Dear Editor,
The positive progress that the newly announced model Production Sharing Agreement (PSA) represents for Guyana cannot be understated. Whilst preserving the sanctity of existing deals – which brought investor interest when Guyana was still high risk – the new agreement provides the government the opportunity to ask for more revenues and higher royalties going forward.
The original contract was stuck at a time when decades of exploration had turned up no results, leaving the territory in a precarious position with over forty failed wells and waning interest. Now, because of the initial risk taken, the government is in a strong position with sought-after blocks. Further, this new model contract shows the political will of the government to think long-term.
While some argue that the new PSA still insufficiently represents Guyanese, there must be a balance between calculable risk and payoff potential in this industry. The underwhelming offshore oil lease auction in Suriname last year showed the importance of maintaining interest in an open bidding process for developing oil countries. Suriname had bids on just three of its eight available blocks.
Similarly, Brazil’s oil lease auction failures over the past two years have been attributed to contract terms that caused companies to shy away. The terms that Suriname’s and Brazil’s governments offered were more generous to the country in theory, but they failed to inspire bids at auction and so they will likely never translate to real revenue.
The terms these countries presented did not offer enough security to offset the risks that companies consider when placing multi-billion-dollar bets. That is a lesson that critics of the government might be wise to consider.
Sincerely,
Gregory Lynch