New PSA will guide firms vying for oil blocks in this month’s auction

The content originally appeared on: INews Guyana
Vice President Dr Bharrat Jagdeo

The Government of Guyana plans to go ahead with the much-anticipated auction of the oil blocks by the end of this month, with the new model Production Sharing Agreement (PSA) being developed expected to guide participating companies at the auction on what fiscal terms to expect.

This was announced by Vice President Bharrat Jagdeo, in his recent interview on a local radio show. According to Jagdeo, the new model PSA is still a work in progress, but will be important as part of the package offered to companies when the auction starts.

“We’re working on a new PSA… there are three variables that we are utilising that will govern the new PSA. The first has to do with the company’s legitimate expectation that if they invest money, they should get a decent return on their investment. Two, leaving in the new PSA enough incentives to accelerate exploration and production. And three, a greater share of the benefits for the Government.”

“So, we’re currently working on the discussion paper to be completed soon. As part of the auction, we will launch later this month. We’re hoping we can launch it, but it will run for several months and maybe conclude in January/February, next year,” Jagdeo explained.Jagdeo further pointed out that the new PSA would tell companies what they can get if they take part in the auction. The Vice President explained that they will also be doing comparisons between varying countries and what their profit-sharing take is.

“We have to have a new PSA to tell people what they’re going to get if they come in on this auction. We’ve now started the study where we’re looking at the spectrum on take by different countries. Some countries are on the lower end and countries like Norway and others, they can get as much as 75 per cent of the total take. Right now, we’re getting just over 50 per cent of the total take.”

“So, where we move from, between 50, 52, 59, whatever you define it as, moving to a higher point, will be determined by those variables. And then, through a combination of adjustments on royalties, maybe profit sharing, and the taxes, we will achieve that,” the Vice President also explained.

Government has been saying it is considering going to auction for relinquished and unexplored oil blocks by September of this year. The auction is expected to attract global interest, although experts have warned that it is important to balance the PSA’s fiscal terms.

During a recent visit to Guyana, Norwegian consultancy Rystad Energy Vice President Shreiner Parker had noted that while Guyana will get interest from around the globe when it goes out to auction its oil blocks, getting the financial terms of the blocks right would be very important. He had given the example of Brazil.

“In recent years, they’ve had unsuccessful bid rounds. Even though Brazil is an extremely important source of offshore production globally, they were unable to attract the interest that they wanted, because the fiscal regimes were too onerous. And they were asking for too much.

“So, the balance that Guyana will have to strike on these new blocks is understanding that we’re no longer going to have the Stabroek fiscal regime. We are a petroleum province. Yet at the same time we cannot expect that it’s a guaranteed success that every hole poked into the ground will produce oil. So, getting that fiscal regime correct is going to be paramount to attracting interest globally.”

When asked if Guyana doing its own 3D seismic survey of the remaining blocks to establish the value of the blocks would help Guyana’s chances, he noted that while it could be of interest, it may not be necessary. As he put it, Guyana is already a hot story.

Guyana has long been expected to go out and auction oil blocks, both untapped and relinquished, by September. There are relinquishment clauses, which are typically included in contracts so that companies can relinquish a portion of the block when the renewable period is up, thereby allowing other companies to buy into the respective blocks.