Energy dept. to demand more royalties, profit oil in future contracts

Aug 05, 2019 News

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De-risked basin strengthens country’s negotiating position – Dr. Bynoe

By Kiana Wilburg

Energy Department Head, Dr. Mark Bynoe is desirous of increasing the Government’s take from its oil resources. Not only does he want an increased royalty for future contracts, but more profit oil too.
At present, Guyana’s arrangement with ExxonMobil sees the country receiving a mere two percent royalty and 50 percent of the profit oil from the Stabroek Block. Importantly, Guyana has agreed to pay Exxon’s taxes out of its share of the profit oil. This simply means that Guyana is accepting way less than 50 percent of the profit oil.
At his latest press conference, Kaieteur News posed questions about this arrangement along with queries about some of the international best practices that would be found in the New Model Production Sharing Agreement (PSA) to guide future contracts.

To this, Dr. Bynoe said, “…I noticed the media gave me a lot of coverage when I spoke (to a journalist in London) about (government) having a larger take. They zeroed in on royalties but again, it is a larger take in terms of profit oil as well as royalties because there are certain elements of the basin that have now been de-risked and that allows Guyana to increase its negotiating position.”
Further, this newspaper called on Dr. Bynoe to say if the Model PSA will ensure that future deals signed with oil majors, will subject them to future changes in the country’s petroleum, tax and environmental laws. He was also questioned to say whether the new model PSA would have strict ring fencing provisions which would prevent costs of unsuccessful wells being deducted against those that are.
To this, the Energy Department Head answered in the affirmative.
Dr. Bynoe said, “In fact, what we indicated is that what we have is not a revised PSA but a revised best practice template and I need to emphasize that because we have three exploration zones in Guyana, we have deep and ultra deep, the shallow continental shelf and then you have onshore.”
The Energy Department Head added, “Now the (fiscal) regime you use for deep may not be the same you use for onshore so those issues have to be varied. We are keen also on it striking a balance because the current model we have, Guyana will get everything but it must also be able to attract the investor so it is not a science, it is an art.”
Additionally, Dr. Bynoe noted that the PSA was revised since December last with the help of a consultant. He could not recall the person’s name when called on to do so. He did note however that this was required for the first disbursement of a policy based loan that was provided by the Inter-American Development Bank (IDB). Dr. Bynoe had also said that consultations are still ongoing on the model PSA.
LOOPHOLES TO CLOSE
While the Energy Department is still putting the finishing touches to the new model PSA it has been working on for the last few months, Chatham House Advisor and Local Content Expert, Anthony Paul believes that there are at least 12 key elements which must be included in that document to safeguard Guyana from significant revenue leakage and abuse.
These fundamental provisions Paul recommended are contained in a report he wrote on the request of the United Nations Development Programme (UNDP). That international organization had commissioned this report for the Government. It was handed over to the administration in 2016.
The Principal Consultant of the Association of Caribbean Energy Specialists Ltd. said that Guyana can readily, and should require in its new model PSA, that all contracts be subject to new laws and regulations and not immune to ring fencing provisions which allow costs from unsuccessful wells to be offset against those that are.
Further to this, Paul recommended that Guyana needs tighter cost recovery provisions. In this regard, he said that Guyana needs to determine what can be recoverable and non-recoverable based on international best practices. Along these lines, he said that there should be transfer pricing controls and suitable sanctions included in the model PSA.
Paul also said that Guyana’s model PSA needs to have stronger local content and capacity development requirements, and if possible, have it attached as a caveat for being able to keep the exploration or production license.
Furthermore, the Consultant emphatically stated that Guyana’s model PSA needs to have clear rules on the disclosure of the beneficial owners for oil companies involved, capital gains tax, methods to be used for the accounting of all expenditure and where documents should be held, as well as the international benchmarking costs that would be used.
The Chatham House Advisor also said that it would be in Guyana’s best interest to tie the model PSA to signature bonuses, aggressive relinquishment clauses, and the right to refusal of farm-outs or farm-ins following a thorough evaluation of the technical and financial capability of the firm as well as its strategic fit to Guyana.
Also, the Consultant suggested that the new Model PSA should allow the government to have retained equity or carried participation in all new licenses.

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