Under growing criticism over a previously unannounced sale of Guyana’s first three cargoes of oil from ExxonMobil’s Liza-1 field, the Department of Energy (DoE) yesterday defended its plan, saying that the interim arrangement was approved as the full extent of the quality of the crude is still unknown and it wants to set a benchmark to guard against any possible down-pricing in future sales.

“This strategy was employed upon serious consideration of advice given by an international team external to the [DoE],” a statement from the department said yesterday.

“The logic is that given Guyana’s inexperience and the impending early date of the first lifts, an introduction phase of the grade was more advantageous to Guyana at this time,” it added, while explaining that its advisory team consisted of a Crude Marketing Specialist, a Commer-cial Specialist and an external Legal Adviser, among others.

The DoE said that the second phase of oil sales will involve a public request for proposals.

The DoE is expected to meet today with prospective buyers of Guyana’s first three cargoes of crude from the Liza-1 field offshore Guyana. Last Friday, Bloomberg reported that government has sent a letter to refiners around the globe inviting them to bid for three million barrels of Liza Blend crude, the light-sweet oil it will start exporting next year. “The catch is that the buyer must take the unusual role of handling ‘all operating and back office responsibilities’ related to exporting the crude,” the Bloomberg report said, citing a document it has seen. Oil traders from Houston, Geneva and London, numbering about half a dozen, are expected to begin bidding today, the report said.

The DoE’s statement yesterday said that key considerations around government’s decision include that the quality of the crude is still unknown and it wants to establish a quality standard to get best prices.

“The full extent of the quality of crude is not yet known. It usually takes several lifts to determine crude only quality and the cost of refining it. Guyana is embarking on its very first new crude introduction into the market of the Liza grade. The quality of the crude and its yield have not yet been tested within a refinery system. This interim arrangement is put in place just for this period,” the statement said.

It observed that while the testing of the first crude cargo is taking place, the true economics or refined cost per barrel of the particular grade is still being calculated. The statement said that the DoE has been advised by Crude Marketing Specialist, Virginia Markouizou of the United Kingdom-based RPS Group, that for a limited time only, in order to take Guyana through this phase, a few high quality international oil companies with a global refining footprint and integrated oil value chains would be best given an opportunity to support the DoE during this incubation and launching phase.

“Guyana’s main incentive in taking this approach is to establish a norm in terms of quality standard and quantity availability so as to prevent any possible down-pricing. What the [DoE] is seeking to accomplish with the short-term approach is to allow for stabilisation and standardisation to prevent our Liza Crude from being priced downwards due to uncertainty of the quality,” it added.

Last month, Director of the DoE, Dr Mark Bynoe, disclosed that ExxonMobil and partners will take the first three cargoes of crude oil from the country’s huge offshore deposits and Guyana will receive the fourth shipment around March next year.

Explaining why a decision was taken to allow ExxonMobil to receive the first cargoes of crude, Bynoe had said, “ExxonMobil is not only a lifter, they are not only the operator, but they also have refineries. My understanding is the first lift often comes with a fair amount of impurities. Impurities in your crude can affect the price that you get for that crude, which would not only impact that batch but it could impact subsequent batches.”

He added, “So it would make sense for Exxon to take that first lift, which it will then process within its refineries, so that the quality of the crude or the integrity of the crude can be preserved going forward.”

Earlier this week, Reuters reported that Exxon and its partner, Hess Corp, plan to export the first-ever shipments of crude oil from Guyana between January and February next year. Exxon is planning on shipping two 1-million-barrel cargoes of Liza crude in January, to be followed by similarly sized shipments from Hess and Guyana’s government in February, the report said. It added that Exxon plans to process the oil at its refineries, while Hess could offer it for spot sales. The third partner in the venture, CNOOC, which has not yet scheduled exports, would ship it to China, whose refiners like using similar medium sweet grades, Reuters reported.

‘Careful consideration’

Meantime, the DoE yesterday said that two phases of the process for selling Guyana’s share of oil are envisaged. “The short-term first phase beginning this week will focus on setting national benchmarks for selling Guyana’s portion of its crude in the future. Selected companies are invited to bid to buy Guyana’s product in the very short term. These companies are required to make offers from which Guyana’s team will choose the most acceptable proposals. The process currently underway is a direct sale to the companies and not the procurement of any marketing services,” it said.

“The second phase involving a public request for proposals (RFP), for marketing services for Guyana’s crude is in final stages of preparation currently,” the statement added.

In relation to the first sale, the DoE emphasised that upon careful consideration of all advice and exigencies of the moment, it initiated a conversation with a selected group of companies for a potential placement of only the first three cargoes of Guyana’s entitlement.

This allows Guyana to sell its crude directly to the selected operators, the statement said. “While this may be considered by some to be a novel approach, it is a strategic one which brings the best value to the country and one which has been used in other places. It should also be noted that the [DoE] employed its usual consultative apparatus with the Guyana Public Procurement Commission prior to taking action,” the statement said.

It highlighted that the second phase of marketing Guyana’s portion of its crude would begin in January. It noted that the DoE had previously announced that in late 2019/early 2020, a full RFP would be issued, inviting companies to bid for the marketing of Guyana’s portion of oil on a longer-term basis.

“The [DoE] will issue this RFP in January 2020. It could take about 3 months to finalisation. However, the process underway in the coming week is not for marketing services. It is for a direct sale of the first 3 lifts assigned to Guyana.  The upcoming RFP is then intended to initiate the process of procuring a marketing firm to sell our crude in the open market later and for the longer term,” the statement said.

The DoE assured that Guyana will be represented at these first oil negotiations by a full team of international experts, inclusive of its Crude Marketing Specialist, its Commercial Specialist and Legal Adviser, among others. 

“The Department of Energy wishes to assure the Guyanese public that we continue to leave “no stone unturned” to secure the best value for our national resources. We look forward to introducing our own Liza grade oil into the market in the new year, when the full RFP has been executed,” the statement said.

The Liza-1 field is scheduled to start production this month and will reach 120,000 barrels a day next year. By 2025, it’s expected to ramp up to 750,000 barrels daily.