Gov’t announces wave of enhanced fiscal terms for first offshore oil and gas competitive licensing round highlights
- 14 oil blocks available for bidding;
- Greater, competitive fiscal terms: 2% royalty increased to 10%; 76% cost recovery ceiling reduced to 65%; where there was none before, a 10% corporate tax paid by the operator;
- Enhanced enforcement of minimum work commitments and relinquishment requirements;
- Licensing round open to international and Guyanese companies that meet the minimum qualification criteria.
The Government of Guyana through the Ministry of Natural Resources is pleased to announce that fourteen (14) oil blocks have been identified and will be auctioned for the nation’s first-ever competitive offshore oil and gas licensing round. The ministry is pleased to announce too that a wave of enhanced fiscal terms will guide all future offshore investments should projects reach to production stage.
As part of this new model agreement, the royalty has been increased from the meagre 2% granted to the Stabroek Block under the former APNU+AFC regime to an impressive 10%. The current 75% cost recovery ceiling has been lowered to 65%. Profit sharing after cost recovery remains the currently applied 50/50 system between the contractor and the Government of Guyana. These new terms have doubled Guyana’s share from 14.5% to 27.5%, plus the newly introduced 10% corporate tax.
Commenting on the improved fiscal terms, Minister of Natural Resources Hon. Vickram Bharrat M.P., highlighted that these changes come on the heels of reviewing the licensing models of global oil producers, complemented by the advice of industry experts.
“These incentives are expected to attract major international oil companies with the necessary finance and expertise to expedite the prospecting and development of oil discoveries within the shortest possible timeframe,” Minister Bharrat said. “This is in keeping with the government’s vision to increase the extraction of petroleum resources to satisfy global demands, while at the same time utilizing earnings to
strengthen Guyana’s non-oil sectors for a robust and stable economy. The government remains steadfast in realizing the One Guyana vision where all Guyanese will benefit from our extractive resources.”
Of the fourteen (14) blocks – ranging from acreages of 1,000 square kilometres to 3,000 square kilometres – eleven (11) are located in shallow water, while the remaining three can be found in ultra-deep-water. Oil companies participating in the upcoming auction will be required to pay a minimum signing bonus of US$10 million for shallow blocks while the deep-water blocks carry a signing bonus of US$20 million.
Qualified and local companies will be given an opportunity to bid for blocks, but must they must possess a proven track record of technical, financial, health and safety, and environmental capabilities. Bidders will be assessed based on their guaranteed work programmes which will be weighed with the offered signing bonus. Local content commitments will also be fully examined.
There will be no restrictions on how many bids a company may submit, however, each successful bidder will be limited to an award of three blocks.
As part of the strengthened enforcement of the work programme, successful bidders will have to guarantee that they will make good on commitments made under their work agenda. Failure to meet this will result in the government initiating a penalty of the unspent amount of the work programme.
The aforementioned terms and conditions have been finalized by the Cabinet which will usher in a new era of oil and gas development. This will be characterised by a competitive and favourable investment mechanism and improved socioeconomic benefits for Guyana, a nascent oil and gas-producing nation.
Importantly, the government will be moving to make amendments to the Petroleum (Exploration and Production) Act 1986 to reflect where necessary, the fiscal changes identified for this national bid round and all future operations. The licensing round process is expected last for five months and should be concluded by the end of the first quarter of 2023.
About offshore Guyana
Since first oil was struck in the Stabroek Block in 2015, Guyana’s offshore basin has seen unprecedented development, with this small South American nation setting a new paradigm for the expeditious development and prudent management of oil and gas resources.
With potential resources in excess of twenty-five (25) billion barrels and a proven reserve of eleven (11) billion barrels, the Guyana Basin is one of the most exciting and lucrative drilling frontiers, and is home to the world’s fastest-growing super basin seen in recent years.
This licensing round gives qualified international and local companies the opportunity to tap a country whose hydrocarbon potential places it among the top- five non-OPEC countries set to lead as global producers by 2045.