Draft oil law proposes to give minister power to waive payment of 10 percent royalty

Jun 22, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – The government’s new draft oil law is proposing to arm the Natural Resources Minister with the power to waive the payment of royalty that will apply to new Production Sharing Agreements (PSA).

Section 49 of the Petroleum Activities Bill 2023 which deals with the remission of royalty states: “The Minister may, on application made to him by a licensee and after consultation with the Minister assigned responsibility for finance, by order— (a) remit, in whole or in part, any royalty payable by the applicant; or (b) defer payment of any royalty, on such conditions (if any) as he may specify in the order.”

Kaieteur News confirmed with two tax specialists that the foregoing provision would therefore give the minister the power to waive the payment of royalties in new oil blocks. The grounds for allowing such remission as plausible were not outlined in the law but can be refined in regulations to which the minister has authority in determining. Another important point of note is that this very provision also exists in the Petroleum Exploration and Production Act of 1986 which means it therefore applies to the ExxonMobil-operated Stabroek Block where a 2 percent royalty is being paid.

There are also a slew of other fiscal benefits being proposed for the new oil law which will govern future oil blocks such as the 14 that are likely to be awarded before year-end. These include the payment of training fees, financial support for environmental and social projects, rental fees which shall be specified in the petroleum agreements, the payment of signature bonuses by licensees which shall be established through competitive tender or direct negotiations for certain blocks, and fees for retention of discoveries which have not been utilized.

Notably, the bill once passed will support the fiscal terms assigned to new Production Sharing Agreements being finalised for shallow and deepwater concessions. The new oil agreements are expected to feature a US$1M training fee, US$1M rental fee, 10 percent royalty, 0 to 0.75 percent property tax, 10 percent income tax, 50/50 profit oil sharing, a 65 percent cost recovery cap, a minimum of a US$10M signing bonus for shallow water blocks and a minimum of US$20M signing bonus for deep water blocks. The Ministry of Natural Resources released on June 19, 2023 the Petroleum Activities Bill for a two-week period for public consultation. It is expected to repeal and replace the Petroleum (Exploration and Production) Act Cap. 65:10.

The ministry explained in a statement that the Bill introduces significant improvements and safeguards related to safety, emergency response, cross border unitisation, supervision and monitoring requirements and authorizes the minister to prescribe regulations about key administrative and operational aspects of exploration and production activities.

Further, the Bill expands the scope of the proposed Act to regulate storage and pipeline transportation aspects of the oil and gas sector and empower the government to regulate, in the future, activities associated with geological storage of carbon dioxide. Exploring opportunities for potential CO2 storage sites will also enable the government to develop petroleum resources while seeking to minimize their carbon and footprint, the ministry said. The draft Bill is now available for public consultation feedback until Monday, July 3, 2023, at the following websites: www.nre.gov.gy and www.petroluem.gov.gy. All comments should be sent via email to [email protected].

payment, percent, power, Production Sharing Agreements (PSA, royalty

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