Companies will have to pay US$2M annually fee to retain untapped discoveries

Oct 19, 2023 ExxonMobil, News, Oil & Gas

Petroleum Activities Law Pt. 4

By Kiana Wilburg

Kaieteur News – If an oil company makes a petroleum discovery but considers that it is likely to be of commercial interest within five years, the Petroleum Activities Law allows for the licensee to make an application to the Natural Resources Minister to hold onto the area until such time.

The 2021 legislation makes it clear however that the approval of such an application is at the sole discretion of the minister. The law also states that the grant of an authorization shall be conditional upon the licensee not only explaining the reasons for wanting a retention but also undertaking subsequent studies and work obligations to establish the commerciality of the discovery.

Such matters are expounded on in Guyana’s new model Production Sharing Agreements (PSAs) for deepwater and shallow water blocks. The model PSAs state that an application for a retention of a discovery may be justified under the following circumstances:

(a) lack of market for the natural gas to be produced but is expected to be created in less than five years;

(b) lack or inadequacy of infrastructure for transportation of the natural gas to be produced by the Contractor but is expected to be implemented in less than five years;

(c) the volume of the oil and gas discovery is such that its commercial feasibility depends on additional discoveries to be made in the same Contract Area or in adjacent Contract Areas, aiming for the joint development of all operations; or

(d) lack of technology for development of high-pressure high temperature (HPHT) reservoirs but which is expected to become available in less than five years.

The PSAs also state that the application for retention of a discovery shall be accompanied by a Retention Work Programme laying out the specific activities that the Contractor undertakes to carry out to:

(a) secure the market for natural gas;

(b) develop the infrastructure for transportation of natural gas;

(c) ensure the development of a single field, the joint development of a cluster of fields or development of an infrastructure hub to enable the commercial recovery of hydrocarbons from the discovery(s) in question; or

(d) demonstrate technology for development of HPHT reservoirs.

The model PSA also states that the minister shall within 60 days of the receipt of the application for Retention of Discovery make a decision whether to grant or reject the application. Significantly, the PSAs outline that the in reviewing the application for retention of discovery, the minister shall prioritise the national interests of the State. If the retention of the discovery by the Contractor is considered in the best interest of the State, the minister may approve same for an initial period of three years, termed “retention period”.

Within 90 days of the end of the initial retention period, the contractor may apply for a two year renewal of the retention period. The PSAs state that such request must be accompanied by a technical report and an updated Retention Work Programme, the approval of which is at the discretion of the minister. During the retention period, it is critical to note that the contractor shall pay to the minister at the beginning of each year, an annual holding fee of US$2 million. Such fee would be cost recoverable.