Commission study on offshore reserves before any bid round - Industry Experts

Commission study on offshore reserves before any bid round – Industry Experts

Mar 09, 2019 News

By Kiana Wilburg

Before first-time oil producers like Guyana rush into any bid round, it would be wise to commission an international study on its offshore reserves.
This is according to Oxfam America. The entity is a confederation of 20 independent charitable organizations, which seek to fight some of the factors that lead to poverty, one of them being the poor governance of extractive wealth.
Industry experts at Oxfam advised that commissioning international studies on the geology of reserves is also in line with international best practices and will put the country in a better position to prepare the relevant documents for the bid round.
To further cement its case in this regard, Oxfam America noted that before Peru launches a bid round, it commissions studies from international consultancies on the geology, reserves, risks, production levels, and development and operating costs of the block.
Oxfam America said that the South American nation uses this information to prepare the bid process and to review subsequent bids. As part of their bid, Oxfam said that companies are

Oxfam America Director, Ian Gary

also required to share information on their operations elsewhere to give an idea of what it will cost them to develop the field. The transparency advocate said that once the contractor is selected, the information gathered is used to set the royalty rate and monitor costs.
Further to this, Oxfam America said that bid rounds provide opportunities for countries to increase their pool of benchmark data.
In the meantime, Guyana’s Energy Department has said that when it initiates another licensing round for offshore blocks next year, background checks will be done on all competing companies.
This assurance was given by the Energy Department’s Head, Dr. Mark Bynoe. He had said that the Department is still working through how it will do the licensing round which would likely be an open bidding process.
The Department Head had stressed, nonetheless, that the requisite safeguards would be in place for the licensing round scheduled for the first quarter of 2020.

Several local and international transparency advocates have also called for Guyana to ensure due diligence is done on oil companies for any future licensing round.
The Natural Resource Governance Institute (NRGI) for example, has warned that a company involved in the award process which has a reputation for, or a record of participation in, corruption or other misconduct, should be seen as a major red flag by governments.
NRGI said this could suggest that the company has a propensity to engage in problematic business practices, or that officials treated them with favoritism.
“Of course, some companies may be wrongly accused by their rivals. (However), the level of scrutiny prompted by this red flag should depend on factors such as the reliability of the evidence or how often the company …has been accused.”
As for the Global Witness, this anti-corruption NGO has stressed time and again, on the importance of countries doing proper due diligence before handing over its oil resources for exploitation to the best bidder.
The Global Witness has stated that selecting the best companies with good track records on environmental and social protection, and the financial and technical capabilities to extract the maximum amount of oil with the minimum of harm is essential.
It said, “Poor or corrupt allocation processes can lead to companies without the relevant expertise, or with no intention of extracting themselves, gaining rights to exploit a country’s natural resources. In the worst cases, rights can be handed to companies which represent corrupt interests leading to poor contract terms, delayed production and lost revenues for the host government.”