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Guyana politics could upend oil contract terms

 


 

By Argus

GEORGETOWN
Petroleumworld 05 14 2019

A possible parliamentary election in Guyana this year could dim the investment climate for oil companies hoping to replicate ExxonMobil's rapid-fire success offshore.

In a closely watched process that starts today, the Caribbean Court of Justice (CCJ) will begin adjudicating a December 2018 no-confidence vote against the government. The ruling PNC coalition had held a one-seat majority in the 65-seat assembly, but lost its majority in the confidence vote when one government member voted with the opposition PPP.

The country's appeals court ruled in March 2019 that the December vote was invalid, and both parties agreed to take the matter to the CCJ. A final ruling in favor of the opposition at the CCJ would lay the groundwork for a snap election in the parliament.

In common with the incumbent PNC-led coalition, the PPP is considered centrist, but says it is "uncomfortable" with the terms of the production-sharing agreement (PSA) with ExxonMobil that are "too generous and could have given the country a fairer share."

The contracts signed after the deal with ExxonMobil will not be upheld by a PPP government, the party told Argus .

While a PPP government would not change the terms under which ExxonMobil is operating, it would renegotiate the agreements with other companies "because they were poorly negotiated," the party said.

"The agreement with ExxonMobil has led the company to reach very far in its production plans," the PPP said. "Changing this at this stage would be disruptive to the country's short and medium-term economic plans, so we would leave that agreement alone."

But a PPP government would renegotiate terms agreed with other companies to give Guyana greater benefits, the party said.

The PNC administration of President David Granger has signed PSAs with foreign companies, including Chevron, France´s Total, Spain´s Repsol, Italy's ENI and Germany's DEA, since ExxonMobil started a chain of discoveries on the deepwater Stabroek block in May 2015.

The US major announced a 13th oil discovery on Stabroek in April, boosting previously announced estimated recoverable resources of around 5.5bn bl of oil equivalent (boe) on Stabroek. ExxonMobil and its partners, US independent Hess and Chinese state-owned CNOOC unit Nexen, plan to start production in March 2020 at a rate of 120,000 b/d, ramping up to 750,000 b/d by 2025. And ExxonMobil recently made a final investment decision to develop a second phase of the giant Liza field on Stabroek.

Neither ExxonMobil nor any of the companies that have signed PSAs in recent years responded to requests for comment on the potential impact of the court ruling. But many are likely be concerned at the chances of a PPP administration that could revisit oil contract terms and possibly even revoke some agreements.

Under the revenue-sharing agreement between ExxonMobil and Guyana, 75pc of oil production will initially be allocated to the company and its partners for cost recovery of investments made in oil infrastructure, according to the government. The remaining 25pc will be split on a 50:50 basis with Guyana.

The contract includes a royalty of 2pc on gross earnings, leading the government to receive 14.5pc of initial oil revenues. The government will begin to receive higher revenues after ExxonMobil recuperates its initial costs.

The contract terms are "relatively favorable to investors by international standards," the IMF said in an April 2018 review of the contract.

The government reacted in November 2018 by suspending upstream licensing until 2020 to update future contract terms. The revised PSAs will be more attractive to oil companies and will increase the country's returns. But current contracts will not be affected, Guyana's energy department said.

Both the PNC and the PPP are united on one threat that clouds offshore exploration and production in Guyana - a 19th century territorial claim by Venezuela on Guyana's resource-rich Essequibo province, where Stabroek is located. The dispute has prevented the countries from agreeing their maritime border.

ExxonMobil suspended seismic surveys on Stabroek in late December 2018 after a brush with the Venezuelan navy , but said its long-term drilling and development operations remain intact.

"This claim by Venezuela is a threat to the integrity, economy and national security of Venezuela," the PPP said."This is not a matter that is causing political division in the country. We reject Venezuela's claim, and will continue doing so if we form the next government."

 

 


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