An Exxon Mobil-led consortium offshore Guyana with international oil companies (IOCs) Hess Corp. and China’s CNOOC has not been impacted by a content law that favors locals in the procurement of goods and services, attorneys familiar with the statutes told Hart Energy.
It’s a different story for service providers.
“Experienced IOCs, from an outsider’s perspective, do not have a real issue with obtaining labor, transferring skill sets and technology and complying with local content laws; it is the service providers—the mid- and lower-tier companies servicing the petroleum sector—that struggle with procuring skilled labor,” Jones Walker LLP partner Marc Hebert and Keiana Palmer, an associate from the firm, wrote in a joint response to Hart Energy via email.
With a population of about 814,000, according to Worldometer, Guyana boasts one of the fastest-growing economies worldwide. The country’s average annual GDP grew over 50% in the past couple of years due to rapidly rising oil production, starting in December 2019 from the offshore Stabroek Block. There, two Exxon developments are producing about 375,000 bbl/d and a third, with a production capacity of 220,000 bbl/d, will start in fourth-quarter 2023.
“The need for skilled labor such as welders, pipefitters, pilots and oilfield workers increases commensurately with increased petroleum production,” Hebert and Palmer said. “Consequently, one must scrutinize the restrictions that the local content laws create and how they impact the mid- and lower-tier service providers’ abilities to grow with the fast pace of the market.”
The Guyanese government anticipates its petroleum sector will need at least 150,000 skilled laborers over the next two to five years to meet this demand. Ongoing development of Guyana’s oil sector and its economy will require the construction of roads, bridges, port facilities, hotels, clinics, hospitals, housing, grocery stores and schools. A build-out of the country’s public transportation sector is also necessary.
Guyana must rely heavily on “construction companies, concrete and ready-mix or asphalt companies, waste management, food distribution and cold storage providers, as well as workers to provide such services,” according to the Jones Walker lawyers.
Exxon and partners have discovered estimated gross recoverable resources of more than 11 Bboe in Stabroek, the company says on its website. According to accelerated development plans, three FPSO units will be in operation in the block by year-end 2023, according to Hess. Looking forward, six FPSOs with a capacity of more than 1.2 MMbbl/d could be online in the block by year-end 2027, while there is potential for up to 10 units to develop the resources.
“Therefore, the difficulties service providers face may inevitably become a concern for IOCs contracting with those service providers,” Hebert and Palmer said. “Nevertheless, the jury is out on the local content laws, and we wait to see any true ‘concerns’ IOCs may have with continued market expansion and subsequent amendments to the Local Contact Act (LCA) [of 2021].”
Guyana’s Local Content Act
Guyana’s Local Content Act (LCA) gives priority to Guyanese nationals and companies in the procurement of goods and services related to the country’s nascent oil sector to enhance the sector’s value chain. It also mandates companies and others involved in petroleum-related activities comply with local content rules.
Under the LCA, “local content” means “the monetary value of inputs from the supply of goods or the provision of services by Guyanese nationals or Guyanese companies and includes local capacity development,” according to details published Dec. 31, 2021, in Guyana’s Official Gazette.
The LCA applies to local content related to all operations and activities in Guyana’s oil sector. Consequently, like other countries’ laws, the LCA’s overarching purpose is to ensure the transfer of skills, technology and opportunities to Guyana’s residents to improve the quality of life, according to Hebert and Palmer.
Additionally, the LCA aims to promote competitiveness and encourage the creation of related industries that will sustain Guyana’s social and economic development and allow the country to compete in the global market.
Guyana’s government is cognizant of the Dutch Disease, a situation in which one industry flourishes to the detriment of local ones in the same sector, mainly due to consumer preference. Imports increase for nearly all goods and services instead of being developed domestically to generate revenue.
For joint ventures, Guyana’s LCA requires foreign investors to partner with local companies that hold at least 50% ownership, among other considerations. Also, within the strategic sectors, there are corresponding targets that contractors, licensees and subcontractors must meet to ensure the maximum Guyanese participation.
Sectors with the highest minimum local content requirements include immigration support services (100%), rental of office space (90%), catering services (90%) and equipment rental (50%). These percentages drop drastically for services such as onshore pipe sand blasting and coating (30%), hazardous waste management (25%), aviation support services (20%), dredging services (10%) and engineering and machining (5%), according to the details in the Official Gazette.
While enforcement of the LCA has resulted in a significant uptick in local value capture, the seemingly strict compliance terms beg the question of how companies are faring with local content, Hebert and Palmer said.
“In the private sector, the Guyanese government is challenged with ‘rent-a-citizen’ or ‘fronting’ practices, wherein foreign entities utilize Guyanese businesses or Guyanese nationals to circumvent provisions of the LCA to capitalize on opportunities,” Hebert and Palmer said. “The local content secretariat and the Georgetown Chamber of Commerce and industry continue to advocate against such practices, stating that operating under the guise of local participation undermines the overall objective of local content and will cause capital flight. However, these practices are the result of cooperative endeavors by foreign and local partners.”
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