More bad than good surrounding traditional National Oil Companies

May 31, 2022 News

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VP Jagdeo insists…

– government considering shareholder rights only

By Zena Henry

Kaieteur News – As government continues to consider introducing a National Oil Company (NOC) with a “strategic investor” verses the auctioning of its remaining offshore oil blocks to interested parties, one of the main variables to determine the establishment of this company is whether Guyana will still be able to significantly increase its revenue from other streams such as its Production Sharing Agreement (PSA). This was underscored by Vice President (VP) Bharrat Jagdeo during a press conference at the Office of the President on Monday.

The VP submitted that there seems to be a lot more cons and a few pros when examining existing NOC models globally. As such, the state is considering a NOC with a model outside of the ordinary set-up.
The VP told media operatives that in contributions pertaining to the development of the NOC, questions continued to be raised about the time it would take to develop a NOC, the overload on domestic capacity, and the corruption usually associated with these entities. Based on what has been seen, “The examples are not encouraging,” Jagdeo pointed out. He said more importantly, from the government’s end, there are additional concerns regarding the NOC. These additions, he said, include the fact that with the net zero target by 2050, it becomes harder to raise money globally for a NOC. He said having a NOC with the remaining assets can also concentrate things and cause a slowdown in the sector. “If all the remaining assets were vested in a NOC, it could lead to too much concentration and slow down the process of exploration,” he said.
In the model using a strategic partner, Jagdeo said that having just one strategic partner to work with could also mean a much slower process of exploring, and that would be at a time when the country needs to prove its resources in an era when, “we have to accelerate the proving of these resources and possibility, get them out before the world totally decarbonises.” As such, Jagdeo said Guyana cannot go forward with the old NOC model.
“The model that we are talking about should we go down this route is not an old style NOC,” he said, “It is about a passive ownership of shares…”
In exchange for the offshore blocks, the thinking of the government, Jagdeo highlighted, is that, “we just simply say that we are getting a strategic partner, we are taking a share of the company but we have no control over operations or management except for the controls given to shareholders through passive ownership by virtue of owning shares.”
Globally, the VP submitted, there is a sense that if the NOC is owned, then it belongs to the people of the country and that it is set up in such a way to break foreign monopolies. However, Guyana is not in that category, the VP noted. The key variable, he said, is the changing of the PSA that “for example, if Guyana is now receiving 50 percent of total revenue through the current PSA, then the new PSA can then give us a 60 percent of all of the oil company revenue. So whether a NOC is established or not, Guyana has to receive 60 percent of the proceeds, should production commence. We are then thinking would ownership give us a next set of money?”
He added, “Assuming that we own 10 percent or 20 percent of another company, will we then get even more than the 60 percent coming to the budget and the national resources fund? That’s the key variable.”
The VP questioned, however, how much money Guyana would need to invest in the risky venture to get that 20 percent ownership. He noted that if Guyana were to put money into a venture and dry wells are discovered, then the country loses all its money. “We have to look at all those issues and whether we want to spend our money in a risky venture in that way too,” the VP stated.
In the meantime, the government is going to market the remaining oil blocks as is. The VP said that the country would make the blocks available with the current information that exists. Given what is expected from the strategic partner, Jagdeo said that the government has made it clear that whoever is coming to the table “must have deep pockets to finance exploration activities.” The government, he added, is not seeking a partner that cannot take on its losses and raise its money to operate since this would slowdown activities.
The VP also revealed that the government currently has a team providing advice in relation to the auction since it is the first time that the government will be doing this; and is also looking for maximum value. The marketing of the blocks could be a straightforward one, but the government is still unsure of the model it will eventually go with. A decision, he said, will also be made as to whether the government will keep existing operators, such as ExxonMobil, out of the upcoming process given the large offshore area the company already controls.

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