Tullow Oil, Partners Exempted From Range Of Taxes In Guyana

(Stabroek News, 17.May.2019) — The National Assembly on Wednesday assented to tax concessions for the United Kingdom-headquartered Tullow Oil as well as its partners.

“I humbly do my duty in seeking that this order be affirmed,” Finance Minister Winston Jordan, in whose name the order was laid, told the House as he explained that the same concessions apply for all current operators.

Signed by Jordan on February 14th, 2019, the order specifies that the written laws mentioned in Section 51(2) of the Petroleum (Exploration and Production) Act or any part thereof shall not apply to or in relation to the Licensees Tullow Guyana BV, Eco (Atlantic) Guyana Inc and Total E&P Guyana BV as specified in the Production Sharing Agreement (PSA) signed between them and the Guyana Government.

Section 51(2) lists the Income Tax Act, the Income Tax (In Aid of Industry) Act, the Corporation Tax Act and the Property Tax Act as legislation which, by order of the Minister (subject to an affirmative vote of the National Assembly), shall not apply to a licensee in possession of a PSA with government.

The PSA with Tullow Guyana BV et al specifies that the company shall pay no tax, no value-added tax, duty, fee, charge or other impost on income derived from petroleum operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorised under the PSA.

However, there are exceptions including import duties on some items listed in the PSA, Local Government rates and taxes and licence fees paid to government.

The Guyana Government and Tullow Guyana B.V. and Eco (Atlantic) Guyana Inc inked the PSA on 14th January 2016 for the Orinduik Block, Offshore Guyana. The Orinduik Block is located next to ExxonMobil’s Stabroek Block, where reservoirs of over 5 billion barrels of oil equivalent have thus far been discovered.

Tullow is the operator of the Orinduik Block and has a 60 per cent stake. Total has a 25 per cent stake and Eco (Atlantic) has 15 per cent.

In his presentation to the House, which was absent the opposition PPP/C parliamentarians, Jordan said that Tullow first became involved in oil exploration in Guyana in 2008, when the company obtained equity and subsequently participated in the drilling of the Jaguar-1 well in 2012.

“As in many of these activities, this well failed to reach its target depth as safety was a concern,” he said. He observed that in 2016, Tullow and Eco (Atlantic) signed a petroleum agreement with Guyana to explore the Orinduik Block. “Tullow acts as operator in that block and holds a 60 per cent interest. In 2017, they safely acquired 3D surveys. Good quality data was achieved, enabling drilling activities to be planned in 2019,” Jordan said.

Tullow recently announced that it plans to drill two wildcat wells on its Orinduik licence from June 2019 onwards using the Stena Fort drillship.

“The first well will target the Jethro prospect which is a Lower Tertiary target in approximately 1,350 metres of water. The second well will be the Joe prospect, an Upper Tertiary target in water depths of approximately 650 metres,” a statement ahead of the April 25th Annual General Meeting explained. It added that both wells are targeting prospects of 100 to 200 million barrels of oil.

The Carapa-1 well on the non-operated Kanuku block, according to the company, is expected to be drilled in the third quarter of 2019. The Carapa prospect is a 200-million barrel Cretaceous target located in 70 metres of water and will be drilled using a jack-up rig.

Local content

Expressing optimism based on its seismic and other studies that it will discover oil in commercial amounts, Tullow has promised that it will focus heavily on developing local content.

“We are very pleased with the current interpretation work that has been completed at Tullow, Gustavson and within Eco and have a great deal of confidence in our joint efforts to date. The additional discoveries on Exxon’s Stabroek Block, including the most recent Hammerhead-1 that is on our 3D survey, enables us to see the formations ramp up onto Orinduik. These have greatly helped us to further understand the play. Ten key leads have been identified on Orinduik to date. The partners will carefully consider in the coming months the prioritisation of the leads for drilling as we continue work on the drilling engineering and the environmental permitting,” Eco’s co-founder and Chief Operations Officer, Colin Kinley, had said last year.

“We have identified the potential for close to 2.5 billion barrels of recoverable oil and 2.45 trillion cubic feet of associated gas. These are very meaningful numbers for all the partners and most importantly the people of Guyana. Three of the targets we have identified have estimated Probability of Success calculated at 22.4 per cent at this stage.  This risking is extremely good for any company on a single lead, let alone three. As noted in the previous announcement, we continue to de-risk the play and are approaching this with a conservative and focused approach. As our partner Tullow announced last week, we are planning to drill our first well early Q3 2019 and we are in the process of permitting and engineering in parallel with continuing geophysical and geological assessments,” he added.

Under the agreement the APNU+AFC government signed with Tullow and Eco (Atlantic), Guyana will receive a 1 per cent royalty while profits will be shared on a sliding scale.

Article 11 of the 69-page agreement, which addresses cost recovery and production sharing, says that the government will receive 50 per cent of profits earned from the first 25,000 barrels of oil per day, 52.5 per cent from the next 25,000 barrels, 55 per cent from the next 15,000 barrels, 57.5 per cent from the next 15,000 barrels and 60 per cent for production above 80,000 barrels.

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