Govt. secures power in new deals to conduct preliminary assessment of all costs for future oil projects  

Mar 20, 2023 News

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– Regulators also want the right to disallow ineligible expenses 

Kaieteur News – The PPP/C Administration is proposing to have the power to conduct preliminary assessments of all costs to be recovered by oil companies that will be awarded 14 oil blocks in the country’s upcoming bid round.

The details of this are outlined in the draft Model Production Sharing Agreements (PSAs) that will govern all deepwater and shallow water blocks going forward, except the Stabroek Block.

According to the draft documents, the government wants oil companies for future oil blocks to provide monthly, quarterly, and annual statements to the subject minister. When this is received, there will be an initial verification procedure.

In this regard, the draft agreements state that the government, at each quarter, will conduct a preliminary assessment as to which of the contractor’s costs may qualify as recoverable costs.

On receipt of the quarterly statements, the minister will also initially verify the qualification of the claimed costs as Recoverable Costs under the Agreement; and if the amounts claimed as qualifying as Recoverable Costs are correct based on documentation made available at Contractor’s offices in Guyana.

The agreements state that this initial verification of expenditures shall be the basis for provisionally determining the sharing of petroleum but shall not constitute a final approval by the minister of those amounts. Such final approval shall only be provided after final auditing has been completed.

Another significant provision pertains to the powers to place certain costs on hold.

The draft agreements state that within 90 days of receipt of the quarterly statements, the minister may submit a written exception notice to the Contractor, expressly identifying the particular cost or costs under review and the reason for the exception. Within 30 days of the date of receipt of the written exception notice, the Contractor has to submit to the Minister such additional written information as the Minister may require, as well as any information the Contractor may consider relevant to determine that it warrants recovery.

If the Contractor does not make a written submission before this deadline, the cost or costs would be deemed disallowed for purposes of cost recovery.

Even more profound is a provision that states, following receipt of any additional information from the Contractor, the Minister shall, within thirty (30) Days, conduct a final review and notify the Contractor of its decision on the disputed costs. But, where the Minister decides to disallow the disputed costs as a Recoverable Cost, the Contractor shall promptly correct its books of account to reflect any changes resulting from the initial verification procedure.

The agreements also note that the Contractor may, however, request a final expert determination on the recoverability of the disputed cost within 30 days.

The draft documents also note the minister’s right to inspect and audit all Contractors’ books, accounts, and records relating to Petroleum Operations for the purpose of verifying the Contractor’s compliance with the terms and conditions under this Agreement.

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 last week, the ministry said the draft Model Petroleum Agreements embody 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].

 

 

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