Consultations will soon commence on the model Production Sharing Agreement (PSA) which will be an important guide for companies participating in the oil blocks bid round, and changes to existing petroleum laws which have been around since the 1980s.
Making this disclosure was Vice President Bharrat Jagdeo, during a recent interview with Daniel Yergin, Vice Chairman of the financial and analytical publication S&P Global, in Texas, United States (US), where Jagdeo is attending CERAWeek 2023.
CERAWeek 2023 is being hosted in Houston, Texas by S&P Global. It is one of the biggest events on the calendar for the energy industry, with over 1,000 Chief Executive Officers (CEOs), policymakers and financiers due to speak.
Providing an update to Yergin and a room full of investors and attendees, Jagdeo explained how Guyana has gone about creating the regulatory and fiscal framework to manage the oil and gas sector.
“We’ve just changed the fiscal terms, with advice from IHS Markit. We’re working on a model PSA and also new legislation to update the one from 1986. It is not fit for purpose today, so we want to ensure the bid round is completed and the potential bidders would see what the new PSA looks like,” he said.
“But they would also have a chance, because we hope to open consultations up shortly on the model PSA and also on the legislative changes, for comments from the oil companies and others, and then finalise those, so that they can see exactly what the environment would be. We want to emerge as a predictable environment, where our regulations dictate the highest industry standards but they don’t become humbug to the development of the industry.”
Jagdeo also explained that while Government wants Guyana to have a world-class regulatory environment, Government also wants the creation of an environment that is attractive for people to come and invest. He made it clear that the People’s Progressive Party/Civic (PPP/C) would continue to be a stable and not capricious regulator of the extractive industry.
“On the fiscal side, we want a lot of incentives (to) remain with people so that they can invest in Guyana. And we remain an attractive (investment destination), but at the same time we want a greater take for the country and the people of the country too. So those are the balances we’re trying to achieve,” Jagdeo further said.
“Our gold mining regime was changed once in maybe the last 30 years, and that was when the price for gold moved beyond $30. We said the royalty will go from 5 to 8 per cent if it exceeds $1000, but we never touched it for 30 years. So, we believe in stability, we believe in predictability. We don’t believe in being a capricious Government.”
The Vice President admitted that due to a paucity of certain skill sets, Guyana is working with international companies like HIS Markit to put in place the fiscal regimes that would achieve this balancing act. In the meantime, he assured that Guyana would also build capacity in this area.
Last year, Guyana received a ranking of 10th among the oil and gas jurisdictions in the world for competitiveness in exploration and production by internationally respected business intelligence firm IHS Markit.
The Guyana Government launched the current oil block auction in December 2022, putting 14 areas offshore up for grabs – 11 in the shallow area and three in the deep-sea area.
Last month, Natural Resources Minister Vickram Bharrat disclosed that more than 20 renowned oil and gas companies have indicated their interest in buying oil blocks, and have already submitted bids. He had also indicated that given the overwhelming interest in the auction, the Government is mulling an extension of the April deadline for submissions of bids.
The sizes of the 14 oil blocks on auction range from 1000 to 3000 square kilometres (sq.km). As it is, the competitive bidding round will be open until April 14, 2023, after which evaluations and negotiations would follow. The Government has set a timeline for awards at May 2023. However, there have been suggestions that the Government could consider extending this.
Under new conditions, Guyana stands to benefit from as high as US$20 million signature bonuses for the deep-water blocks and US$10 million for the shallow-water blocks.
Additionally, all future PSAs would also include the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to a fixed rate of 10 per cent; the imposition of a 10 per cent corporate tax, and the lowering of the cost recovery ceiling to 65 per cent, from 75 per cent.
