A blueprint for successful control of Guyana oil resources

Oct 05, 2017 Letters

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Dear Editor,
I refer to our letter; “Framework for the effective management of Guyana’s oil resources.” We stopped at the sixth recommendation. We begin at number 7. The independent Board of Directors should be responsible for the formulation and development of oil and gas policies and for recommending executive action for the sustainability of the industry. Included should be recommendations for the nurturing, development and sanctioning of citizen NOCs engaged in JVs with IOCs, and to facilitate collaboration and cooperation amongst national NOCs for upstream and downstream development in the sector
8. Corporate social responsibility including the development of a green economy, creation of carbon credits to offset hydrocarbon development, training and the development of knowledge, skills and expertise in the oil and gas industry for Guyanese, environmental protection, use of local content and the development of downstream capacity and capability should be within the purview of this independent Board to guarantee GoG’s policies are executed and the people of Guyana benefit through transformative development of its strategic resources. Further, the proper supervision of contracts i.e. corporate governance must be part of the portfolio of the NOCs
9. NOCs will be responsible for executing national policy within their NOC/IOC JV, good corporate governance and corporate social responsibility; 10.Other policy elements to support the operations of NOCs in the Guyana oil sector being offered for consideration are listed below
The total ownership of the NOC within the JV with IOCs should be a maximum of 50%, with IOCs having the majority shares within the range of 50%-55% as required for operator status. IOCs should be granted a maximum of 1%-5% ownership advantage to support their hard carry (significant contribution to cover the financial contributions of the NOC to the JV) for concessions granted for exploration, development and production and this arrangement will be included in the Production Sharing Agreement (PSA). The NOCs should be granted the option to buy back these shares from production sharing revenues
Concession for exploration and development should be considered by the PCG which includes waiver of sign-on bonuses, fees and leasing agreements for real property for the NOCs on a prorated basis, based on the ownership level for the NOCs versus the IOCs. Consideration may be given to completely waive sign-on bonuses, fees and leasing agreements for real property to give the NOCs a strong financial foundation i.e. NOCs should be free on board vis-avis the IOC during the exploration phase only.
Sign-on bonuses for a PSA should be prorated and the NOCs’ payments deferred based on future profits. Lease payments by JVs should be determined by the NOCs and will be used to pay for its shares within the JV. The nature of the PSA will be a hybrid type considering concessions for exploration, development and royalty, taxes and production sharing agreement. NOCs should be given an offshore concession to strengthen their resource base and to facilitate strong partnerships for any strategic alliance.
The PCG should provide the NOCs with all information and data it has on the relative block concessions. IOCs should be required to make full disclosure to the NOCs and PCG of all data and information concerning wells, data logs, seismic information prospects and reserves GoG will collect royalties, oil taxes and profit sharing from JVs.
Each JV should have a joint management committee for joint IOC/NOC decision making with full transparency, including independent third party pricing for all expenditures. Subsidiary pricing can be accommodated but it must be the lowest pricing. This is to protect the NOCs from the development of downstream activities including the development of a service company by IOCs. This is required especially when the IOCs is granted operator status. Board membership will be proportional to ownership; stock will be controlled by the NOCs with the right of first refusal.
Stock devaluation based on farming in of other IOCs must be proportional to both parties in the JV and the resources generated from farming must be owned by the JV; and All Intellectual Property and booked assets of the JV should have joint ownership, by both NOC and IOC, to permit monetization and access to capital; We have proffered several recommendations for the structuring of NOCs to facilitate ensuring that Guyanese benefit from the exploration and production of our finite oil resources.
We welcome discussion of these preliminary ideas as we as a nation, seek the more beneficial means of managing the oil and gas sector. Finally, it is our hope that the GoG will consider Guyana’s oil resource as a strategic commodity. A national strategic resource management Council should be established to ensure that coherent and transformative national development strategies and policies are designed and implemented, with full opportunity for input from Guyanese locally and in the diaspora.
This Council should include the Defence Board, Ministers of Mining, Natural Resources, Agriculture, Economic Planning and Development, Finance, a Representative of the Opposition and representatives of the NOCs, and other key economic, monetary, fiscal, pension and Sovereign Wealth Fund stakeholders, supported by their advisers. It is our vision that Guyana should become the place of choice for Guyanese to live, work, raise their families and do business. Guyanese deserve no less
Andrea Watson-James
Colin Westmoreland

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