In keeping with their often-repeated commitment to govern the oil and gas sector in full transparency, the People’s Progressive Party/Civic (PPP/C) has released the new, draft model Production Sharing Agreements (PSAs) for both deep and shallow oil blocks that will serve as the blueprint for all future agreements.
According to the Ministry of Natural Resources in a statement accompanying the release of the model contracts, the terms contained in the agreements were arrived at after intense research and analysis by both the Ministry’s internal team and external consultants.
“The process involved a comprehensive assessment of the current petroleum agreement and the identification of best practices relevant to every contractual aspect of a modern agreement grounded in the Guyana context,” the Ministry explained.
According to the Ministry, the release of the PSAs signals the Government’s intent to govern the industry while guided by industry standards and best practices. They further noted that work will be done to overhaul the existing Petroleum Act, which dates back to 1986.
“At the core, these are aimed at maximising the socio-economic benefits for our nation without disincentivising foreign investors in the sector. The Government of Guyana remains committed to a new era of oil and gas development, characterised by a competitive and favourable investment climate.”
“To ensure new investments are governed by a comprehensive framework of international best practices, the model Petroleum Agreements will be followed by an overhaul of the 1986 Petroleum Act and Regulations,” the Ministry further explained.
The new PSAs for both the deep and shallow blocks contain much of the terms the Government had previously hinted at. Under the new conditions, Guyana stands to benefit from as high as US$20 million signature bonuses for the deepwater blocks and US$10 million for the shallow-water blocks.
A perusal of the agreements shows that the royalty rate has been increased from the meagre two per cent the former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government agreed to in 2016, to a fixed rate of 10 per cent in both deep and shallow blocks.
Additionally, the model PSAs also include the retention of the 50-50 profit-sharing after cost recovery. According to the draft agreements, the cost recovery ceiling (the limit to which the oil company can recover cost oil) has been lowered to 65 per cent, from the previous 75 per cent.
Oil companies, including the contractor, affiliated companies, subcontractors, and individuals, will also be subject to the Income Tax Act and Corporation Tax Act. This means they will have to file returns, among other things and pay a 10 per cent corporate tax when instituted.
“The expatriate employee of the contractor, affiliate companies and the subcontractor shall be liable to pay personal income tax in Guyana on income earned in Guyana. Guyana (represented herein by the Minister) shall cause the proper authorities to issue appropriate tax certificates to expatriate employees when required,” the agreements state.
The Government meanwhile revealed that it will be amending the bid round schedule. Previously, the Government had been aiming to keep the competitive bidding round open until April 14, 2023, after which evaluations and negotiations would follow.
The Government had set a timeline for awards in May 2023. However, this will now be extended. The Government also revealed that all 14 blocks have received Expressions of Interest (EoI) from bidders.
“The indicative Guyana 2022 Licensing Round Schedule will be updated at www.petroleum.gov.gy/guyana-offshore-licensing-round-2022 and www.nre.gov.gy which will reflect the new timeline for the publication of the finalised Terms and Guidelines, model Petroleum Agreement and process of bidding — all adjusted to facilitate maximum participation from global interest.”
“Official Expressions of Interest (EoI) have been received for all fourteen blocks for tender of the Guyana 2022 Licensing Round, demonstrating global interest in Guyana’s shallow and deepwater offshore acreage,” the Ministry further explained.
Last year, Guyana received a ranking of 10th among the oil and gas jurisdictions in the world for competitiveness in exploration and production by internationally respected business intelligence firm IHS Markit.
The Guyana Government launched the current oil block auction in December 2022, putting 14 areas offshore up for grabs – 11 in the shallow area and three in the deep-sea area. Natural Resources Minister Vickram Bharrat had previously disclosed that more than 20 renowned oil and gas companies have indicated their interest in buying oil blocks, and have already submitted bids.
He had also indicated that given the overwhelming interest in the auction, the Government is mulling an extension of the April deadline for submissions of bids. The sizes of the 14 oil blocks on auction range from 1000 to 3000 square kilometres (sq.km).
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