The Department of Energy (DE) has still not disclosed how much Guyana was paid per barrel (BBL) from its first crude oil cargo in February, while payment from royalty or sales has not been collected as yet.
The DE is responsible for overseeing the sale of the country’s share of oil produced and it has sold the first three cargo lifts to Shell Western Supply and Trading Limited and is now looking for a marketer for the other lifts. Apart from the price that Guyana’s initial lift was sold for or when the payments will be expected, it is also unclear what impact falling oil prices have had on the arrangement.
The Brent crude oil price for December, when production started in Guyana, was at a high of US$67.31 per barrel and in February the average was US$56 per barrel. But the figure dropped earlier this month and this week the price slumped dramatically into mid-US$30s after a row between OPEC and Russia.
Guyana’s first shipment of crude oil was sold following face-to-face encounters between energy officials and brokers in December. It is unclear if the crude was sold somewhere near the December US$67 per barrel figure or if it is still in cargo.
The DE has said that it is committed to providing data on the sales and had promised GY-EITI that it would do so.
There was no response up to press time from the DE to enquiries made by this newspaper. The Guyana Extractive Industries Transparency Initiative (GY-EITI) has also written to the DE to not only provide the information on payment but also information on the entire sales process. (The GY-EITI is a financial transparency mechanism for the extractive sector in keeping with the country’s commitment to a global governance standard.)
“We did write them to explain the process and when they will be able to give us the information on the sales,” head of GY-EITI Dr. Rudy Jadoopat told Stabroek News when contacted on Friday.
But Jadoopat said up to last week he had not seen any response to the GY-EITI’s request.
“I understand that there is a time attached before the information can become available. When the oil is taken by the company, that is Shell, the company, they would have to make the arrangement to sell it on the international market, then they will determine the best price. It is a formula that I asked the DoE to explain to the EITI. It is something I expect they will comply [with]. We want to know how the price was determined and how the money will get into the bank. I did my own research and that said it will take about 40 days or so. It is not like a cake shop where you go and buy and get the money and so. We want the best price. GY-EITI also would like to get the information… so that we can disclose this as quickly as possible to the nation,” he added.
He also said that he believes that Shell will ensure that Guyana gets the best price for its oil.
The company was selected from nine listed international oil companies (IOCs) that were invited to express interest in the lifting and subsequent placement of the first three cargoes (three million barrels) of Guyana’s entitlement from the ExxonMobil-led Liza development. These included Stabroek Block operator ExxonMobil, and its co-venturers CNOOC, and Hess, and other oil majors, including Chevron, Total, ENI and Sol, which were required to submit written proposals and were all subjected to a face to face meeting with the DE to present the full scale of their capabilities. The companies were also required to lay out the details of their proposals.
In the statement announcing the selection on December 24, the DE said the face-to-face interactions allowed for “robust interrogation and lengthy clarifications and questions”. This was referred to as “an integral part of the selection process, especially in the context of the nascent nature of Guyana’s experience commercialising crude oil”.
In explaining the basis for the selection of Shell apart from the competitive pricing, the DE also cited the size, scale and global reach of the Shell trading operations; the company’s high level of integration between upstream, trading and downstream; Shell’s strong foothold in the Latin American markets and the size and scale of their shipping and storage operations in the region, allowing for multiple options on the Liza crude commercialization; the range of new grades Shell has recently introduced into the market and their willingness to share critical refinery information which Guyana needs in order to understand the behaviour of Liza crude on the market; and readiness to support the DE in operating the cargoes, while the DE is strengthening its structures and in-house crude commercialisation human resources.
The December 24 statement explained that the sale will be based on the Dated Brent Price Assessment, which reflects the tradable, spot market value of crude oil. (According to S&P Global, Platts Dated Brent is a benchmark for the price of physical North Sea crude oil. The term Dated Brent refers to physical cargoes of crude oil in the North Sea that have been assigned specific delivery dates.)
It also explained that the “short-term phase 1 process was necessitated by the accelerated timing of first oil, and the fact that Guyana’s first lift is anticipated in February 2020”. Further, the completion of the three cargoes is expected by mid-2020, by the end of which the quality of the crude and any operational issues around production are expected to stabilise.
‘Production report’
While there has been no word on operations and sales from the DoE, the Ministry of Finance several weeks ago released a Report on Petroleum Production and Revenues Report (RPPR), which gives a breakdown of production for December and said that royalty, according to the Natural Resource Fund Act, will be paid until after the first quarter. “It should be noted that since government has elected to receive its 2 per cent royalty in cash, this amount will be paid from the Contractor’s share of profit oil. As per Article 15.6 of the Petroleum Agreement for the Stabroek Block, the royalty cash payment for a calendar quarter will be made to government 30 days after the end of that quarter,” the report states.
The RPPR is expected to give clear insight into oil produced and revenue derived for each calendar month and will be published within two months after the said month. “The regular publication of the RPPR will allow for greater transparency in this new sector of the economy, ensuring that the public is fully aware of the amount of petroleum being produced and revenues being generated. Such transparency is important, given the magnitude of revenues that will be generated from this resource,” the report explains.
Of note is that it is expected that each lift from Liza Destiny will be approximately 1,000,000 BBL as agreed to by government and the Contractor, EEPGL and its partners, HESS and CNOOC.
According to Article 11.2 of the Petroleum Agreement for the Stabroek Block, in any month during which crude is produced and sold, a maximum of 75 percent of crude produced net of losses and operations, can be allocated to permissible recoverable costs incurred by the Contractor. This volume of crude is referred to as cost oil. The remaining crude is referred to as profit oil and is to be split equally between the Contractor and government.
Since cargoes are lifted 1,000,000 BBL at a time in any given month there will be some parties that have lifted more than their entitlement and some that have lifted less. Entitlements are reconciled with actual lifts in the (Over)/Under Lift account and brought forward to the next month.
Pertaining to production for the December month, the RPPR report states that production began on December 20, and before pumping, there was an onboard inventory of 21,592 BBL of Marine Gas Oil (MGO) and Intermediate Fuel Oil (IFO). This was the remaining fuel that was loaded to power the FPSO facility for the journey from Singapore and for the commissioning of subsea risers and flowlines.
Production of oil was reported to be 427,282 BBL for December 2019, or 35,607 BOPD.
“Of the 427,282 BBL produced, a total of 3,202 BBL were used for facility fill, which includes the oil that remains in the various piping before the cargo tanks. It is estimated that an additional 1,020 BBL will remain in the hose and piping between cargo tanks and the offloading hose point at the completion of the first lift. A further 282,000 BBL of oil produced in December 2019 was used for ballast in the cargo tanks. These operational volumes will remain on the FPSO facility and in the piping until production from Liza Destiny has ceased,” the report said.
There were no operational losses reported for this period.
The production net of losses and operations (PALO) during December 2019 was 142,081 while the total volume of crude on the FPSO facility at the end of December 2019 was 448,875.
During December 2019, no oil was lifted from Liza Destiny since the volume available for lifting, 163,673 BBL, was less than the standard cargo size of 1,000,000 BBL.
And since no petroleum was sold in December 2019, all petroleum produced in that month was allocated to profit oil, of which the government will be entitled to half.
That means, of the 163,673 BBL that were available to be lifted in December 2019, government’s entitlement was half of the PALO in that month plus the onboard inventory, which amounts to 92,633 BBL.
Because government did not lift its December 2019 entitlement, this amount is credited to an (Over)/Under Lift account which keeps track of all barrels of crude owed to parties.
