Vice President Bharrat Jagdeo today announced that the Government is preparing to auction 14 oil blocks under an updated Production Sharing Agreement (PSA) Model that would see Guyana receiving a royalty rate of 10% instead of 2%.

The announcement followed Cabinet’s approval to have the blocks auctioned.

“We have decided to auction 14 blocks and these 14 blocks would range from about a thousand square kilometres to about 3,000 square kilometres, each block, with the majority of them being closer to 2,000 square kilometres,” the Vice President explained during a press conference at the Office of the President.

Mr. Jagdeo noted that 11 of the oil blocks will be in the shadow airway sea while the other three blocks will be in the deep airway sea.

 The Ministry of Natural Resources is expected to provide more details on the auction. However, the Vice President made it clear that the auction is not being launched now.

Turning his attention to the updated PSA Model, the Vice President disclosed further that the 50-50 Profit Sharing aspect of the model will be maintained, however, the royalty rate will be increased to 10% from a low of 2%. Further, the new model will include a corporate tax of 10% while the maximum cost oil, for any given year will be 65%.

Mr. Jagdeo said these key fiscal conditions will govern future contracts.  

“The new fiscal regime which will now govern, not only the award and the contracts that we will sign with the bidders who are successful but will govern all of the subsequent PSAs that we will sign for any other exploration that is already taking place in the other areas, for Kaieteur, and the other areas,” he explained. 

According to Jagdeo, Government is working closely with the Consultant – IHS Markit – to strengthen the PSA before the auction is concluded.

He noted too that legislative changes are coming to facilitate the updated PSA. It was noted any aspect of the Petroleum Act that is inconsistent with the updated PSA, will be amended to bring the legislation in line with the document.

Noting that IHS Markit is a global consultant with its pulse on the industry, the Vice President noted that across the world, several countries are auctioning their petroleum blocks as well.

“We currently have about 65 countries in this 2022, who are in a bid round or launching one soon, so it’s a lot of countries around the world that [are] doing this now. So, its very competitive globally,” he said.

He said Government is cognizant that funds are scarce because of net zero targets, which makes it difficult to raise money for the Oil and Gas Sector. “So, it is becoming more and more difficult to finance the oil and gas sector,” he said.

However, he said government is confident that under this new fiscal regime, Guyana will receive an even greater share of the revenues, even as it remains globally competitive.

“So, we looked at the spectrum of countries, and total government take, starting with those that have very small take, and those that have major ones. We opted for a simple formula with fixed royalties…. The fixed royalties also protect you against the downside when oil prices drop but if you have a variable royalty, when oil prices drop, you lose,” he reasoned.

Under the current PSA between the Government and US oil giant, the royalty is 2%.

The auction will be opened to all companies.

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