Energy Dep’t proposes experts to evaluate prospective oil marketers

-due to tender board deficit

The Liza Destiny
The Liza Destiny

The Department of Energy (DE) has proposed a list of experts to help evaluate prospective marketers for Guyana’s oil as the current pool of National Procurement and Tender Administration Board (NPTAB) evaluators lack the required expertise in the area.

As part of NPTAB guidelines, those persons selected would not be known until the process is completed as it runs the risk of exposing them not only to interested bidders but the public.

“The DE proposed a list of names of persons to serve on the evaluation committee to ensure that the panel has the type of expertise required, while simultaneously adhering to the NPTAB regulations,” DE Director Dr. Mark Bynoe told a press conference yesterday.

“We will make a recommendation to the NPTAB, they will look at the evaluators and make a decision based on the names before them,” he said.

Last month, 34 companies submitted expressions of interests (EOIs) to market Guyana’s entitlement from the Exxon-operated Liza Destiny FPSO in the Stabroek Block, offshore Guyana, for a period of one year.

The engagement is expected to begin when Shell-Western Supply and Trading has fulfilled its current contract to sell this country’s first three million barrels of crude. 

The first lift was completed in February and the second is scheduled for the middle part of this month and it is hoped that by sometime in September a marketer would be chosen and the third lift completed.

Firms were told by the DE, when the call for EOIs was made, that they would have to meet specific criteria outlined. It was stated that the companies would be evaluated in accordance with the procedures set out in the submission of a technical expression of interest, evaluation of EOI and creation of a shortlist and that only shortlisted companies would be invited to submit full technical and commercial proposals.

Bynoe yesterday reiterated aspects of the call for EOIs. He explained that it was a two-stage process where in the first instance all interested companies were free to send in their EOIs and then there will be an evaluation of those and an elimination process which it is hoped would narrow the field down to 20 bidders.

“The EOI process will act like a pre-qualification,” he said as he referenced the criteria laid out in the department’s notice, while adding that “from the 34 we hope to select 20 such firms who will submit their technical and financial information”.

All firms are expected to then make an offer based on a fee per barrel basis and the DE hopes that the one that will give this country the highest value would be selected.  

Bright

Bynoe said that notwithstanding the current slowdown in global oil markets amid the current COVID-19 pandemic, this country’s future prospects in the sector looks bright.

It is why the DE believes that Guyana should capitalise on current low production costs and continue to produce as it runs the risk of also losing existing interests for its crude should it shut-down existing operations.

He said that once a marketer is chosen, each cargo will be paid for based on dated Brent and which is calculated 10 working days after the bill of laden at the said day’s cost.

The country is still entitled to five cargoes for this year and when the DE negotiated with Shell-Western it indicated that it wanted this country’s crude to be had by “as many potential refineries … so we have a global footprint and let people know what Liza crude is”.

The chosen marketer will continue that process with the remaining two lifts of crude for the year and it is hoped that by that time there will be a final determination on quality, although feedback has shown that the crude is performing well on markets already.

“That is our projection and it is based on advice from industry experts. Based on feedback, the Liza crude has touched at least 20 refineries and this doesn’t include what the operators and [co-venturers] have lifted… we are beginning to see that the Liza crude is having a global impact. That feedback that comes to us, gives us a very good idea how our crude is performing,” he said.

“We are coming in at a difficult time—not that only persons didn’t know this crude but at a time of oversupply and depressed demand so negotiating hard for better prices is something we will always be doing—but we have to be cognizant that the forces of supply and demand do operate. As such, we are monitoring what is happening very keenly. We have weekly meetings with Shell where they are providing updates. What we are hoping for is when we reach steady state to have another assay taken to see if it approximates with what was given before. But from all the feedback, the assay is performing very close to what was put out maybe a year ago so it is looking very good for the Liza crude at this point in time,” he added.

And while prices have slumped and persons have posited that it would have been best to hedge this country’s oil, Bynoe said that strategy is also risky and more countries and producers prefer not to hedge.

“Hedging is a strategy of protection and insurance… and like any insurance policies, it has a high cost and it does not offer full protection. To be effective, a hedging strategy needs a very clear picture of quantity to be hedged and a very clear picture of the forward volatility levels. A lot of producers do not hedge their production,” he said and pointed to a 2018 global study which showed that only 48% percent of producers in the United States hedged part of their production.

He said that hedging can protect from price falls in some cases but at the same time would not be able to take “a rally of the oil prices upwards”.

“This is a big risk; the good aspect of hedging could be partial protection on a declining market. But we do not have a panacea and no one could see into the future. Everything seems better in hindsight,” he said.

According to Bynoe, the DE will continue to assess the market to ensure that Guyana gets the best value for its oil so those revenues can be channeled to developing this country’s people and infrastructure.