Model PSA will be revised to ensure Guyana gets ‘biggest bang for its buck’ – Energy Dept. Head

Sep 23, 2018 News

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By Kiana Wilburg

The newly established Energy Department will be revising Guyana’s model Production Sharing Agreement (PSA) to ensure the country gets the “biggest bang for its buck.” This was noted yesterday by Head of the Department, Dr. Mark Bynoe, during an interview with this newspaper.

He was asked if the Department is working to review the model PSA which was used as the basis for the highly criticized Guyana-ExxonMobil deal.

Dr. Bynoe said, “We currently have a PSA and it is what we used in the case of Exxon. As you would understand, we want to ensure we review that in its entirety because there will be things that will need tweaking. The idea is to have a model PSA which is more contextual to our current reality and where we are going.”

The official added, “That model PSA, once it is in place would be looked at by the Department (continuously) and it will be applied and tweaked where necessary.”

Dr. Bynoe also sought to stress that the PSA would not be a one-size-fits-all approach. He said that there would be times when it will need to be amended depending on the context of the situation that obtains.

He elaborated, “What I am saying is that it will depend on the context of the situation. Let us say, for example, you have inland wells that you have no interest coming forth, except for one person who wishes to pursue some exploratory action there.

“Do you think an open market tender is the best route to go? (No) So that is all I am saying. It will depend on the situation, location, context and everything.”

Dr. Bynoe added, “What we are interested in ensuring is that Guyana gets maximum returns on its resources and that those resources or the benefits derived there from would redound to Guyana. The entire focus is to ensure we are getting the biggest bang for the buck.”

JORDAN AGREES

Finance Minister, Winston Jordan, is also of the view that the existing template for Production Sharing Agreements must be revised. He made this position quite clear during his reading of Budget 2018.

The economist reminded that for 2017, three additional oil discoveries in the Stabroek block were announced by USA oil giant, ExxonMobil. These were: Payara, Snoek, and Turbot.

Jordan said that while the quantity and quality of the latter two discoveries were still being assessed, the gross recoverable resources for the Stabroek bloc were at that time, between 2.25 – 2.75 billion oil-equivalent barrels. With additional discoveries later on, the Stabroek Block  now has 4 billion oil-equivalent barrels, making it one of the most significant global finds in recent years.

The Finance Minister said that these discoveries have de-risked the basin and has resulted in the significant ramping up of exploration activities in other already-allocated off-shore blocs.

In light of these discoveries, the economist said that the Government also anticipates significant interest in exploring the unallocated blocs of Guyana’s de-risked, off-shore basins. As such, the Finance Minister said it is imperative that the Government safeguard the rights of the nation to a fair share of resource wealth.

He said that in order to do this, the existing template of the Production Sharing Agreement must be revised to be more accommodating to changing commodity prices while maintaining a level of progress that is responsive to profitability.

The Finance Minister said that while the Government strengthens its ability to negotiate more equitable PSAs, key agencies within the recently established Inter-Ministerial Technical Committee on petroleum will continue to coordinate capacity building and interactions with the industry.

IMF MAKES CASE

Given the missteps made with the Guyana-ExxonMobil Production Sharing Agreement, several international organizations such as the International Monetary Fund (IMF), believe that the government must now put together a model PSA with the minimum fiscal terms or package to be accepted for future contracts. It does not believe that the fiscal terms should be negotiated on a case-by-case basis.

The Fund noted that the fiscal package would include the maximum cost recovery ceiling, Government’s share of the profit oil, the tax obligations of the contractor, tax benefits or concessions for the contractor and sub-contractors.

The IMF said it is crucial that Guyana decides what is going to be its fiscal package for future contracts. It also highlighted that the laws framing Guyana’s petroleum fiscal regime would have to be amended, since they date back to the 1980s.

According to the IMF, the legislative framework is highly discretionary, leaving key fiscal terms to be defined in PSAs, and lacks provisions for activities other than exploration and production.

The IMF also noted that the fiscal regime was designed at a time when there was little information about the geological prospects in the country, and the authorities were probably interested in attracting investment in exploration activities.

However, given the de-risking of the basin following recent discoveries and the growing interest of international oil companies in Guyana’s petroleum sector, the IMF stressed that the authorities should consider reforming and modernizing the legal and fiscal framework for new investments in the sector.

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