Auction will be undertaken under revamped fiscal terms

Guyana is set to auction 14 offshore exploration blocks, but this will be done under revamped fiscal terms.

The revamped fiscal terms will significantly increase the Caribbean-South American country’s share of oil revenue. The new profit-sharing agreement, that will cover future oil production agreements, is under development and will be finalised before the auction ends.

It will include a 50-50 split of oil profits and tack on a 10 per cent royalty rate and a 10 per cent corporate tax rate.

Guyana Vice President Bharrat Jagdeo, who made the announcement in an address to the nation, which has become one of the world’s hottest oil drilling zones.

Last week, government officials approved an oil lease auction with timing details to be disclosed by the Ministry of Natural Resources. The auction will include three deep-water and 11 shallow-water exploration blocks. 

Jagdeo advised that the new contract terms “shift significantly” the revenue split with Guyana receiving a “greater share of the proceeds” compared to the existing production sharing agreement terms. This new contract terms should accelerate Guyana’s oil boom by bringing in new producers.

A group led by Exxon Mobil XOM.N that includes Hess Corp HES.N and China’s CNOOC Ltd 0883.HK has discovered 11 billion barrels of recoverable oil in a 6.6-million acre (26,800 sq km) block off the country’s coast. That agreement has been criticised for providing Guyana, regarded as an impoverished nation of fewer than 800,000 people, with only about 15 per cent of oil revenues, including a two per cent royalty rate. 

Oil producers can bid for as many blocks as they wish, but no more than three blocks will be awarded to any one company. Each bid must include a development plan that will be considered along with the financial bid, the vice president declared. 

Winning bidders must pay a US$10 million signing bonus for shallow water blocks and twice that for deep-water awards. They also will be required to put up a guarantee of at least 20 per cent of the work development plan.