Jagdeo in support of more royalty in Orinduik PSA

Aug 23, 2019 News

Opposition Leader, Bharrat Jagdeo, has taken issue with the fact that the royalty payable to Guyana from the Operator of the Orinduik Block is so low.

Opposition Leader, Bharrat Jagdeo

The Production Sharing Agreement (PSA) which governs operations of the Orinduik Block states, “The government’s share of Profit Oil specified in Article 11 [Cost Recovery and Production Sharing] includes royalty payable by the Contractor at the rate of one percent of Crude Oil produced and sold.”
Asked whether the royalty should be higher, Jagdeo said, “If the new standard is two percent, non-recoverable.”
The PSA which governs the Stabroek Block, where the first Petroleum discovery was made, requires the Operator, ExxonMobil, to pay a royalty of two percent. But even that has got much flack because of how low it is.
Other oil producing nations, including industry leaders, have been getting between 10 and 20 percent royalty. Venezuela has even managed to negotiate for 30 percent royalty.
During a press conference, yesterday, the Opposition Leader said that no other oil company should be given the same benefits that ExxonMobil was given. And for the Orinduik PSA, he said, “Tullow got even better terms than Exxon, in relation to the royalty.”
Commenting on the low rate, the Opposition Leader said “These people think that we’re stupid, as Guyanese. They really think we’re stupid.”
Defining the low rate as a “frontier advantage”, Jagdeo said “How many times are we going to give [that advantage to oil companies?] With ExxonMobil, they’re the first who came here. You can argue that case. But the Tullow contract was signed in January of 2016, after we knew that we had oil in commercial quantities. And you had billions of barrels of proven reserves out there.”
Last week, Jagdeo also drew attention to the fact that the contractor can recover the one percent royalty it is obligated to pay, on the Block.
“In the Tullow contract… the Government pays Tullow’s royalty.”
He had said that, effectively, Guyana is “not getting royalty on top of profit oil” when production starts on that Block.
Should the People’s Progressive Party (PPP) win the next General Election, Jagdeo reminded that he has said, “The PPP will review any other contract which has benefits that exceed those of Exxon or akin to those of Exxon in the future.”
“That position still remains today,” he had added.
In the Stabroek PSA, there is no mention of the royalty being recoverable.
Jagdeo has made it clear that the provision of this contract which speaks to royalty will be reviewed, specifically because it grants more benefit than was granted to Exxon for the Stabroek Block.
So far, the current stake distribution on the Orinduik Block, as approved by the Government of Guyana, is Tullow – 60% (Operator), Total – 25% and Eco – 15%.
Qatar Petroleum recently bought a 10% stake from Total’s interest in the Block, but the farm-in is yet to be approved by Government.
Recently, Tullow announced that it struck oil on the Orinduik Block, where it is the lead operator.
Tullow’s Chief Executive, Paul McDade, had noted that the discovery was made at the Jethro-1 well which could hold more than 100 million barrels of recoverable oil.