Govt. now wants oil companies to show supporting documents on costs for future projects

Mar 18, 2023 News

…cannot deviate from approved plans without permission

Kaieteur News – When it comes to the expenses that will be incurred by potential operators of new oil blocks, the People’s Progressive Party Civic (PPP/C) Government has outlined a set of rigid rules that ought to be followed to ensure effective compliance with international best practices. These rules are outlined in the draft Model Production Sharing Agreements (PSAs) that will govern deep water and shallow water blocks which form part of the upcoming licensing round.

According to the draft documents, the Contractor shall submit to the minister for approval, in accordance with the accounting procedures, a budget of the costs to be incurred in the implementation of its work programme, simultaneously with its plans for exploration or development.

The documents state that all proposed budgets shall be commercially viable, reasonable and consistent with the requirements of the agreement signed, its annexes and best international industry standards and practices.

Importantly, the proposed budgets shall: a) be denominated in US Dollars; b) include a detailed estimate of Costs necessary to implement the Petroleum Operations described in the Work Programme corresponding to the Budget; c) include a schedule of estimated expenditures of the Costs; d) specify any assumption or premise on which it is based.

It also proposes that the Contractor shall provide supporting documents for all its cost estimates. This newspaper also understands that the proposed budgets shall be consistent with the relevant exploration plan or development plan, as the case may be, and the relevant work programme.

It also goes on to state that the contractor may not modify an approved budget without the approval from the Minister. Also, any request for a change to the budget shall contain the reasons for deviations from the costs originally listed in the Budget.

When compared to the 2016 Stabroek Block Production Sharing Agreement signed with ExxonMobil and its partners, there are no such stipulations, therefore implying that the government is intent on closing such a loophole in future contracts.

It should be noted that the proposed terms in the new model PSAs complement the commercial provisions which were released last December by the People’s Progressive Party Civic (PPPC) Government. The main commercial terms include a royalty rate of 10 percent, cost recovery capped at 65 percent, and profit sharing of 50 percent.

There is also a minimum signing bonus required from the bidders of US $20 million for deep water and US $10 million for shallow water blocks.

In terms of tax, the tender provides that a corporation tax of 10 percent and a property tax of 0.75 percent will be levied on the participating entities.

It is worth noting that bidders will be required to commit at least US $1 million per year towards the employment and training of the citizens of Guyana in accordance with the Local Content Act.

In a statement to the media on Tuesday, the ministry said the draft Model Petroleum Agreements embodies rigorous research and analysis by the ministry’s internal team and external consultants on all topics relevant to a modern petroleum agreement for Guyana.

The ministry said the process involved a comprehensive assessment of the current petroleum agreement and the identification of best practices relevant to every contractual aspect of a modern agreement grounded in the Guyana context.

To ensure new investments are governed by a comprehensive framework of international best practices, the ministry said there will be an overhaul of the 1986 Petroleum Act and Regulations.

Feedback on the draft model agreements should be addressed to the Minister of Natural Resources and sent to [email protected] with the Permanent Secretary copied, [email protected].

companies, contractor, documents, Model, Production Sharing Agreement

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