repsol and Tullow Oil (the Kanuku Block); Tullow (the Orinduik Block); Anadarko (the Roraima Block); Ratio Oil (the Kaieteur Block); Esso, CNOOC Nexen and Hess (the Stabroek Block); Esso, Mid Atlantic and JHI (the Canje Block; CGX (the Demerara and Corentyne blocks); ON Energy; and Nabi.
Since the PSA government signed in 2016 with ExxonMobil was released late last year, it has and continues to face searing criticism, particularly over the US$18 million signature bonus that was kept secret, the 2% royalty and numerous tax concessions, prompting members of civil society to call for a review of the contract.
Government has, however, maintained that it will respect the sanctity of the contract.
Asked by Stabroek News if after his analysis of the contract he believes that it should be renegotiated and if he feels the 2% royalty is adequate given industry standards and the fact that the basin is derisked, Bynoe stressed that it was important to stick to the original agreement, although contracts “evolve.”
“One of the things we are conscious of is that any review of the existing PSA with Exxon has to be contextualized. Contextualized in terms of investment. Volume of the investment made, the risks that were taken and the timing the said investment occurred,” he said.
“That having been said, contracts are on a spectrum and they range from excellent to very poor. What we can say is the current PSA may not be excellent but it is not very poor either and contracts do evolve over time. As a government, we have already expressed the need to honour contract sanctity and we will continue to do that. We will continue to engage, to ensure the value proposition to Guyana increases,” he added.
Bynoe also said that while it is bandied around that Guyana’s oil basins are derisked, that is not true as only Exxon’s area has benefitted from significant exploration and that is not enough to conclude it has been “de-risked.”
“When people say it has been de-risked, no, a very small portion has been de-risked,” he said. “Yes, Exxon has done some amount of appraisal and development work [is] now going forward but there are still significant areas in deep water that have not been de-risked—nearshore: in fact little or no activity; [and] onshore: no activity at all. So, in short, what we are aiming at is to look at what currently obtains and I build on that,” he posited.
According to Bynoe, the need to develop a new PSA was predicated upon current world best practices and building a model to suit Guyana as each country would have different needs. “What we are aiming at is to look at what currently obtains and to build on that. I am not in a position to speak to the exact deficiencies, but that’s why we are bringing in the requisite expertise to advise,” he said.
But he maintained that government respects the “sanctity” of the contract it signed with ExxonMobil and partners in 2016 and is cognisant that any changes to the agreement might not augur well for attracting future investors.
Oil and Gas Advisor to the Department of Energy and the Government, Matthew Wilks, whose key responsibility is in contract administration and management, agreed with Bynoe, saying that investors have their eyes on Guyana and will make decisions based on how the country approaches the contract.
“Investors watch what is happening with contracts and the whole Guyanese approach to the sanctity of contracts… If you start unilaterally trying to change contracts, you will frighten investors,” Wilks said.
He explained too that model contracts are designed to reflect the economic and investment atmosphere at a present time. “Model contracts are model contracts. They are the basis for negotiations and model contracts are set in the context of the time in which they are introduced. So, a model contract that is used to try and attract good investment at the onset of the petroleum industry is very different from a model contract as the industry matures and very, very different from a very mature industry,” he noted.
And while it has been argued that the stabilisation clause in the 2016 Agreement prevents government from legislating in the environment and other sectors, Bynoe said there is not much that could be done since new legislation would only speak to new contracts.
For his part, Wilks said that companies include those stabilisation clauses to protect themselves in jurisdictions with weak legislation. “The weaker the complementary legislation, the greater the demand for stabilization clauses. Going forward, therefore, as we seek to strengthen the supporting legislation, the idea may well be for us to review that stabilisation clause and it is very unlikely that it will remain as it is,” he said.
Meanwhile, as the DoE works to get needed legislation and equip itself to meet local oil and gas needs by first oil in 2020, Bynoe said that it is developing its personnel.
While experts will be brought in in different areas to assist, a core role will be the transfer of knowledge to locals, as is evidenced in the case of Wilks’ employment.
The DoE’s staff currently is made up of the Ministry of Natural Resources’ Petroleum Directorate’s four staff members, three others from the GGMC, two accountants, a procurement specialist, an office manager, a confidential secretary and Bynoe and Wilks.
Bynoe said they are working closely with the Environmental Protection Agency, and the Guyana Revenue Authority towards becoming a ministry with semi-autonomous regulators, such as the Petroleum Commission.
So far, the department has nearly completed its management framework for the hydrocarbon sector and hopes this will be finalised by the end of this month. “As we seek to build the capacity of the Department of Energy, we continue to promote mentoring and capacity building going forward. We are not going to get there tomorrow or next week, but with the right people, right emphasis and support, we will get there,” Bynoe said.