Repsol will not be able to recover US$500M costs if Govt. grants new licence for Kanuku Block - Jagdeo

Repsol will not be able to recover US$500M costs if Govt. grants new licence for Kanuku Block – Jagdeo

Sep 08, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Vice President, Bharrat Jagdeo on Thursday clarified that Spanish oil exploration company, Repsol will not be able to recover the US$500 million in exploration costs expended to date, should it receive a new licence for the Kanuku block.

Vice President, Dr. Bharrat Jagdeo

The company’s previous licence came to an end in May this year. That licence allowed Repsol to explore on the block for 10 years. It has since reapplied for a new licence. The government said it is yet to decide if that will be granted directly or if the company would have to participate in a public auction in the future.

During his weekly press conference at Freedom House, the Vice President explained, “I said no such decision has been made at this point in time (to renew the licence) and I gave the variables that will be used by the decision makers on both sides in favour of a new licence or working directly with them or not giving a licence for the block and retaining that block and then putting it out to auction.”

He went on to point out this therefore means that Repsol will not be able to bill Guyana for the US$500 million it expended prior to the expiration of its license. Consequently, he noted, “the new licence (if granted) would be under the new regime and should they move to production under a new licence, only exploration costs in the current period, under the new licence will be considered as part of the cost bank.”

Jagdeo said that there is a common misconception that exploration costs are mandatory for the country, however, a company can only move to recover those expenses if it moves to the next stage- production. For instance, he pointed out that ExxonMobil, the majority stakeholder in the Stabroek Block, was allowed to recoup its exploration costs since it moved from an exploration licence to production activities. “There was continuity. They moved from, in the 2016 licence that was there, they got a production licence in 2016 so they were moving to production…if you move to a production license then you can claim because that’s when you have earnings; then you can claim the cost for exploration as part of the cost bank… if there is no production then you can’t come to the country,” he elaborated.

Jagdeo was keen to note that offshore oil exploration was not a risk-free activity, since as with the Kanuku Block, Repsol has lost its US$500 million investment.

Map showing the location of the Kanuku Block offshore Guyana

In the meantime, the Vice President said the Kanuku Block is the State’s property and should Cabinet decide to work with the company to issue a new licence, then the company would be subjected to the new terms outlined in the model Production Sharing Agreements (PSAs). This would include a signing bonus, as well as a 10 percent tax and 10 percent royalty among others. Repsol commenced exploration activities in the Kanuku Block in 2013 under the People’s Progressive Party (PPP) administration. Its past exploration wells have not yielded commercial discoveries to date. It was reported that the Beebei well drilled in 2022 held high hopes of uncovering 200 million barrels of recoverable oil equivalent. However, the findings were water-bearing rather than oil-bearing, marking a significant setback. Yet, the non-commercial Carapa-1 in 2020 indicates the potential extension of the Cretaceous oil play from the ExxonMobil-operated Stabroek block into the Kanuku licence.

The Kanuku Block measures 1,937 square kilometers. Kaieteur News previously reported that Repsol Exploración Guyana is the operator of the Kanuku Block, with a 37.5 percent stake while the UK-based Tullow Guyana holds a 37.5 percent stake and Total E&P Guyana owns the remaining 25 percent interest.

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Blocks, expense, Kanuku, oil, recover, Repsol

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