Guyana plans additional oil auction in 2024 to bolster expansion

(Bloomberg) Guyana is planning another auction of prospective oil-field leases next year as the world’s fastest-growing economy seeks to maintain the pace of development, Vice President Bharrat Jagdeo said.

The country’s first auction is expected to take place by the end of May after being delayed by a few weeks as the government finalizes contract terms and legislation that ensure it secures a larger share of proceeds, Jagdeo said in an interview in Houston on Monday. The country has ample drilling locations to justify a second sale next year, he said.

Guyana’s economy is undergoing a radical transformation after Exxon Mobil Corp.’s 2015 discovery of massive tranches of offshore oil. From producing no crude at all, the Exxon projects will likely push national output to more than a million barrels a day by 2027, more than OPEC members Algeria and Angola, according to the government. But with much of the developed world looking to pivot away from fossil fuels, Guyana wants to extract and sell its crude resources as swiftly as possible.

“We have a ton of decisions to make now so that we don’t slow down the pace of development” Jagdeo said on the sidelines of the CERAWeek by S&P Global conference.

Guyana is re-writing the production-sharing contract that governs oil deals with foreign companies to secure more revenue for the government after Exxon’s contract was criticized as too generous.

The country plans to increase royalty rates to 10% from 2%, the corporate tax to 10% from zero, and reduce oil companies’ so-called cost-recovery limits. Still, the new contract will ensure Guyana “remains one of the most competitive countries in the world even with these changes,” Jagdeo said.

Major oil companies will be asked to submit bids on 14 oil blocks once the terms have been finalized and written into law. Companies will be allowed to win a maximum of three blocks each to ensure multiple exploration programs can progress simultaneously.

The auction is drawing “great interest” from major oil companies “including quite a few from the US,” Jagdeo said.

Since oil began flowing, Guyana received $350 million in 2020 and 2021, and $1 billion in 2022. The government receives a portion of the revenues for its spending budget while the rest is allocated to a sovereign wealth fund. Guyana has awarded contracts for 12 hospitals and seven hotels, and is building a natural gas pipeline that will reduce electricity prices by 50% when complete in December 2024, Jagdeo said.

In the major urban areas such as Georgetown, labor shortages have prompted Guyana to allow Chinese and Indian companies to import work crews, Jagdeo said. It’s a major turnaround from Guyana’s recent history when unemployment was rife.

Bloated government spending is one of the biggest risks to Guyana’s oil boom, according to Jagdeo. Most of the money spent so far is going toward capital projects rather than recurring expenses, he said.