The Department of Energy (DoE) has committed to provide the Guyana Extractive Industries Transparency Initiative (GYEITI) with information about the sale of the country’s first share of oil done in secrecy last December.
As a new oil producing country, which is also a member of the Extractive Industries Transparency Initiative (EITI), under the EITI 2019 Standard which speaks to First Trades in Oil, Guyana is required to disclose information about the sale of the state’s share of production of oil and gas. This requirement focuses on improving transparency in the sale of the state’s share of production by government and state-owned enterprises (SOEs) referred to as “first trades.” The EITI is a global standard that promotes transparency and accountability in the oil, gas and mining sectors.
Representatives of the DoE and GYEITI, including GYEITI National Coordinator Dr Rudy Jadoopat and DoE Director Dr Mark Bynoe, met on January 28 and in a joint communique issued yesterday, observed that according to the EITI, “First Trade” speaks of a situation where a state or a SOE sells from its oil, gas and mining sector, its share of physical resources, usually to commodity trading companies.
“The terms of such transactions are a matter of public interest and help to create a transparent and open market in which governments, companies and citizens can have confidence,” the communique said. Information required for the completion of the First Trades in Oil Report include the names of the seller and buyer, oil quality grade, oil quantity, date of sale, revenues received, official selling price, payment date; payment account; type of state-owned oil sold e.g. profit oil, contract number, invoice number, beneficial owners of buyer and load port, terminal and depot, among other details.
Guyana’s first shipment of crude is to be lifted in the coming weeks but has already been sold following face-to-face encounters between energy officials and brokers in December.
“The GYEITI will receive data and information on the oil and gas sector, including on Guyana’s first trades in oil from the Department of Energy, the Ministry of Finance, Guyana Geology & Mines Commission, the Petroleum Commission, Environmental Protection Agency, Guyana Revenue Authority, National Insurance Scheme, and other government agencies which are recipients of revenues from entities operating in the Oil & Gas sector as per EITI Requirements,” the communique said.
“The meeting between GYEITI and [DoE] agreed that the two entities will collaborate and share relevant data and information, legally permissible, to support the ongoing effort to increase transparency and accountability in the extractive industries and contribute to improved governance of Guyana’s Oil, Gas, Mineral and other Natural Resources,” it added.
“The [DoE] promised to provide GYEITI all the data and information required by the EITI Standard, with full observance of the Laws of Guyana. The [DoE] and the GYEITI committed to continuing their collaboration to ensure that compliance, transparency and accountability are resident within the country’s burgeoning oil and gas sector for the benefit of the people of the Cooperative Republic of Guyana,” it emphasised.
Shell Western Supply and Trading Limited was selected last year to buy Guyana’s first three oil cargoes.
Competitive pricing
The DoE, which has faced criticism for its secrecy over the direct sale process being used for the initial cargoes, said in a statement on December 24 last year that “competitive pricing” that limits the government’s exposure to market uncertainty was among the criteria that informed the decision.
Shell Western Supply and Trading Limited is a subsidiary of international energy company Shell, operating out St. Michael, Barbados.
The company was selected from nine listed international oil companies (IOCs) that were invited to express interest for the lifting and subsequent placement of the first three cargoes (three million barrels) of Guyana’s entitlement from the ExxonMobil-led Liza development. These included Stabroek Block operator ExxonMobil, and its co-venturers CNOOC, and Hess, and other oil majors, including Chevron, Total, ENI and Sol, which were required to submit written proposals and were all subjected to a face to face meeting with the DoE to present the full scale of their capabilities. The companies were also required to lay out the details of their proposals.
In the statement announcing the selection on December 24, the DoE said the face-to-face interactions allowed for “robust interrogation and lengthy clarifications and questions”. This was referred to as “an integral part of the selection process, especially in the context of the nascent nature of Guyana’s experience commercialising crude oil”.
In explaining the basis for the selection of Shell Western Supply and Trading Limited, apart from the competitive pricing, the DoE also cited the size, scale and global reach of the Shell trading operations; the company’s high level of integration between upstream, trading and downstream; Shell’s strong foothold in the Latin American markets and the size and scale of their shipping and storage operations in the region, allowing for multiple options on the Liza crude commercialisation; the range of new grades Shell has recently introduced into the market and their willingness to share critical refinery information which Guyana needs in order to understand Liza crude behaviour; and readiness to support the DE in operating the cargoes, while the DE is strengthening its structures and in-house crude commercialisation human resources.
The December 24 statement explained that the sale will be based on the Dated Brent Price Assessment, which reflects the tradable, spot market value of crude oil. (According to S&P Global, Platts Dated Brent is a benchmark for the price of physical North Sea crude oil. The term Dated Brent refers to physical cargoes of crude oil in the North Sea that have been assigned specific delivery dates.)
The December 24 statement explained that the “short-term phase 1 process was necessitated by the accelerated timing of first oil, and the fact that Guyana’s first lift is anticipated in February 2020”. Further, the completion of the three cargoes is expected by mid-2020, by the end of which the quality of the crude and any operational issues around production are expected to stabilise.
In its statement on December 24, the DoE also declared its commitment to transparency, accountability and acquisition of best value for Guyana in all its endeavours, including in crude marketing for Liza crude cargoes, while promising to coordinate with the Extractive Industries Transparency Initiative Secretariat to allow public access to records showing how, when, and the cost for which Guyana’s crude will be sold.
Meanwhile, the communique yesterday revealed that at the meeting, Jadoopat gave an overview of Guyana’s participation in the EITI and outlined the progress that has been made. He briefly described aspects of the GYEITI Work Plan accomplishments during the preparation of Guyana’s first ever EITI Report. He also provided a status update on the GYEITI’s Action Plan for the implementation of the recommendations of the country’s first EITI Report. He took the opportunity and outlined some of the challenges that GYEITI had to overcome. GYEITI is currently preparing for EITI Validation, gathering data and information for the preparation of the Guyana’s second EITI Report, implementing recommendations which emanated from the first report, designing a comprehensive communications strategy and executing a country-wide public awareness campaign to satisfy EITI Requirement 7, the communique said.
Bynoe, meanwhile, presented an update on the DoE’s work which included a brief outline of the legislative framework for the establishment and functioning of the department and the special inter-institutional relationship for management of Guyana’s emerging and growing oil and gas industry.
He emphasised the importance for necessary capacity building for the DoE and other related sector agencies and pledged full support to Guyana’s transparency initiatives in general and to the GYEITI in particular, the communique said.
At the meeting, Jadoopat presented Bynoe with a copy of EITI Standard 2019, EITI Guidance Note 26 – Reporting on First Trades in Oil, and a copy of EITI publication ‘Transparency in the First Trade’, authored by Pietro Poretti, the communique said.
