VP Jagdeo signals interest to engage Brazil’s controversial state-run company for Guyana oil blocks

Feb 19, 2023 News

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Kaieteur News – Vice President (VP), Dr. Bharrat Jagdeo has disclosed that the People’s Progressive Party Civic (PPPC) Government is keen on engaging the Brazilian administration as well as its state-run company Petroleo Brasileiro S.A. on exploring Guyana’s oil blocks.

This was first reported by Reuters following its exclusive interview with the VP. In that report seen by Kaieteur News, the Vice President is quoted as saying that the administration “wants Petrobras to be involved here.” Jagdeo said he is waiting on his old political ally, Luiz Inacio Lula da Silva, to settle in; having only started his third term in January.

Brazil is part of the list of countries government has been in discussions with for possible government-to-government partnerships on oil blocks. India, Qatar and the United Arab Emirates are part of the star-studded list of oil producing states.

Petrobras would be seen as a critical partner for Guyana given its 70 years of experience in the oil industry. Today, Petrobras stands as Brazil’s largest oil and gas company and one of the largest in the world. It is present in 18 countries, has 134 production platforms, 15 refineries with a processing capacity of 2.3 million barrels per day, and some 8,600 service stations throughout Brazil and abroad.

But Petrobras’ history is not an exactly squeaky-clean. The biggest stain on its reputation is Operation Car Wash—a criminal investigation that was led by the Federal Police of Brazil’s Curitiba branch. It began in March 2014 and was initially headed by investigative judge Sérgio Moro, and in 2019 by Judge Luiz Antônio Bonat. It was considered the largest corruption investigation in the country’s history.

The aim of the investigation was to ascertain the extent of a money laundering scheme, estimated in 2015 at R$6.4–42.8 billion (US$2–13 billion), largely through the embezzlement of Petrobras funds. It became known as “Operation Car Wash” because it was first uncovered at a car wash in Brasília.

It included more than a thousand warrants for search and seizure, temporary and preventive detention, and plea bargaining, against business figures and politicians in numerous parties. At least 11 other countries were involved, mostly in Latin America, and the Brazilian company Odebrecht was deeply implicated.

Investigators had also indicted and jailed some well-known politicians, including former presidents Fernando Collor de Mello, Michel Temer and Luiz Inácio Lula da Silva. Lula, who has maintained his innocence, was ultimately released in November 2019, and went on to win the 2022 Brazilian general election.

Many of the investigations into Petrobras’ corruption schemes and scandals lasted for years and resulted in multibillion dollar fines being paid by the company up to 2021.

While Guyana is courting some of the world’s leading oil producing countries, it is simultaneously advancing efforts to attract the wealthiest and most experienced oil companies to participate in its first licencing round of 14 blocks. Natural Resources Minister, Vickram Bharrat was also interviewed by Reuters on this. He disclosed that eight companies, including well-known oil producers, have paid to access geological data for the concessions on offer.

Last year December, President Dr. Irfaan Ali launched the licensing round, noting that it will feature 11 shallow water blocks and three deepwater concessions. There is a minimum signing bonus of US$20M for deepwater blocks and a minimum of US$10M for shallow water.

Successful companies would be required to pay a 10 percent income tax, 0 to 0.75 percent on property tax, 50 percent profit sharing, be subject to a 65 percent cost recovery ceiling, pay an annual rental fee totalling US$1M also an annual training fee amounting to US$1M.

According to government, shallow water blocks have a five-year exploration phase and a 20-year production phase, with a possibility of renewal based on negotiated terms with the government. Deepwater blocks have a 10-year exploration phase and a 20-year production phase, which may be extended for an additional 10 years.

All blocks will have a relinquishment obligation of 50 percent of the original area at the end of the initial period, and a further 50 percent at the end of the first renewal period, excluding areas designated for development.

Though the foregoing terms are significantly higher when compared to what obtains in the lopsided 2016 Stabroek Block Production Sharing Agreement (PSA), Exxon was still lured to participate.

The draft model PSA is expected to be released this month.

The final contract terms are expected to be published on March 8, 2023, with the government taking and evaluating bids from April 14 to May 5, 2023.

The tender is open to any company or consortium, irrespective of nationality, that can comply with the stated health, safety, environmental, technical and financial requirements.

Kaieteur News understands that the stated intent of the tender is to encourage open competition for all 14 blocks; however, Government has said it retains the discretion to limit any award to a maximum of three blocks. Companies tendering for more than one block must therefore submit their bids in the order of preference.

There is also a mandatory participation fee of US $20,000.00 per block per participating entity, even when participating through a consortium. The deadline to pay the fee is April 7, 2023. Access to the data room for the blocks is conditional on payment of the participation fee.

On May 31, 2023 government said it will announce the award of the licenses for new blocks.

The Natural Resources Ministry has said that the country’s offshore basin has captivated the attention of the global oil market participants. Labelled as “the gateway to the world’s fastest-growing super basin over the last four years,” Guyana’s offshore is estimated to have potential resources in excess of 25 billion barrels of oil equivalent (boe) and an estimated reserve in excess of 11 billion boe.

“The licensing round represents an opportunity for international and local companies to access Guyana’s offshore acreages for future development in this emerging energy market. The licensing round importantly allows the government of Guyana to create and administer an improved fiscal and regulatory framework that is driven on good international oil field practices and standards,” the ministry said.

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• Brazil’s President, Dr. Bharrat Jagdeo, Luiz Inácio Lula da Silva, Petroleo Brasileiro, Vice President

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