CGX claims Guyana owes it US$20M despite drilling no well on Demerara block

Another outrageous bill…

Guyana’s experience since becoming an oil producing nation is most certainly an eye-opening one.
The very day ExxonMobil struck oil in May 2015, the oil giant was keen to point out that Guyana owes it billions of dollars which it claimed was expended in its search for oil since 1999. Those costs it said, amount to US$460M. When it moved to negotiate an agreement on how the oil production would be split with the Granger administration in 2016, Exxon added more costs, taking the total to approximately US$900M.

To date, Guyana has no clue what these pre-contract costs are for and to what extent they have been inflated. But this may just be the beginning of Guyana’s oil woes as another company is standing at the ready to unleash more bills should it make a commercial discovery.

This company is none other than CGX Resources Inc. It is the local arm of Canadian exploration company, CGX Energy Inc. which has been making modest attempts to explore Guyana’s offshore basin since 1998.
According to its latest financial statements for the period ended June 30, 2020, CGX said it is poised to recover US$1M in expenses it claimed to have incurred on the Demerara block.The company said that these costs are brought forward from the original annex licence. In this regard, it explained that the Demerara block was previously part of a subset of the company’s original agreement for a block called Corentyne. But once separated, it acquired the Demerara Petroleum Prospecting Licence (PPL) and signed onto a Petroleum Agreement (PA) on February 12, 2013.
CGX did not explain what were the costs incurred before it signed the new licence in 2013. But with the new agreement, the bill gets higher.

Under the terms of the new Demerara PA, during the initial period of four years, CGX has an obligation to conduct a 3D seismic survey of a minimum of 1,000 km2 (completed in 2014) and to drill one exploration well. CGX in its statements did not admit to breaching the working programme as it failed to drill the well required.

It was keen to note, however, in September 2014, it entered into a seismic contract with Prospector PTE. Ltd. (“Prospector”) to conduct a 3,116.74 km2 3D seismic survey on the Demerara Block as part of its commitments. The company’s financial statements expose, however, that the aggregate cost of this seismic survey was approximately US$19 million with $7 million paid to Prospector by way of issuance of 15,534,310 common shares valued at $0.49 per share, $2.5 million paid in cash thirty days after receipt of their invoice and the remainder of approximately $9.5 million payable in cash twelve months after the conclusion of the seismic survey, being December 2015. As of June 30, 2020, that amount remains unpaid.
It therefore means that once the total US$19M is paid off by CGX, Guyana will owe the company a total of US$20M or GY$5 Billion.

These are all recoverable costs against a commercial discovery according to the terms of its agreement.
Kaieteur News would have reported yesterday that the country will also have to pay CGX a total of US$155M for costs it claims it incurred on the Corentyne block.