Any strategic partner should bear financial burden of setting up national oil company– Int’l Analyst

May 24, 2022 News

By Zena Henry

Kaieteur News – Guyana must be mindful not to expend unnecessary funds in the development of a national oil company if it is to develop an operating model using a strategic partner. Already, experienced individuals within the local and international oil industry, as well as some financial institutions, have advised Guyana against such a move declaring that financial returns from oil endowments may be best gained from improving the contract that deals with profit sharing between the country and its operating partner.

Co-Director of the Energy Programme at Americas Market Intelligence, Arthur Deakin

By September this year, the People’s Progressive Party/Civic (PPP/C) government will make a decision on whether to create this national oil company to develop its remaining offshore oil blocks or to auction it off. As such, the government has not yet announced how it intends to function with this strategic partner, its role, the profit sharing framework and other key information.
Guyana is being advised however, that if it goes the route of a national oil company, plus a strategic partner, it must invest little to nothing in providing a third party access to the country’s oil riches. Co-Director of the Energy Programme at Americas Market Intelligence (AMI), Arthur Deakin said that Guyana must ensure the highest returns from its oil endowments if it involves an outside source. In explaining what a national oil company with a strategic partner could look like, the analyst said that Guyana must put in zero to very little capital expenditure into the development and then exploration of the oil resources. “So, it would be 95 to 100 percent of the resources would be put by the strategic partner.”
As it relates to operation, Deakin assumed that that some 90 percent of employees would also be from the strategic partner, especially if one is to take the local oil and gas labour market into consideration. “I think as we see in the local content law this would have to be a gradual sliding scale in which the amount of Guyanese people participating in the national oil company increases as time goes by. But most importantly, very little capital expenditure put in by the Guyana government with 50 percent of profit while putting zero percent of the money,” Deakin said. He said too, that Guyana has the bargaining tool which is access and rights to the blocks. And this must be used to its advantage regardless of a strategic partner or marketing through the tender process.
Deakin is among the numerous parties with experience in the oil and gas industry that is advising Guyana to either abandon the idea of an oil company, or to hold back until the country develops the capacity to manage and control its industry. Based on experience relating to oil and gas market intelligence, Deakin said that national oil companies in general bring much more draw backs or negatives than benefits. Government through the national oil company would have to take on additional risk, while money invested could have been used elsewhere.
In the face of greater transparency and accountability claims, Deakin said that having a national oil company has not proven to improve this. In fact, some national oil companies do just the opposite. Privately owned oil companies have proven to be way more transparent than national oil companies as they are required by their shareholders to be open through stock disclosure.
And while there have been cases where national oil companies were successful, Guyana must be mindful of how it views those models. For example, countries like China and Saudi Arabia which have a Communist dictatorship and a non-elected monarchy respectively, Deakin said, “they should not be examples for Guyana in terms of democracy and how they give back to people.” This is different from what is seen in the western economies. Deakin noted that the ability to have a centralised control which sometimes allows for greater effectiveness of resources is something that is not as realistic for a democratic country as Guyana.
“In Guyana’s case, we have seen in the last couple of years that there is just not enough technical expertise yet to make up this national oil company so what it will be essentially is a foreign company middle eastern operating this national oil company with the government just getting some profits from it.” “But there is not real road map, no real tangibility of having a significant participation of the Guyanese people in the short term.” The country would have to create laws, develop its human capacity and ensure proper framework for a certain amount of Guyanese participation. This he said would take Guyana at least a year.