Tullow Oil Deal worse than Exxon’s… 1% Royalty will be recovered by operator

Aug 18, 2019 News

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By Kiana Wilburg

When it comes to the Production Sharing Agreement (PSA) governing the Orinduik Block, Guyana agreed to collect a one percent royalty. But that’s not the appalling part. In addition to collecting such a meager fee for its resources, Guyana agreed to have the operators of the block recover the paid royalty.

This peculiar circumstance was exposed in a report prepared by Hannam and Partners (Advisory) LLP, a leading independent investment bank that provides advice and access to capital.
Among other things, the document analysed and laid out, all the possible reasons why Eco Atlantic is a good bet for prospective investors.
The retained advisor noted that Eco Atlantic has several attractive prospects in its portfolio with its 15 percent stake in the Orinduik Block being one of them.
Further, Hannam and Partners highlighted that one of the most attractive provisions in its PSA with Guyana is that there is a one percent royalty that is payable to the government. However, “it can be claimed back through cost oil and there is no corporate tax payable.”
The investment advisor also noted that the PSA allows Eco to get close to 50 percent of the profit oil. Expounding on this front, Hannam and Partners said that the profit oil share for the contractor varies between 40-50% depending on the production level.
The arrangement for royalty, however, is in stark contrast to the one contained in the Stabroek Block PSA, which was signed with ExxonMobil and its partners, Hess Corporation and China’s state owned CNOOCC/NEXEN.
PARTNERS STRIKE OIL

 

Earlier this week, Eco Atlantic and its partners announced that a significant oil discovery was made at its Jethro-1 well while noting that it could hold more than 100 million barrels of recoverable oil. If Guyana does not change the foregoing terms, then it would only get a one percent royalty on production from this well.

However, the operator would be able to recover same.
Eco Atlantic in its release to the media noted that the Jethro-1 exploration well was drilled by the Stena Forth drillship to a final depth of 14,331 feet (4,400 meters) in approximately 1,350 meters of water.
The company said that evaluation of logging data confirms that the Jethro-1 comprises high quality oil bearing sandstone reservoir of Lower Tertiary age.
The company said that it encountered 180.5 feet (55 meters) of net high-quality oil pay in excellent lower Tertiary sandstone reservoirs, which supports recoverable oil resources. It noted that the well has been cased, and is now awaiting further evaluation to determine the appropriate appraisal activity.
Gil Holzman, CEO and Co-Founder of Eco Atlantic, was keen to note that he is thrilled about the exciting discovery, describing it as a revolutionary moment for Eco. Holzman further stated that he always believed Eco would create exceptional stakeholder value for its shareholders and the people of Guyana alike.
In sharing his thoughts on the momentous occasion, Eco’s Chief Operating Officer (COO) and Co-Founder, Colin Kinley, said that the Jethro-1 well confirms the continuance of the petroleum system onto the Orinduik Block, an up dip from the prolific discoveries on the Exxon operated Stabroek Block.
Kinley said that the well has resulted in a mitigation of risk of the presence of quality reservoir sands, seal and trap parameters. He also stated that the company has multiple drilling targets on the block with similar geophysical characteristics.
Kinley said that the company will be moving the Stena Forth drill ship immediately to its next target, the Joe-1 prospect which is just a short move to a shallower target, and is expected to spud mid-August.

HISTORY
In January 2016, Eco signed a Petroleum Agreement and is party to a Petroleum Licence with the Government of Guyana and Tullow Oil for the Orinduik Block offshore Guyana.
Tullow Oil as the Operator of the Block paid past costs and carried Eco for the first 1000km2 of the 2550km2 3D Survey. Further, Tullow contributed an extensive 2D seismic data set and interpretation.
The Company’s 2550 km2 3D seismic survey was completed in September 2017, well within the initial four-year work commitment the Company made for the initial 1000km2.
In September 2017, Eco announced that its subsidiary, Eco Atlantic (Guyana) Inc., entered into an option agreement on its Orinduik Block with Total, a wholly owned subsidiary of Total S.A. Pursuant to the option.
Total paid an option fee of US$1 million to farm-in to the Orinduik Block. An additional payment of US$12,500,000 was made when Total exercised its option to earn 25 percent of Eco’s working interest in September 2018.
Following the exercise of the option by Total, the Block’s working interests became: Tullow – 60% (Operator), Total – 25% and Eco – 15%. Last October, the Government approved of the Total farm-in on the Orinduik Block, which has the potential for almost three billion barrels of oil equivalent.
Just a few days ago, however, Total sold 10 percent of its interest in the Orinduik Block to Qatar Petroleum. The government is still to grant approval for this farm-in by Qatar.

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