The bugbears faced by companies to invest in the oil and gas sector will create a negative effect on the rollout of the industry and understanding the complex nature of these operations is critical, President Irfaan Ali has sounded.
The Guyanese Head of State on Friday referred to ‘changing times of global financing’ for the oil and gas sector and even companies perceived to be linked to the industry.
It comes at a time when Guyana is aggressively pushing to develop and cement the sector through better infrastructure and the injection of other resources.
“The reality is there is less available capital. The cost of capital is more expensive. There is a great debate on the length of the shelf life for oil companies that affect capital formation. All of this is occurring at the time when we want to aggressively pursue this natural asset.”
“We live in a complex environment and if we want to sustainably harness the potential that this sector has for the transformation of our country, then we have to start thinking seriously and understanding seriously the complexity which the sector operates…If we continue to injure ourselves as a country in the way we present this sector, we’re making it more and more difficult for local companies to get the financing to build this sector out,” Ali explained.
More or less, the President underscored that oil and gas companies cannot walk into a financial institution and ‘shake the tree and get capital’.
“We’re out on an auction now. Everybody has an opportunity. If you know there is a company that will give 100 per cent, 70 per cent or 10 per cent royalty, get the company and come. Put in an auction…Not because they are in this sector, there is some good fairy in there waiting to finance all that they want,” he suggested.
APNU/AFC-signed PSA
President Ali also sought to zero in on the Production Sharing Agreement that was signed under the former APNU/AFC Government in 2016, which has been criticised for low royalty – a meagre two per cent, lack of ring-fencing provisions, and cost oil claims that would see Guyana losing billions, among other issues.
However, Ali pointed out that disavowing such an agreement meant serious consequences for the country, especially as it relates to investors’ confidence in Guyana.
“We understand that we need to act in good faith in honouring it. We’re a responsible Government. A country does not turn off when one Government comes in and another comes out. That is why there are consequences of bad Government and successes of good Government.”
Ali underscored that the lives of hundreds of persons who were training in the industry, and investments by stakeholders would have been plunged into jeopardy.
“Do you understand the concept of capital flight or the loss of national credibility? This is a serious matter. This is about the life and future of a country…While the PSA was far from the best deal, we would have disavowed the agreement. But that would have brought an immediate halt to production. All the companies that have invested, what would have been the situation?” he questioned.
Work has commenced on a model Production Sharing Agreement (PSA) that will be different from the PSA ExxonMobil signed with the former Government and ensure that Guyana can get increased benefits from future oil deals. It was explained by Vice President Bharrat Jagdeo that the Guyana Government would be activating and enforcing the relinquishment provision in contracts, which speaks to handing over portions of the awarded oil blocks during the course of the exploration period.
