Guyana proposes to disallow costs claim by oil companies which have no supporting records only for 14 new oil blocks

Apr 22, 2023 News

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Kaieteur News – Guyanese authorities are gearing to put in place, a number of measures that will ensure there is little to no room for financial abuse by companies that may be licensed to explore its 14 new oil blocks.

According to the draft terms for the Model Production Sharing Agreements (PSAs) for deepwater and shallow water concessions, regulators are planning to disallow any costs for which supporting records are withheld.

It therefore means that even if an expense is provided for under the contract, such as those for drilling, and the relevant documentation is not provided, the Guyana Government will order that the money be excluded from recovery.

Other noteworthy audit powers proposed include the right of the minister to inspect and audit all contractor’s books, accounts, and records relating to petroleum operations for the purpose of verifying the contractor’s compliance with the terms and conditions under the signed agreement.

Upon 30 days’ notice and at reasonable times, the Guyana Government is proposing to have  the contractor/oil company facilitate its representatives and/or agents to visit and inspect all sites, plants, facilities, warehouses, and offices of the contractor which are directly or indirectly serving the petroleum operations. Guyanese authorities also want the right to question personnel associated with the petroleum operations.

Guyanese authorities have also stated that the contractor shall make available, such books, accounts, and records at its Guyana offices for inspection and audit by representatives of the minister including any appointed auditors.

This newspaper understands that the costs of any such audits commissioned by the minister shall be borne by him. Such audits shall also be undertaken by an independent, internationally recognized auditing firm or by the minister or his Designee, and copies of such audit reports shall be provided to contractor free of cost.

Where relevant to a cost recovery audit, Kaieteur News understands that the contractor shall also facilitate access to all books, records, and documents of entities comprising contractor, its affiliates and sub-contractors.

The Minister may also require the contractor to engage with independent auditors to examine at contractor’s cost and in accordance with International Standards on Auditing (ISA), the contractor’s and any Relevant Entity’s books and records to verify the accuracy and compliance with the terms of the signed agreement where relevant to a determination on recoverable costs.

Also, where an independent audit of any relevant entity is required, the Minister shall specify in writing the item or items for which it requires verification from such independent audit.

The foregoing terms are among several which the government has received feedback on following a period of consultations in February lasting two weeks. The new PSAs will be used to govern 14 new oil blocks which form part of the country’s first auction.

Earlier this month, the Natural Resources Ministry said the period for submission of bids on the blocks was extended to mid-July.

Following the submission of tenders for the oil blocks, the bids received will be evaluated between July 19 and August 7, 2023. The Licensing Round will include negotiations between the parties, commencing August 9 and concluding August 28, 2023.

Contracts will be awarded on August 31, 2023 according to the updated schedule of activities.

The bid round was officially launched on December 9, 2022. According to the Ministry, it continues to receive strong global interest and the government has benefited from insightful feedback during the consultation periods of the Indicative Terms and Guidelines and the draft model Production Sharing Agreements (PSAs).

The Ministry also explained that government recently concluded agreements with PGS Exploration (UK) Limited and CGG Data Services to reprocess additional 2D seismic data relevant to the blocks for tender. This will allow existing and prospective participants of the licensing round to benefit from the availability of further seismic data to better inform the bids submitted.

According to the Ministry, “The Government of Guyana remains committed to the successful execution of the Guyana 2022 Licensing Round and the strengthening of the nation’s fiscal and legal petroleum management frameworks.”

It noted that the sector must be governed by a modern regulatory framework. To this end, it committed to the strengthening of the 1986 Petroleum (Exploration and Production) Act.

Eleven of the oil blocks on auction are located in the shallow area and three in the deep water zone. Each area is governed by separate PSAs. They range between 1000 square kilometres to 3000 square kilometres with the majority of them being close to 2000 square kilometres.

The oil companies will be expected to pay a 10 percent royalty and a 10 percent corporate tax. The cost recovery will be capped at 65 percent in a given year, while profits will be shared 50/50 between the parties.

IHS Markit, a leading information services provider headquartered in the UK is taking lead on guiding The Guyana Government on the auction.

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• companies, concessions, financial, Guyana, supporting

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