Guyana oil play clouded by looming political shift

: Crude oil, Natural gas
19/06/18

Guyana´s emerging offshore oil play was thrust into uncertainty today by a regional court ruling that paves the way for a shift in the political landscape.

The Caribbean Court of Justice (CCJ), based in Port of Spain, determined that a December 2018 no-confidence vote against the centrist administration of President David Granger was valid. As a result, the government is obligated to hold an early general election, potentially ushering in the opposition that wants to renegotiate most production-sharing agreements (PSAs).

The ruling imperils the investment climate for oil companies hoping to replicate ExxonMobil's rapid-fire offshore success.

The government accepts the CCJ decision, Granger said, adding that he is awaiting a recommendation from the country's elections commission on a date for poll.

The ruling People's National Congress (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 People's Progressive Party (PPP).

Guyana´s constitution mandates that an election should have been held by March 2019, but the government requested adjudication by the country's appeals court that ruled in March that the December vote was invalid. Both parties agreed to take the matter to the CCJ.

The PPP says it is "uncomfortable" with the terms of the PSA with ExxonMobil that are "too generous" and should have given Guyana "a fairer share." Contracts that were signed with other oil companies after the deal with ExxonMobil will not be upheld by a PPP government, the party has told Argus.

While the PPP 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."

Granger´s administration has signed PSAs with US major 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).

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. ExxonMobil recently made a final investment decision to develop a second phase of the giant Liza field on Stabroek.

The PPP´s position was echoed by the IMF in an April 2018 review of the country´s PSA model, which it called "relatively favorable to investors by international standards."

The government reacted in November 2018 by suspending upstream licensing until 2020 to update future contract terms, the energy department said.

The revised PSAs will be more attractive to oil companies and will increase the country's returns, it said. But current contracts will not be affected.

The PNC and the PPP are united on one threat to offshore exploration in Guyana - a 19th century territorial claim by Venezuela on Guyana's resource-rich Essequibo province, where Stabroek is located.

"This claim by Venezuela is a threat to the integrity, economy and national security of Venezuela," the PPP said. "We reject Venezuela's claim, and will continue doing so if we form the next government."

On a conference call with JPMorgan today, ExxonMobil upstream oil and gas president Liam Mallon described the Guyana discoveries as "staggering", and touted the company´s 87pc exploration success rate and the rapid rate of development there.

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