Political uncertainty hangs over Guyana upstream terms

The opposition PPP party wants Guyana to get a ‘fairer share' of production-sharing agreements with foreign oil companies

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

The Caribbean Court of Justice (CCJ) has begun 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 this when one government member voted with the opposition PPP. Guyana's appeals court ruled in March that the December vote was invalid and both parties agreed to take the matter to the CCJ. A final ruling there in favour of the opposition could lead to a snap election.

The PPP is considered centrist — similarly to the incumbent coalition — but says it is "uncomfortable" with the terms of the production-sharing agreement (PSA) with ExxonMobil, as it is "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 says.

President David Granger's administration has signed PSAs with companies including Chevron, 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 agreement with ExxonMobil has led the company to reach very far in its production plans," the PPP says. "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 with other firms to give Guyana greater benefits, the party says.

ExxonMobil announced a 13th oil discovery in April, boosting Stabroek's previously estimated reserves around 5.5bn bl of oil equivalent (boe). The major and its partners in the project — 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. The major this month made a final investment decision (FID) to develop a second phase of the giant Liza field at Stabroek. The $6bn Liza 2 development will produce an estimated 220,000 b/d from mid-2022. And the firm says an FID is expected later this year for a third phase, Payara, which is expected to produce 180,000-220,000 b/d, with start-up as early as 2023.

Time to recuperate

Around 75pc of oil production will initially be allocated to ExxonMobil and its partners to recover oil infrastructure investments under the PSA, Georgetown says. The remaining 25pc will be split on a 50:50 basis with Guyana. The contract includes a royalty of 2pc on gross earnings, giving the government 14.5pc of initial oil revenues. Georgetown will begin to receive higher revenues after ExxonMobil recuperates its initial costs.

The contract terms are "relatively favourable to investors by international standards", the IMF said in an April 2018 review of the contract. The government in November suspended upstream licensing until 2020 to update future contract terms, saying it would revise its PSAs to increase Guyana's returns while remaining attractive to oil companies.

The PNC and PPP are united over one threat — a 19th century territorial claim by Venezuela on Guyana's resource-rich Essequibo province, where Stabroek is located. This has prevented the countries agreeing a maritime border. ExxonMobil suspended seismic surveys on Stabroek in December after a brush with the Venezuelan navy, but said its long-term drilling and development operations remain intact.