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Guyana’s plans to raise oil royalties could ‘diminish attractiveness’

Reproduced from Energy Voice

By Allister Thomas

Guyana’s plans to raise oil and gas royalties may “diminish attractiveness” to future investors, according to new analysis.

Earlier this month the South American nation announced its intention to raise the government’s take in future oil licences.

Analyst firm GlobalData said the country could raise royalties from the current 2% to 5%, but anything higher could make returns “significantly less competitive” compared to rival regions like Brazil and Suriname.

Guyana has been found to have massive oil reserves, with ExxonMobil discovering four billion barrels of oil off the country’s coast.

The nation is now preparing for a licensing round for acreage in shallow and deepwater licenses for the third quarter of next year, with the Department of Energy having announced this month its plans to boost royalties.

Alessandro Bacci, upstream oil and gas analyst at GlobalData, said: “GlobalData assessed the profitability of a Guyanese offshore development at the 2% royalty rate applied to ExxonMobil-operated Stabroek license, and at increased royalty scenarios of 5%, 10%, and 15%.

“This assessment shows that raising the royalty rate above 5% could make potential returns under Guyana’s fiscal regime significantly less competitive than under the regimes of regional rivals, such as Brazil and Suriname.”

Mr Bacci added that if Guyana wants to boost its royalties further, it will need to look again at its production sharing agreements (PSAs).

“If Guyana wants to have a royalty rate in line with the average PSA royalty rate across the globe, i.e., between 10% and 15%, it must change the structure of the current PSA so it doesn’t lose competitiveness.

“Alternatively, it might slightly increase the royalty rate while maintaining the current PSA structure or introduce a sliding scale with royalties increasing with profits. The current attractive framework attracted major oil companies such as ExxonMobil, Total, Tullow, Hess, Repsol and Anadarko, but, if fiscal changes make the regime less competitive, it could limit future exploration.”

Earlier this year Guyana’s capital of Georgetown twinned with Aberdeen as part of a growing relationship between the two oil and gas-focussed economies.