The Guyana Government has taken a decision to approve the sale of London-based Tullow Oil’s majority stake in the Orinduik Block to Eco Atlantic Oil and Gas, according to Vice President Dr Bharrat Jagdeo.
Only last week, the Vice President said that while the Government has heard about the sale, Tullow had not yet formally informed local authorities of this decision, which needs to be approved.
Earlier last month, Tullow announced that it has agreed to sell its 60 per cent total interest in the Orinduik Licence to Eco Guyana Oil and Gas (Barbados) Limited in exchange for a combination of upfront cash to the tune of US$700,000 and contingent consideration.
“We have, in principle, agreed that the approval will be given for Tullow to sell its shares to ECO and to exit that [Orinduik] Block,” Jagdeo disclosed at a press conference on Thursday.
According to the Vice President, with this change of block ownership, Eco will now be responsible for completing the work programme on the Licence.
Completion of this transaction between Tullow and its Orinduik Block partner Eco is expected to occur in the second half of 2023.
In an August 10 statement, Tullow said its decision to exit the Orinduik licence is in line with its strategy to focus on its high-return production assets in Africa and infrastructure-led exploration around producing hubs and deliver its objective to unlock value in emerging basins.
In 2019, Tullow drilled two exploration wells – Jethro-1 and Joe-1 – on the Orinduik licence, which yielded uncommercial oil discoveries.
Nonetheless, Tullow recognises the material oil resource potential remaining in the Orinduik licence, and as such, the terms of the sale transaction with its Block partner will allow the British company to retain exposure to any potential future success in the region.
Based on the transaction summary, Eco will have to pay Tullow US$4 million if it makes a commercial discovery, and another US$10 million if Guyana issues a production licence, as well as royalty payments on future production.
It had been a rough few years for Tullow, which in 2020 was forced to write off US$1.2 billion in wells that were not financially viable. Included in the 2019 amount is US$60 million for three wells Tullow drilled offshore Guyana but could not continue working thereon.
The Orinduik oil block is just a few kilometres from ExxonMobil’s discoveries in the Liza and Payara fields in the oil-rich Stabroek Block.
With the acquisition of Tullow’s 60 per cent interest, Eco will now add to its existing 15 per cent working interest – making it the leading operator on the Orinduik licence with a now whopping 75 per cent interest. The remaining 25 per cent working interest is shared by a joint venture between Qatar Petroleum and Total E&P Guyana BV (TOQAP).
Kanuku Block
Meanwhile, in addition to its Orinduik assets, Tullow Oil also has stakes (37.5 per cent in a farm-in deal) in neighbouring Kanuku Block, which is operated by Repsol with a 37.5 per cent working interest. TOQAP holds the other 25 per cent interest in the Kanuku block.
During Thursday’s press conference, VP Jagdeo explained that the 10-year Prospecting Licence for the Kanuku expired in May and the block partners have written the government, seeking a renewal.
The Vice President noted that the government has discussions with the licence holder this week but no decision has been made at the Cabinet level as yet.
While the government has indicated to the block partners that their application will be “considered favourably,” Jagdeo pointed out that if the renewal is granted then it would be done under conditions of the newly crafted Production Sharing Licence (PSA). These include a reduction in the size of the block, the payment of a signing bonus and all other fiscal conditions such as increased royalty. Additionally, they would also have to move aggressively with their exploration development plan.
The Kanuku partners claim to have invested over US$500 million in the block, which has three wells and a 3D seismic. Jagdeo suspects that this substantial investment sum is the driving force behind the request to renew the licence, adding that the partners will lose all of it if they don’t move to production.
“They want to continue the activities there. They must have seen some potential for discoveries which is why they want the Prospecting Licence renewed. So, I think it’s clearly an interest that they believe based on their reading of their seismic that the area has great potential.”
“If they don’t get back this block, the US$500 million expended there, because they have not moved onto production, they lose every cent of it. The Government of Guyana and the people of Guyana do not have to pay back for that because the exploration activity is done at the risk of the investor,” the VP stated.
However, Jagdeo outlined that there is a counter-argument that the government is cognizant of in considering this application and this is, that a renewal of the Prospecting Licence could undermine the ongoing oil blocks auction and it could also set an unwanted presence whereby others would want the same deal which means that government will not get the best deal in terms of an aggressive exploration plan out of such a renegotiated arrangement.
On the other hand, the Vice President said there is also the view that since the Kanuku Block partners are already committed to the block they will move faster in terms of development since they already have intense knowledge of the area and already spent US$500 million.
Nevertheless, VP Jagdeo noted that once the Natural Resources Ministry completes engagements with the Kanuku Block partners, it will make the necessary recommendations to the Cabinet on whether or not to renew the Prospecting Licence.
Some six wells have been drilled in the Kanuku Block to date – Carapa-1, Jaguar-1, Berbice-2, Abary-1 and Mahaica-1 and 2.
Repsol had drilled the Beebei-Potaro well last year and encountered good-quality reservoirs in the primary and secondary targets, but they were water-bearing.
