Gov’t’s effective management of O&G sector paves way for sustainable growth

Economic development in Guyana is expected to progress in an accelerated manner, prompted in large part by the nascent oil and gas sector.

In 2023, the country’s real gross domestic product (GDP) is estimated to have grown by 33 per cent, with the non-oil sector recording a commendable 11.7 per cent expansion.

Oil and Gas exploration in Guyana

Senior Minister in the Office of the President with responsibility for Finance and Public Service, Dr Ashni Singh detailed this in his recent presentation of the 2024 budget.

He reminded that the government’s policy consistently entails supporting traditional pillars of the economy while spurring growth in the oil and gas sector.

In addition to this, creating the enabling environment for sustainable exploration and production of oil while remaining aligned with the global net-zero emissions goal is also a top priority.  

Oil and gas exploration and production are set to intensify this year, with the newest addition to the fleet, Prosperity FPSO, set to achieve production of 220,000 barrels per day by March.

According to the senior government official, the oil and gas sector is estimated to have expanded by 45.9 per cent last year, with production of 142.9 million barrels of oil, compared with 101.4 million in 2022. This is due to increased production from the Liza Destiny and Unity FPSOs.

For context, Dr Singh explained that in 2023, the Liza Destiny FPSO produced crude oil at a rate of approximately 142,000 barrels per day (bpd), while the Liza Unity FPSO produced at a rate of 235,000 bpd.

At this rate, Guyana is said to be well on its way to achieving 1.2 million barrels of oil per day by 2027.

Against this backdrop, a keen effort is placed on ensuring transparency, accountability, and sustainable growth in the sector. The requisite legal, regulatory, and institutional framework has been an integral aspect in the move to maximise the benefits of the oil and gas industry.

For example, the Local Content Act lays out 40 services that oil companies and their sub-contractors must procure from Guyanese companies and Guyanese nationals.

It also imposes penalties for oil and gas contractors and sub-contractors who fail to adhere to the requirements set out in the law.

This legislation has opened massive avenues for Guyanese businesses and investors to create crucial partnerships and become employed to deliver a wide range of services.

This means that that a large portion of the revenue generated is poured into the economy, empowering locals with the tools to enhance their livelihoods.

For effective management of the sector, the Petroleum Activities Act was enacted in 2023, setting out a strategic guideline for the effective exploration, production, storage, and transportation of petroleum in Guyana.

Among other provisions, the act allows for the issuance of permits to conduct geological and geophysical surveys, both offshore and onshore.

These identify the properties and potential natural and man-made hazards, as well as possible engineering constraints on the earth’s surface and subsurface.

It also makes provisions for the smooth implementation of the hallmark Wales gas-to-energy project, by covering the storage and transportation of hydrocarbons via pipelines as well as the storage of natural gas liquids.

The government also revised the Production Sharing Agreement (PSA), resulting in the development of model PSAs for deepwater and shallow water blocks in 2023.

According to this revised PSA, each company is required to fulfill the minimum signature bonus requirements of US$10 million for shallow water and US$20 million for deepwater blocks.

The agreement stipulates a 10 per cent royalty rate and a 65 per cent cost recovery cap. Profit sharing remains at 50/50 between the government and the contractor, with an additional 10per cent corporate tax levied.

The government is adamant that the essential fiscal terms of this agreement are non-negotiable.

Guyana also completed its inaugural licensing round in 2023, offering 14 oil blocks within its shallow and deep-water areas.

During the bidding round, eight blocks were shortlisted based on the bidders’ ability to meet the criteria of the expected work programme as well as the required financial commitments.

Negotiations with all selected bidders started in the fourth quarter of 2023. Awards and exploration activities and the issuing of licences are expected to begin early in 2024.

The government is also promoting transparency in the sector, maintaining a commitment to compliance with the Extractive Industries Transparency Initiative (EITI).

In keeping with the Natural Resources Fund (NRF) Act 2021, notifications of receipts of petroleum revenues were published in the Official Gazette and tabled in the National Assembly, while the Bank of Guyana published monthly, a summary of the financial position and performance of the NRF, detailing the fund’s inflows and outflows. Quarterly NRF reports are also made available by the Bank.

In 2023, the NRF received US$1,398.9 million in profit from oil, US$576.6 million from Liza Destiny, and US$822.3 million from Liza Unity.

With respect to royalty payments, US$218.1 million was received from the Stabroek Block operator.

Further, in keeping with stipulations in the NRF Act 2021 and with the amount approved by this honourable house to be withdrawn in 2023, US$1,002 million was withdrawn to finance national development priorities.

In 2023, US$1,617 million in petroleum revenue was deposited into the fund, and at the end of the year the overall balance, inclusive of interest income, stood at US$1,973.5 million.

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