Latest update October 21st, 2024 12:59 AM
Oct 04, 2017 Letters
Dear Editor,
There have been several recent articles published in the local press on the current state of oil exploration in Guyana and the desirability of having a Guyana National Oil Company or Companies. The purpose of this letter is to share some perspectives and to supplement the current conversation with some observations.
Introduction and Background to NOCs. The development of National Oil Companies (NOCs) began in 1922 when Argentina established theirs due to the strategic nature of oil to its national development. After a period of increasing acceptance of the concept, the 1970s- 1980s were an era when NOCs achieved complete control or state ownership over their countries’ oil and gas resources and by extension, the operations of the sectors.
During the decade of the 1990s, privatization, deregulation and liberalization were implemented in major economic sectors including oil and gas which resulted in minimal roles for governments. This development changed the nature and ownership of NOCs. Partial privatization or state joint ownership with nationals, became the model as exemplified by Norway’s Statoil and Brasil’s PetroBras. These NOCs remain the dominant economic models for the development of the oil and gas sector within nation states.
The desire for ownership and control of the national patrimony, called the resource endowment model, including the real estate, oil and gas reserves and leases were the critical factors which drove the acceptance of the concept of NOCs. Contemporary Guyana It has been well documented in the press that the major International Oil Companies (IOCs) have been awarded large blocks of Guyana’s territory for exploration and ultimately production of our oil resources. Exxon Mobil, an international Oil Company (IOC) has permits for exploration in the Stabroek, Canje and Kaieteur blocks with the Stabroek block alone comprising 6.6 million acres. Other IOCs engaged either directly or in joint venture in the exploration for oil in Guyana includes Tullow, Repsol and Eco-Atlantic.
This means that licenses for very significant portions of our territory and exclusive economic zone (EEZ) were granted to the IOCs and are now under their control for the purpose of oil exploration. Should their attempts prove financially fruitful, these companies will have control of significant parts of Guyana’s productive sector which will be major contributors to the national Gross Domestic Product (GDP). 2 Guyana is in the process of updating its legal framework to better manage its newly found hydrocarbon assets. There is a draft bill to establish the Petroleum Commission of Guyana (PCG), which, during preparation, had the benefit of the review of similar bills in Commonwealth countries. In a sense, the Guyana bill represents an update of previous bills in other jurisdictions.
The PCG will have fiduciary responsibility over the oil and gas sector and its fiscal regime including the approval of leases and financial arrangements (royalties, taxes, dividends, cost sharing, production sharing and profit sharing) for the exploration and exploitation of the national patrimony of oil and gas. The PCG should also be constituted to protect the interests of and for the benefit of Guyana. It is also proposed that an NOC be established within the purview of the PCG to facilitate the development of the sector based on the current international practice.
While developing a commercial framework for building the national oil and gas sector, NOCs are also intended to act in a manner which ensures the macroeconomic, social and environmental objectives i.e. the triple bottom line, of the nation are implemented, despite the fact that it may adversely affect the operations and financial conditions of the NOCs. Nevertheless, the overarching goals remained the efficient funding and development of the national oil and gas industry by introducing innovative technologies via Joint Ventures (JVs), which have become the industry standard.
In this letter, we have joined the national debate by presenting the following series of recommendations for consideration with the aim of ensuring that Guyana and its citizens, benefit as much as possible from the exploitation of our oil resources, within the constraints of previously signed legal agreements with IOCs. In our opinion, the goal should be the development of the hydrocarbon sector of Guyana in a manner which results in the maximum increase in local capacity to manage and support the sector. Transformative contributions to overall national economic and social development, with particular reference to developing local capacity and businesses, should facilitate the ongoing development of Guyana. Given the international modus operandi of IOCs and that of the NOCs, the following are recommendations which Guyana may wish to consider implementing to ensure the widest possible base of Guyanese participation and ownership in the production of very strategic but finite national resource: 1. The PCG should be a holding company with authority to allocate leases to various citizens for the purposes of forming JVs with IOCs; 2. Each lease awardee must be a Guyanese citizen who will have control of the local oil and gas assets within a defined block so that they are resource endowed to facilitate their negotiations with the IOCs; 3 3. Each lease awardee should be granted NOC status – these NOCs may be referred to as citizen NOCs for want of a more elegant term.
Each NOC shall give the PCG 8% ownership. Of this ownership, the Government of Guyana should award to our indigenous people some level of ownership if areas of exploration and development are within lands belonging to Amerindian communities.
In addition, a GOG representative will be a Board Member of the JV as a consequence of its equity ownership; 4. The Guyana Oil Company (GUYOIL) should be under the purview of the PCG and should be organized as a holding company for their 8% ownership in the citizens’ NOCs mentioned above; 5. NOCs should be allowed to list their stock on the local Stock Exchange to expand national ownership and to facilitate local capital acquisition; 6. An independent Board of Directors consisting of representatives of the citizens NOCs, the PCG and GUYOIL should be established to approve and oversee the business plans, strategies and capital budget of the NOCs.
This Board will function as an independent financial structure to audit financial results, provide strong financial oversight, controls and corporate planning functions for upstream and downstream development and innovation in the national Oil and Gas industry. We will conclude beginning from number seven in another letter tomorrow
Andrea Watson-James
Colin Westmoreland
October 1st turn off your lights to bring about a change!
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