While declaring that no laws were broken in the selection of companies to come here to bid on Guyana’s first three lifts of oil from the Liza-1 field, Director of the Department of Energy (DE) Dr. Mark Bynoe yesterday said the plan was to conclude the process now underway before going public in order to protect government’s negotiating position.
“The decision was made after multiple rounds of consultations internally. There are some things we will speak to at the beginning, during, post and some we won’t be able to speak on at all… What we were aiming to do was to come to you when the matter was concluded not during because what it can do is weaken the government’s negotiating position. It doesn’t help for us to be conducting commercial business through the media,” Bynoe told a press conference at the DE office on Brickdam, Georgetown.
“So it was never the intent for Guyana to be shielding what is happening here. I was hoping that we can have a wrap up here where we can say to you this is what was done,” he added.
Observers have noted that nothing that Bynoe said yesterday at the press conference provided a credible defence for not notifying the public of the arrangements for the sale of Guyana’s first loads of oil particularly given the well-established expectation of transparency in all aspects of the oil sector.
With the Department’s recently hired Crude Marketing Specialist, Virginia Markouizou, by his side, Bynoe said that his staff is expected to meet with and conclude negotiations this week with prospective buyers of the first three cargoes.
Among those international oil companies (IOCs) invited by the Government of Guyana are Stabroek Block operator ExxonMobil and its co-venturers CNOOC and Hess and other oil majors, including Chevron, Total, ENI and Sol.
The IOCs’ selection was based on this country getting a greater feedback from a diverse pool of marketers and refiners, according to the DoE.
Last Friday, financial news service Bloomberg reported that government had sent a letter to refiners around the globe inviting them to bid for three million barrels of Liza Blend crude, the light-sweet oil it will start exporting next year. “The catch is that the buyer must take the unusual role of handling ‘all operating and back office responsibilities’ related to exporting the crude,” the Bloomberg report said, citing a document it had seen. Oil traders from Houston, Geneva and London, numbering about half a dozen, were expected to begin bidding on Monday, the report said.
There was no prior announcement of the planned bidding, resulting in the DE on Sunday issuing a statement to explain that it was undertaking a two-step process: an initial direct sale in the short term to selected bidders to set national benchmarks for selling Guyana’s portion of its crude in the future, followed by a public request for proposals (RFP) for marketing services for Guyana’s crude.
The statement had only come after strong criticisms of the DE’s silence on the Bloomberg news item and the oil sales.
Not unusual
A statement issued by the DE yesterday said criteria for selection of the bidders included IOCs having a global refining footprint and integrated oil value chain, as well as being in a position to support all operating procedures of the three cargoes.
Additionally, it said given Guyana’s inexperience and the impending early date of the first lifts, an introduction phase of the grade is “more advantageous to Guyana” at this time.
Based on expert advice, it noted, other considerations included that the full extent of the quality of the crude is not yet known as it usually takes several lifts to determine crude only quality and the cost of refining. It also noted that the true economics of the Liza grade is yet to be determined and that Guyana needs to establish a quality and quantity standard.
“It is a sale and it doesn’t require going through a procurement process,” Bynoe emphasised. “When we go to an RFP, then that will have to go through the full procurement process,” he further noted, while referencing the second phase where the DE will be going to market with a request for proposal inviting all companies that have an interest to bid for the marketing of Guyana’s portion of oil on a longer term basis.
When questioned about who selected the IOCs invited to participate in the process, Bynoe said that it was his government and that is was on the advice of its specialist consultants, before noting that there are some things that they may not be able to discuss. “We are aware that there are a number of interests in Guyana’s petroleum sector. We are aware that there are some matters which would require a discussion with the media before, others that would require a discussion during and others that we may not be able to discuss,” he noted.
Meanwhile, Markouizou, who interjected throughout the press conference when she felt that more detailed explanation was needed in some areas, said that route taken by government to meet face-to-face with buyers is not an anomaly in the given circumstances and that it was needed to get the first quantum to an established refinery which will extract the impurities and ascertain its quality for future standards and stability.
“Trading of the commodity is a very global transparent …business. It happens in front of screens and it happens through phones yes, but this is trading of a commodity which is very well established and the grade is very well known to the market. This is not about a new grade that has never been tested before,” she said.
“This is now about a government which is introducing and going about. If you had a grade and were introducing the second one, or the third, or fourth or fifth, then a telephone conversation would have been sufficient. This is a trading world where it happens on the second, in the minute, with a screen in front of you. Here, we are talking about taking all the steps, establishing relationships with the market, showing a face of stability, introducing, in a paced way, a grade and holding face-to-face conversations with people who have to give us feedback. This is not a prize negotiation only. What we are aiming here to do is take feedback for the quality of that crude and that is not phone conversation. So Bloomberg may be right, that in two or three years from now, we would have been able after having introduced into the market how many different grades and trading how many millions of barrels, we would have done it. Everything from the phone, but not today, and not now. Today we are in a very different stage for Guyana and the people and the DE as well,” she added.
Feedback
The Greece-born Crude marketing specialist also explained that it would have been unwise to introduce the RFP at this initial stage.
“…We don’t know the real fair market value of our crude. What we are trying to do is test it, run it through a refining system, take the feedback from the refiner, from the people who have not just refining but also the marketing channels. They have the value of the pump, of the petrol, all around the world. We want to run it through systems who will give us the feedback of what is the fair market value at this point so the RFP would have been too premature and most probably would not allow us this introduction of the grade as such, and that’s what we are trying to get here,” she said.
Last month, Bynoe, disclosed that ExxonMobil and its co-venturers will take the first three cargoes of crude oil from the country’s huge offshore deposits and Guyana will receive the fourth shipment around March next year.
In a statement issued on Sunday, the DE stated that marketing Guyana’s portion of its crude would begin in January. It had previously announced that in late 2019/early 2020, a full RFP would be issued, inviting companies to bid for the marketing of Guyana’s portion of oil on a longer-term basis.
“The [DE] will issue this RFP in January 2020. It could take about 3 months to finalisation. However, the process underway in the coming week is not for marketing services. It is for a direct sale of the first 3 lifts assigned to Guyana. The upcoming RFP is then intended to initiate the process of procuring a marketing firm to sell our crude in the open market later and for the longer term,” the statement said.
The DE has assured that Guyana will be represented at these first oil negotiations by a full team of international experts, inclusive of its Crude Marketing Specialist, its Commercial Specialist and Legal Adviser, among others.
