Author: Christopher Ram

Two days ago, Column 84 set out the main provisions of the 2016 Bridging Deed. That Deed purported to keep alive the 1999 Petroleum Agreement signed by then President Janet Jagan. Effectively, it not only allows the three oil companies all the benefits under the 1999 Agreement, including pre-contract costs, and for the Government to pay their taxes in Guyana, but for those and enhanced benefits to run unchanged to 2056.

No Parliament until then will have the power to make any law adverse to the interest of the oil companies, without compensating them. Nor can the Government stop paying their taxes to the GRA for them. It probably bears reminding that all three companies are incorporated in offshore tax havens and are merely registered in Guyana.

As noted in Column 84, the Bridging Deed describes the Contract area for the 2016 Agreement as the Stabroek Block, “being the area covered by the 1999 Agreement”. Someone forgot to draw to Trotman’s attention that a new licence is expressly prohibited under section 22 (2) of the Act which states in mandatory language that “A petroleum prospecting licence shall not be granted to an applicant in respect of a block which is, at the time the application for the grant of the licence is made, comprised in a licence already granted.” It is clear then that no amount of legal gymnastics could circumvent this express provision prohibiting a second bite of the cherry.

The Government is in a catch 22 dilemma: if it argues, as it does in some places, that the 1999 Prospecting Licence had not expired at the time of the Application for the 2016 Licence, then section 22 (2) applies and there could be no second prospecting licence. And if it claims that the 1999 Stabroek Licence was expired, as Attachment “A” to the Bridging Deed indicates, it has two formidable hurdles. The first is that its purported Relinquishment is meaningless since under section 28 of the Act, relinquishment is only permissible “at any time when the licence is in force”. The second is that Attachment “A” to the Bridging Deed refers to the “expired Stabroek Licence Area”. That in my view makes the Deed ineffective since the 2016 Agreement could not be linked to a dead anything.  

In his lame defence, Trotman embarrassingly argued that the Bridging Deed is like a savings clause, that it is quite normal. What Trotman does not seem to realise is that a savings provision has to be expressly permitted in legislation, or in some higher document, not in any agreement or instrument of lesser status.        

Odd things happen

Here is another oddity: the Deed provided for the signing of the New Petroleum Agreement. The only trouble is that on the date of the Bridging Deed, the New Petroleum Agreement had already been signed and executed. Someone interfered with and initialled the date on the Deed but actually made it worse, and worse still, the change was not initialled by all the signatories to the Deed as is required.

A requirement set out in the Bridging Deed that the National Assembly approve an Order under s51 (1) of the Petroleum Exploration and Production Act, modifying certain specified tax laws to the Oil Companies, and the gazetting of the Order may not be so unusual, except that our sovereign body was expected to do so in within a time demanded by the oil companies. More importantly however, the Deed required the Minister of Finance to table a copy of the New Petroleum Agreement in the National Assembly when he brought the “tax modification” Order there. The Minister failed to comply. The inescapable inference is that he wanted to, and managed to hide the Agreement from the National Assembly and Guyanese until the Government was embarrassed into publishing it following the revelation of the Signing Bonus. Because the omission to table the Agreement did not prejudice the interest of oil companies, they too could not care less. 

Looking after our interest

But the question must also be asked of the Escrow Agent Sir Shridath, a long-term consultant to the Government of Guyana: why did he not carry out his obligation to ensure that the conditions of the Bridging Deed were met by both sides? As a beneficiary of the public purse, did he not consider himself as having any obligation, fiduciary or otherwise, to the people of this country to see that undertakings made in their interest are honoured?

As a public official, the Minister is required to exercise discretion in making decisions. The Bridging Deed however took away much of his discretion under the law by setting out in advance what he would accept as Notices, and the text and extent of the Application for a Licence, including for the granting of a licence in respect of more than sixty blocks. By specific law, this has to be justified by special circumstances. Those who make Venezuela the bogeyman ignore the fact that many of the blocks awarded under the 1999 and 2016 Agreement are in undisputed waters and a significant number are much closer to Suriname than to Venezuela, and therefore raise no threat. And while the law allows the Minister a discretion in a section 51 tax exemption, the Bridging Deed made it into a condition.

Nothing however shows Exxon’s bad faith is its announcement of a major find, one day after the Granger Government awarded them a tainted Petroleum Agreement made possible by the infamous Bridging Deed. It is either trickery or conspiracy. We Guyanese need to take our pick.

In concluding on the Deed tomorrow, the column will touch on some current developments.

This Column regards the Bridging Deed conceived by some artful legal mind as going to the heart of the 2016 Petroleum Agreement – one of the first major economic acts of the Granger Administration. The handmaiden for the transaction was Mr. Raphael Trotman in his capacity as Minister of Natural Resources while its custodian or guarantor was Sir Shridath Ramphal. In an article in the Kaieteur News of February 1, 2018 seeking to justify the Administration’s refusal to make the Deed public, Trotman claimed that he needed to consult Sir Shridath Ramphal on the release of the document. He volunteered that there was nothing sinister about the Deed (with a capital “D”) and that Ramphal was selected as its guardian because the Government and Esso had confidence in him as a good person. In the subsequent two years, Trotman has been eloquently silent.   

Column # 83 published last Friday revealed things about the Deed that challenge Trotman’s language. Because of my assessment of the Deed’s fundamental importance to the country, I sought and obtained the agreement of the senior editorial management of the Stabroek News to carry three columns this week – Tuesday, Thursday and the concluding piece on the usual Friday. This first part is descriptive not judgmental, objective rather than subjective, narrative rather than critical. That was also the approach I took when in the earlier segments of this series of columns I dealt with the Agreement proper.

Here are some of the key elements of the Deed.

It was made on 29^th. June 2016 and had four parties: the Government of Guyana and three oil companies – Esso Exploration and Production Guyana Limited (Esso), Hess Guyana Exploration Limited and CNOOC Nexen Petroleum Guyana Limited. They listed as their countries of incorporation Bahamas (Esso), Cayman Islands (Hess) and Barbados (CNOOC Nexen) and their registered office 62 Hadfield and Cross Streets, Georgetown, Guyana.

The Contract area is described as the Stabroek Block, “being the area covered by the 1999 Agreement”.

The Deed appoints as Escrow Agent Sir Shridath Ramphal of a Barbados address. It refers to an Escrow Letter dated the same date as the Deed sent from the Escrow Agent to the four Parties. The letter sets out the terms of the Escrow Arrangement whereby the Escrow Agent holds the Documents on behalf of the parties “subject to the satisfaction of certain conditions”. The terms “documents” and “Escrow Conditions” are defined only as having the meaning set out in the Escrow Letter.

The Deed is signed by Minister Raphael Trotman for the Government while the same persons who signed the 2016 Petroleum Agreement signed the Deed for the oil companies. There were two witnesses to each signature to the Deed while a single and different person signed as witnessing the execution of the Petroleum Agreement. The Agreement was made on the 27^th of June 2016 and the Deed was made on the 29^th of June 2016.   

In terms of contents, there is the Deed proper which runs to twelve pages. The Deed has the following attachments: Schedule 1 – Form of Notice of Intent to Relinquish; Schedule 2 – Form of Relinquishment Notice; Schedule 3 – Form of Regulation 28 Application; Schedule 4 – Section 51 (1) Modification (by Minister of Finance); Schedule 5 – Form of New Licence Application; Attachment “A” – Application for Petroleum Licence concerning the expired Stabroek Licence Area; and Part B – Form of section 14 (2) (a) Notice acceptance of conditions for the grant of a licence.  

Action/Decisions required under the Deed

A – On the signing of the Deed

1. Parties to procure that the Escrow Agent sign Escrow Letter and Parties to countersign the Escrow Letter.

• Parties to sign and deliver six copies of New Petroleum Agreement to the Escrow Agent for Registration at Deeds Registry. Minister was required to retain one of the Originals, a copy of which was to be provided to the National Assembly as part of the section 51 of the Petroleum Act with respect to taxation.

• Oil companies to sign but leave undated two originals to the Relinquishment Notice and New Licence Application and deliver the signed originals to the Escrow Agent.

• The Minister to sign and deliver to the Escrow Agent two undated originals of the section 14 (2) (a) Notice. Section 14 (1) deals with the notification of the granting of a licence while 14 (2) (a) deals with the acceptance of that licence; and

• Esso on behalf of the Contractor Parties to sign and deliver to the Escrow Agent two undated originals of the Section 14(2)(a) Notice.

B. Within five business days from the date of the Deed

1. Oil Companies to sign and deliver to the Minister a Notice of Intent to Relinquish with intended Relinquishment conditional on the following:

1. The receipt of dispensation form Minister pursuant to Regulation 28 application. This regulation deals with modification of requirements in relation to the keeping of records, the surrender of records, and the maintenance of accounts.

• The National Assembly to approve an Order under s51 (1) of the Petroleum Exploration and Production Act, modifying certain specified tax laws to the Oil Companies, and the gazetting of the Order.

• Esso on behalf of the Contractor Parties as well as the Minister to deliver Confirmation Notices pursuant to clause 4.2 of the Escrow Letter before the Escrow Termination Date. In the absence of the Escrow Letter it is not possible to ascertain other than by speculation what clause 4.2 is all about.

• Following which the Minister to deliver to them, within thirty Business days, confirmation note that Regulation 26 will be dispensed.

• Before delivering the Confirmation Notice to the Escrow Agent, the Minister to give Oil Companies no less than five Business Days’ notice of his intention to do so.

• Parties to coordinate with Escrow Agent to arrange a suitable Completion Date following satisfaction of the Escrow Conditions. The Deed defines the Completion Date to have the meaning given in the Escrow Letter.

Column 85 to be published this coming Thursday will discuss some of the contents of the Deed.

This Column has finally been able to put its hands on the Bridging Deed referred to in Article 30 of the Petroleum Agreement signed by the APNU+AFC Government and Esso, Hess and CNOOC/Nexen. The Deed, is frightening in its intent and far too clever in its execution, signed more than one year after the oil companies had hit gold. Key players in the Deed, other than the oil companies are the ubiquitous Raphael Trotman, then Minister responsible for Petroleum and Sir Shridath Ramphal, described as the Escrow Agent and keeper of what is described as the Escrow Letter.

According to the Bridging Deed, Sir Shridath agreed to hold the Documents – circuitously described to have the meaning assigned to it in the Escrow Letter, but which is itself a closely guarded secret! It is unclear whether Sir Shridath performed any other functions in connection with the Bridging Deed or the Petroleum Agreement and how he was compensated but if he was paid by the Government of Guyana, it is hoped that in the cause of transparency, particulars of that arrangement will be shared with the Guyanese public.  

What the Bridging Deed sought to do

The Bridging Deed sought to give life to the expired 1999 Agreement signed by then President Janet Jagan under the authority of section 10 of the Petroleum Exploration and Production Act. Under that Agreement, Esso was granted a Prospecting Licence over some 26,806 SQ. KM, much more than normally permitted by law. The law allowed for a Prospecting Licence initially for four years plus six months and subject to two extensions of three years each. Unless during that time, there is an application for a production licence, the Agreement lapses, the oil blocks go back to the State.

During the ten year period however some things happened – there was the Surinamese incursion into Guyana’s territorial waters leading to a Force Majeure and the extension of the period of the licence by the duration of the Force Majeure. The information on when the 1999 Agreement expired is a bit blurred but what is known is that shortly after the APNU+AFC came to power in 2015. The other big thing was the late discovery of oil announced in 2015 and the realization by Exxon that its time was fast drawing to a close. It needed to come up with some trick, to do it fast and to hide it.   

At the same time, it sought to put pressure on Trotman and the Government to treat the 1999 Agreement as if it never existed and to get a completely new Agreement.

That required legal gymnastics and some clever mind then came up with this idea of a Bridging Deed. Bear in mind that at this stage, the oil companies knew they were sitting on a gold mine but their time had expired or was soon to expire. Someone thereupon advised the oil companies to belatedly relinquish the extensive holdings but to replace it with a “new petroleum prospecting licence and to enter into a new petroleum agreement, in respect of the Contract Area.”

Audacity

Compounding the wickedness, the authors of the Bridging Deed audaciously including as one of the Recitals in the Deed, the following:

“Pursuant to section 10 of the Act, the Minister has entered into this Deed together with the Contractor Parties to set out the process whereby 1999 Licence and the 1999 Petroleum Agreement will be replaced by a new petroleum prospecting licence and petroleum agreement in respect of the Contract Area.”

Section 10 of the Production Exploration and Production Act gives the Minister no power to enter into any Deed and certainly not one to breathe life into an expiring Agreement. In fact, what the section does is grant the Minister the power to enter into an agreement not inconsistent with the Act, (emphasis mine), with respect to any or all of a four specified matters, namely, the granting of a licence, the conditions attaching thereto, the procedure to be followed in exercising any discretion granted to him under the Act and any matter incidental thereto. Perhaps Trotman or some legal luminary will explain how section 10 can be read to give Trotman the supernatural power to revive a dead Agreement via some artificial device.

Burnham weeps

It is hard to be diplomatic about any person who conspires to sell or who sells the national interest whether on the basis of grand incompetence or grand corruption but Trotman, his advisors and the APNU+AFC Government are guilty of the worst act against Guyanese and Guyana. Trotman had a duty to tell the oil companies that their proposal to employ Guyanese nationals as cleaners, drivers and security guards not only did not meet the test of satisfactory to him as Minister but was downright insulting to us as a nation.

Trotman had a glorious opportunity to correct the wrong inflicted by the 1999 Agreement in respect of the number of blocks awarded. At least Janet Jagan could plead that hers was a pre-discovery Agreement but what can Trotman plead? A person of average intelligence aware that oil was found would have insisted of Guyana’s right under section 22 of the Act to an interest in any venture for the production of petroleum in the blocks. Trotman did not.

Trotman could have told the oil companies that the 1999 Agreement had run the clock and that his powers were constrained by law and that relinquishment was not a choice or option open to them. Instead, Trotman allowed himself to be bullied or led into agreeing to relinquishment being conditional on his taking certain action and if he did not, the Notice of Relinquishment by the oil companies would be considered withdrawn and “the 1999 Agreement shall continue in full force and effect.” No, that is not how a sovereign country operates. That thing came to an end and that was it.

This spinelessness demonstrated by the APNU+AFC and Trotman is disgraceful and shameful to us as an independent, sovereign nation. This is as big a sellout of a country’s patrimony imaginable. That this embarrassment is being imposed on Guyana by a Government led by Forbes Burnham’s own Party and people for whom he no doubt had the greatest of respect, must make him weep.

Today’s column returns to the issue of Local Content Policy which appears either to have been drowned out by the excitement of First Oil or in which interest seems to have ebbed – a pattern since the Local Content was first raised in the aftermath of the disclosure of the signing of the 2016 Petroleum Agreement. As Column 79 reported the first Draft Local Content Policy Framework was dated April 2017, the second May 2018 and the third May 2019. Perhaps we are heading for another May, maybe.

In the scheme of things, Trotman’s successor has been no more diligent in pursuing a Local Content Policy than Trotman and in fact, all of Bynoe’s high profile contractors have been non-locals: Mr. Matthew Wilks, Advisor on Oil and Gas, Dr. Michael Warner, Advisor on Local Content and Ms. Virginia Markouizou, described as Crude Marketing Specialist, with little evidence that any of the three was appointed through the transparent mode of procurement. It is almost forgotten that there are mandatory local content requirements in the Petroleum Exploration and Production Act which Trotman and Bynoe have completely disregarded to the detriment of Guyana and Guyanese.

The WTO scare

Within the past couple days I attended a meeting of private sector players trying to galvanise interest in a Local Content Policy. I was surprised at the strength of feeling that Guyana needs to have a well-articulated, pro-Guyanese, prescriptive Local Content Policy that is enshrined in the laws. I pointed out at the meeting that a country with strong LCP is Kazakhstan and was again surprised that one of the other attendees readily circulated an e-book written by two academics from Kazakhstan and two from Reading University, my most recent alma mater. The book is called Local Content Policies in Resource-Rich Countries and would make a great gift to our policy-makers.

One common criticism of LCP’s is that it violates WTO Rules. Well, here is what the writers have to say in their book.

Under WTO rules many forms of LC are prohibited – they are perceived as protectionist and trade-distorting measures. Nevertheless, there are multiple examples of violation of WTO rules in the form of WTO members pursuing LC policy. At the same time no country-to-country level case has been pursued under WTO regulations in the O&G sector. There is a clear weakness in the WTO’s dispute-settlement system but, more importantly, interpretations of LC requirements vary making it costly to pursue disputes and damaging for the relations between countries.

Learn from Brazil and Trinidad and Tobago

Evidence abounds that not only resource-rich, developing countries have local content policies that are underpinned by law. In its publication Local Content Policies in the Oil and Gas Sector, the World Bank notes that “In Brazil and Norway, NOCs have been instrumental in developing and sustaining LC. In Trinidad and Tobago, LC is defined as the maximisation of the level of usage of local goods and services, people, businesses and financing.” While it may be going too far to describe Trinidad and Tobago as being extreme in terms of LCP, it has certainly not been bashful in promoting and protecting its national interest. Its Ministry of Energy and Energy Industries equated “Local content and participation” with “local value added” in terms of ownership, control and financing by the citizens of Trinidad and Tobago.

The failure to embrace local content by the Granger Administration has serious legal, economic and social implications: it constitutes a dereliction of its duty to place the interest of Guyanese foremost in its development agenda consistent with Article 15 of the Constitution of Guyana. But its inability to recognise that by placing LC in a wider developmental agenda, a government can also contribute to generating competitive conditions that facilitate innovation and enhanced resource recovery. In so doing, a sound LCP contains within itself an eventual exit from LC requirements, as domestic supply and technological solutions attain international competitiveness. It need not be permanent.

Conclusion

Examples of workable LCP’s abound across continents and can be found in Asia, Australia, Europe, Africa and in North and South America. Angola, Ghana, Nigeria, Indonesia, Malaysia all offer great examples from which Guyana can develop its own unique LCP. WE can learn from Angola, a WTO member, which promotes and enforces LCP via three levels:

1. Certain categories of procurement expenditure reserved for Angolan companies, including logistics, catering, pressure tests for storage tanks and pipelines. And here is where I think we ought to be firm: For purposes of Oil and Gas, a Guyanese company should be defined as one in which resident Guyanese own 66⅔ % of the equity shares and the range of services expanded significantly;

• Spending categories that fall under a “semi-competitive regime,” where bidding by foreign suppliers and service providers is predicated on these companies first forming joint ventures with Angolan companies (expenditure categories under this regime include geophysical sciences, drilling controls and fluid analysis, and the operations and maintenance of production facilities; and

• A “competitive regime,” which places all other categories of expenditure into international competitive tender, yet provides for “Angolan State companies and/or private companies the right of first refusal, provided that the value of the relevant bid is no more than 10 percent higher than those of other companies.”

Quite what Dr. Bynoe and the Granger Administration find so difficult to understand about the virtues and value of LCP is hard to imagine. They gave away the lion’s share of billions of dollars’ worth of our non-renewable resources. You would think that out of regret, they would want to ensure that Guyanese share handsomely in the balance. Even that they refuse to do.   

Introduction

This column should have continued my take on Local Content. I will defer this to a later piece so that I do not miss the very focus on this series: the Road to First Oil. Readers will recall that this series which began in June 2017 was titled the Road to First Oil. That day arrived with a statement by ExxonMobil on December 20, 2019 that oil production had started from the Liza field offshore Guyana less than five years after the first find of hydrocarbons. In what was a clear sign that Guyana’s national petroleum agenda is driven by the American oil giant, Guyana’s President David Granger made a similar announcement only minutes before that by ExxonMobil which incidentally operates through a shell company incorporated in The Bahamas. 

But even before the announcement, there was again obfuscation and confusion concerning the sale of Guyana’s share of the soon-to-be-produced oil of which notification came not from the Government of Guyana but from Bloomberg, an American news agency. In recalling the falsehoods of then Oil Minister Raphael Trotman about the signing of the 2016 Petroleum Agreement by Raphael Trotman and the concealment of the Signing Bonus by the Ministry of Finance, one fails to recognise any significant improvement in competence, accountability and transparency since control and management of the petroleum sector was removed from Trotman and handed to Dr. Mark Bynoe who seems to be running a one-man show. At least one thing can be said for Trotman – he is a member of Cabinet, Bynoe is not.

Sole control

It is simply unbelievable that any country, any leader, or any Government would give sole control of such a critical sector to a single individual with no relevant expertise or experience and who does not even sit in Cabinet. While the sale of petroleum by Dr. Bynoe aroused public consternation, the broader issues of legality, violation of the Petroleum Agreement and of governance do not appear to have troubled too many persons. Admittedly, one attorney-at-law was quoted in the media as taking the matter to court but that never seemed to have happened. Subsequently, Dr. Bynoe caused to be issued on December 15, 2019 a statement in which the Department of Energy stated, that “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.”

This statement seems to have been a response to the criticism that the sale constituted procurement and therefore violated the Procurement Act. For the record, I did not think it was a procurement issue and I agree with the Department of Energy (DoE) that it was a sale of Guyana’s share of the First Oil. What I do not agree with is that Guyana is somehow assigned any lifts – no Sir, we are entitled to such lifts. Yet, the  outline of the arrangement as reported by Bloomberg is that bidders for 3 million barrels of Liza Blend crude, being Guyana’s accumulated share of royalty and profit oil of 14.25% of production, in which the buyer is required to take the unusual role of handling “all operating and back office responsibilities” related to exporting the crude”. Adding to the unorthodoxy is that bidders were required to make face-to-face presentations of their bids.

Odd arrangement

It appears from information gleaned from separate sources that Exxon’s subsidiary and its two partners, Hess and CNOOC/Nexen will take the first three shipments while Guyana will receive the fourth shipment some time in February. But there is something odd about this arrangement. Profit oil is calculated after the deduction of recoverable costs and subject to a 75% restriction. This means that while the restriction on recoverable cost is in place – which will probably extend over a couple of years – Guyana will get the same amount of profit oil (12.5%) as the three contractors combined. Put another way, the three contractors will be entitled to receive their share of the remaining 12.5% proportionate to their holding – Esso 5.63% of profit oil, Hess 3.75% and CNOOC 3.13%.

What the arrangement with the oil companies suggests is that those companies will not only be receiving their modest share of profit oil but also a good chunk of their investment in a manner not contemplated by the Agreement. Bynoe may not recognise it but this arrangement will create accounting and auditing headaches if not nightmares. 

For Guyana to have three shipments, it means that the cycle of Esso, Hess, CNOOC and Guyana will be repeated but since production is not shared equally, (Esso has a 45% stake, Hess 30% and CNOOC 25%) it is not clear how and when Guyana will become entitled to three million barrels given its entitlement to 50% of profit oil after a 2% royalty.  

Violation

I am convinced however that what the DoE described as an interim arrangement is a clear violation of the Petroleum Agreement. The Agreement expressly provides for the oil companies to bear and pay all Contract Costs incurred in carrying out Petroleum Operations and for them to recover Contract Costs as Recoverable Contract Costs only from Cost Oil. It further provides that such costs are to be recovered from the value of the volume of Crude Oil produced and sold from the Contract Area.     

Dr. Bynoe has recruited another foreign consultant to tell him at a cost of millions of dollars who are the international oil players. But Bynoe and his advisers have failed to appreciate that the Agreement is based on monthly production. See Article 11.3 of the Agreement. Dr. Bynoe is being led by Exxon to operate outside of the Agreement for which he has no authority. In the process, he is exposing Guyana to price and exchange rate fluctuation by deferring its right to take up and dispose of its share of oil.

Bynoe is playing around not only with the Agreement but with Guyana’s entitlement under it. The tragedy of the Granger Administration’s mismanagement of the oil sector just seems to get worse.