Guyana leaders relied on outdated oil laws for years but only now addressing them for auction of 14 new blocks

Jun 20, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Over the past few years, the PPP/C government has been in charge of managing Guyana’s oil and gas sector, neglecting to update outdated oil laws until the present time when it is preparing for an auction of oil blocks. This delay in modernizing the laws brings squarely into focus, the government’s governance approach, as the decision to initiate the auction before addressing the laws is a clear case of putting the cart before the horse.

Guyana, as one of the most significant oil-producing countries of this decade, is managing its petroleum sector with laws that are 37 years old. The Petroleum (Exploration & Production) Act, which has only undergone minor amendments, dates back to 1986. The government plans to publish a draft of the updated laws on June 19, with a debate on the amendments in Parliament expected to take place before the conclusion of the auction.

During the previous APNU+AFC government’s five-year tenure, the oil sector was managed without implementing updated laws. When the PPP/C assumed office in 2020, unfortunately, updating the oil laws was not prioritized. Instead, government approved three oil projects – Payara, Yellowtail, and Uaru – which are estimated to cost Guyana over US$31B. Together, these projects will significantly increase oil production by over 720,000 barrels per day. Furthermore, despite calls for renegotiation to achieve fairer terms, the government rejected the calls to amend the lopsided Stabroek Block contract.

Another worrisome aspect is the lack of clear assurance that the new laws will apply to the Stabroek Block, where the majority of Guyana’s oil resources are being exploited. The stabilization clause in the Stabroek Block Production Sharing Agreement (PSA) contains oppressive provisions, requiring Guyana to exempt ExxonMobil and its partners from new laws if their financial bottom lines are affected. This means that an internationally condemned oil contract will continue to govern operations in that block.

It is concerning that the PPP/C government decided to renew the oil laws only because it needed to allocate 14 oil blocks to new players. Vice President, Bharrat Jagdeo himself acknowledged that the laws are being updated to support the new framework for the upcoming auction. The delayed progress in updating these laws has severely hindered Guyana’s chances of attracting investments in the auction.

Furthermore, the government intends to seek approval from Parliament to amend the Corporate Tax Act, including the implementation of a 10% income tax for companies operating under the agreements issued in the auction. However, the model production sharing agreement (PSA) for the offshore licensing round, which was launched in December 2020, has yet to be finalised, causing further delays and uncertainty for potential investors. In addition to the outdated oil laws, Guyana lacks critical mechanisms to safeguard its interests in the oil sector. Important policies like a decommissioning policy and a petroleum commission should have been established by now.

Moreover, crucial aspects such as cost disclosures, payment of income taxes by oil companies, higher royalty rates, elimination of oppressive exemptions for contractors, implementation of appropriate offshore technology for independent oil monitoring, timely completion and release of oil audits, and formulation of comprehensive field development plans should have already been incorporated into the framework governing this crucial sector. Despite these evident issues, the opposition has been largely ineffective, often displaying a lack of understanding regarding matters concerning Guyana’s most valuable sector.

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Auction, Guyana, Laws, PPP/C, PPP/C Government

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