Shell subsidiary selected to buy Guyana’s first oil
The Department of Energy (DE) yesterday announced that subject to the completion of a contract, Shell Western Supply and Trading Limited has been selected to buy Guyana’s first three oil cargoes.
The DE, which has faced criticism for its secrecy over the direct sale process being used for the initial cargoes, said “competitive pricing” that limits the government’s exposure to market uncertainty was among the criteria that informed the decision.
The announcement came a day after Director of the DE Dr. Mark Bynoe, when questioned by this newspaper about the process, would only say we “will be providing an update when we have something to share.”
Shell Western Supply and Trading Limited is a subsidiary of international energy company Shell, operating out St. Michael, Barbados.
The company was selected from nine listed international oil companies (IOCs) that were invited to express interest for 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 a statement announcing the selection yesterday morning, the DE said the face-toface 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 Western Supply and Trading Limited, 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 commercialisation; 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 Liza crude behaviour; 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 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, a provider of multi-asset class and real-time data, research, news and analytics to intuitional investors and other stakeholders, 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.)
The selection marks the near completion of Phase 1 of the DE’s two-step marketing process, with the second step being an open market Request for Proposals (RFP), which is to be launched in 2020 for a marketing agent to market Guyana’s crude entitlements form the Liza 1 on a term basis. This process was utilised, the DE said, to introduce Guyana’s grade or petroleum into the market in a stable and structured manner, and as a result, realise a fair market value for the crude.
The release explained that the “shortterm 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.
In its statement yesterday, the DE also declared its commitment to transparency, accountability and acquisition of best value for Guyana in all its endeavours, including in crude marketing for Liza crude cargoes, while promising to coordinate with the Extractive Industries Transparency Initiative Secretariat to allow public access to records showing how, when, and the cost for which Guyana’s crude will be sold.
“As 2020, dawns full of goodness and promise, The Department of Energy looks forward to introducing Guyana’s Liza grade into the market in a stable, structured manner with the result of a good market value for Guyana’s crude. We continue to work throughout the season in the best interest of all Guyanese,” it added.
On December 13th, financial news service Bloomberg reported that government had sent a letter to refiners around the globe inviting them to bid for three million barrels of Liza Blend crude, which Guyana will begin exporting next year. There was no prior announcement of the planned bidding, and in the wake of the report, DE rushed to explain the nature, and details of its plans, and explained that its intention was to conclude the process now underway before going public in order to protect government’s negotiating position.