Tag: Oil and Gas

In Part 23 this column noted that Indonesia which had taken a lead role in the Production Sharing Contract (PSC) had moved to the Gross Sharing Production Sharing Contract. In fact, in 2015 Mexico and India are the two other countries which have migrated to similar systems, India after considerable debate. That does not mean that there will be a migration wave: just that in the industry nothing stands still. Today’s column looks at a much more basic or preliminary issue involving the petroleum sector – how contracts are in fact awarded.

The real issue is whether there is a policy for the sector to start with. The APNU+AFC was confronted practically from day one with the news of a major oil find. If they were unprepared it would be most natural, even if Robert Persaud, the Minister of Natural Resources and the Environment had briefed the new Minister. Two years on however, there is no policy, no new primary or secondary legislation and one wonders whether and when Minister Trotman will introduce new legislation. In fact, the Minister continues to behave as if he is still to learn the very basics of the sector although this does not suggest that his job is at risk. His two major achievements to date are the signing of a new Petroleum Agreement with the ExxonMobil subsidiary and causing Guyana to become a member of Extractive Industries Transparency Initiative (EITI). Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 24)”

Indonesia explores new model

Indonesia, the country that is credited with giving the petroleum world the petroleum production sharing agreement (PSC) in the nineteen sixties, now seems to be walking away from the model. Under that model, the profit determined after deducting prospecting, exploration, production and operating costs is shared between the host state and the oil company in agreed percentages. Not surprisingly, disputes over what could and could not be deducted were frequent. So from the beginning of this year, that country took a huge step toward eradicating the cost recovery regime for upstream cooperation contracts.

To be clear, the new rules do not affect contracts signed prior to that date. The new system, called the Gross Split Production Sharing Contracts sets out a new economic structure for production sharing contracts (“PSC”) based on dividing gross production between the state and PSC Contractors, without a mechanism for the PSC Contractor to recover operating costs. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 23)”

EITI Admission

That troublesome confidentiality provision in the law and the Petroleum Agreement has once more attracted attention with the announcement that Guyana is now officially the 53rd candidate country of the Extractive Industries Transparency Initiative (EITI). Officially, EITI is aimed at openness around the governance of natural resources and one would have expected that the admission of Guyana was as a result of commitments made by the country concerning such openness. It is difficult to reconcile openness with the refusal to provide the country, the National Assembly or the individual Coalition Partners with any information on the Petroleum Agreement signed by Minister Trotman in August 2016.

Readers of this column are aware of my strong conviction that there was absolutely no reason for a new Petroleum Agreement with Esso and its joint venture partners. The Agreement lasts the entire duration of the Prospecting Licence and the Production Licence so the question or the mystery is the reason for a new Agreement. A source has indicated to me that the reason is not as mysterious as it may seem. Indeed, the explanation offered to me is very simple. The Government of Guyana used the excuse of a new licence to extract a signature bonus, a payment made by a contractor on the signing of an Agreement to take up any given number of blocks. The figure I have been told is twenty million United States Dollars. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 21)”

Introduction

Column 19 last week summarised how petroleum produced is shared between the Contractor and Guyana represented by the Minister. Now, if the parties were to take their respective shares and act independently, selling their share of the crude, or refining and selling it as they wished, there would be no need for the Agreement to include any provision or rules concerning valuation. In Guyanese parlance, that would be their business. In other words, Guyana can do as it wishes with its share while the Contractor will be able to do likewise. But life is not so simple, nor are petroleum operations.

Guyana’s share of the production, at least in relation to the Liza Block, is a minimum of 14.5% of the number of barrels of oil produced (2% for royalties and 12.5% as minimum profit share). In column 19, I had expressed the view that for practical purposes, Guyana will not physically take up its share and will more than likely request ExxonMobil to refine and dispose of its uptake. I admit that I am discounting, at some risk, the possibility that Guyana may choose to sell its share at the wellhead to one of the other joint venture partners in the Liza Block.

Recall that the shares in the Joint Venture are held 45% Esso Exploration, 30% Hess and 25% CNOOCNexen. It may be far simpler, tidier and will pose less accounting and audit issues, and possibly disputes, if Guyana decides to sell its share to any of the partners at the wellhead. The more curious will immediately ask from whose share does the 14.5% to Guyana come. The answer is that it comes out of the gross and the JV partners will take their respective shares of the net. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 20)”