“Very pleased” with oil bid round, though old rules were more attractive to companies- Jagdeo

Last Updated on Thursday, 14 September 2023, 18:15 by Denis Chabrol

Vice President Bharrat Jagdeo

Vice President Bharrat Jagdeo on Thursday admitted that the new legal and fiscal terms for acquiring an oil block in Guyana, coupled with international conditions, resulted in a mere 8 bids for the 14 oil blocks offshore the South American nation.

“Just imagine this bid round taking place under the old conditions, I believe we would have had all 14 of the blocks immediately taken up,” he said, explaining that under the old regime there was no signing bonus, 2% royalty and no penalty for non-implementation of work programme

Mr Jagdeo said “we’re very pleased with the offers we have had” with the response to Guyana’s first ever auction. He said the Guyana government did not receive offers for were D3, S1, S2, S6, S9 and S11.  That effectively means that no one expressed an interest in one of the three deepwater blocks and six of the 11 shallow water blocks.  There was a total of 14 offers from six bidders on eight of the 14 blocks. “That means some of the blocks are very competitive,” he said.

Mr Jagdeo said “it would be premature” to release information on which of the blocks the companies expressed interests in before the evaluation is completed.

He also noted that government did not conduct seismic studies on the 14 blocks before the auction was held to assist companies in deciding whether or not to bid. “In this case, we know that we did not want to undertake 3D seismic or any seismic for that matter. We said that we will auction the blocks with the information that is currently there and so given that we did that we did not undertake the costly and time-consuming initiative of doing the seismic work, I think that’s an added factor in terms of the success of the auction,” he said.

Rather than the award of exploration licences on blocks based on a first-come-first-served basis, he said the auction was more transparent and competitive process based on a new Petroleum Activities Bill and new fiscal terms.

The Vice President, who is responsible for hydrocarbon policymaking, said the bid round was held against the backdrop of the global race towards cutting greenhouse gases close to zero by 2050 including the sale of exploration and production assets, inability to raise capital for the oil sector and the large number of countries that are having bid rounds.

Under the new fiscal rules, royalty has increased from 2% to 10%, ring-fencing of the now smaller blocks, increase in corporation tax from zero to 10 percent, 65 percent cap on cost recovery, and US$10 million for shallow blocks and US$20 million for deepwater blocks. Companies would also be required to provide large sums for training and safety, submit more timely data to monitor the activities offshore, workplans and budget with the agreement that there could be as much as a 50 percent penalty if they fail to achieve their workplans.

“These are very stringent conditions now that you’re coming under and in spite of that we have had eight of the 14 blocks subscribed to,” Mr Jagdeo remarked.

Touching on lessons learned from the auction, he said Guyanese need to understand that resources for the sector are not immediately available and other countries with greater resources are able to use the fiscal regime to out compete each other,

The Ministry of Natural Resources said the six bids would now be evaluated from September 18 to October 6 to pave the way for negotiations from October 10 to 27 and the eventual award of contracts on November 1.