Financial aspect of new oil law will not affect Stabroek Block

Jun 28, 2023 ExxonMobil, News, Oil & Gas

…Exxon will play by other regulatory rules – VP Jagdeo

Kaieteur News – Vice President, Dr. Bharrat Jagdeo recently confirmed that the fiscal regime outlined in the Petroleum Activities Bill 2023 will not apply to the ExxonMobil-operated Stabroek Block. Outside of that, the oil major will have to play by all other regulatory rules once the new legislation is passed.

The proposed law has several new fiscal demands which will govern new blocks to be awarded in the country’s first auction of 14 concessions.

Vice President, Dr. Bharrat Jagdeo

The Bill states that the holder of a petroleum exploration licence would have to pay the government rental fees in respect of their exploration or appraisal period. The amount of the rental would be specified in the petroleum agreement. The Government has said this would be in the amount of US$1M for the time being. The Bill states that rental would be paid annually on the effective date of the petroleum exploration licence and on the anniversary date so long as the licence remains in force.

Furthermore, the Bill states that the minister may condition the grant of a petroleum exploration licence upon payment of a signature bonus by the licensee. Where a petroleum exploration licence is granted through competitive tender the minimum value of the signature bonus shall be established in a legal notice. Where a petroleum exploration licence is granted through direct negotiation the value of the bonus is the amount resulting from the negotiation process. For the ongoing auction, government had announced that it would accept a minimum signing bonus of US$10M for shallow water blocks and a minimum of US$20M signing bonus for deepwater blocks.

There is also a provision in the bill for the state to collect retention fees. In this regard, it notes that the Minister will have the power to approve an oil company’s application for retention of a discovery, even though it may not be for immediate development or production works. In so doing, the applicant shall, in accordance with the petroleum agreement, pay to the government a retention fee for the duration of the retention rights. The retention fee is to be paid annually on the date of approval by the Minister of an application for retention rights and on the anniversary date so long as the licensee retains the discovery.

Subject to this draft Act, the holder of a licence shall, also pay to the Government royalty in respect of petroleum obtained by the licensee in the development and production area to which the licence relates. Kaieteur News understands that if the holder of a petroleum production licence fails to pay any royalty due on or before the due date, or any further time allowed by the Minister, the Minister may, by notice served on the holder of the licence, prohibit the removal of any petroleum from the development and production area concerned, or from any other development and production area subject to a licence held by that holder, or from both, until all outstanding royalty in arrears has been paid or until an arrangement has been made, and accepted by the Minister, for the payment of the royalty in arrears, and the holder shall comply with the notice.

Any person who contravenes such a notice shall be guilty of an offence and shall, on summary conviction, be liable to a fine of $20M and imprisonment for three years. Notably, the minister has the power to defer royalty payments or waive them altogether. Jagdeo has noted however that such a power to waive royalties should be censored by Cabinet.

Apart from royalties, the Bill also calls for the payment of a training fee payable annually throughout the validity of the petroleum agreement. This is currently set at US$1M.

According to the Bill, the petroleum exploration and production licences may also require the licensee to establish a programme of financial support for environmental and social projects to be funded by the licence holder. The terms of the programme and the financial contribution by the licensee are to be established in the petroleum agreement.

The Minister may also, from time to time, make such arrangements as appear appropriate to him to secure that the holder of a licence complies with this Act and the licence, and in particular may accept guarantees in respect of that compliance from any person including from shareholders in a body corporate, whether or not the body corporate is, or is to be, the holder of a licence.

The Minister may also require an applicant for the grant or renewal of a licence to execute a bond, satisfactory to the Minister, for the performance and the observance by the applicant of the conditions of the licence upon grant or renewal thereof or to make arrangements, satisfactory to the Minister, for the execution of such a bond.

Notably, the new oil law once passed will support the fiscal terms already finalized for the new Production Sharing Agreements for shallow and deepwater concessions. The new oil agreements are expected to feature a payment of 0 to 0.75 percent property tax, 10 percent income tax, 50/50 profit oil sharing, and 65 percent cost recovery cap.