Stability of Agreement Clauses in Oil Contracts
This Column touched earlier on what the Model Petroleum Contract describes as a Stability Clause, the objective of which is to provide assurance to international oil companies that they will be protected from any variation in fiscal or economic policies by governments for a period of as much as thirty years. Here is how the Model Agreement describes that clause:
Government shall not, following the Effective Date, unilaterally increase the contractual obligations of the contractor under this Agreement or diminish the contractual rights of the Contractor hereunder as such obligations and rights exist as of the Effective Date.
If any level of government, promulgates new or amended laws, decrees or regulations, which negatively impacts the contractor’s economic benefits, the Parties shall promptly make revisions and adjustments to this Agreement as necessary to maintain the contractor’s economic entitlements at the level existing as of the effective date.
Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 26)
Notwithstanding its extreme reluctance to release the contract signed by Natural Resources Minister Raphael Trotman with Esso Exploration and Production (Guyana) Limited and two Joint Partners some eighteen months ago, Cabinet deserves credit for its decision to make the contract public in December. All the more because we are told that experts had advised Trotman that it would be a breach of the law for the Government to do so. I am sure that the Government will not regret this decision as there really is nothing to lose. In fact, Guyana will be joining a growing list of countries which make their extractive contracts and licences public.
The Executive Summary of a report Past the Tipping Point? published earlier this year by Natural Resource Governance Institute and written by Don Hubert and Rob Pitman concluded that it is becoming increasingly normal for member countries of the Extractive Industries Transparency Initiative (EITI) to disclose the contracts and licenses that lay out the terms for resource exploitation. No doubt, Guyana, which was recently admitted to membership of EITI, will be much more comfortable at EITI meetings when the question of contract disclosure is being discussed. In fact, Guyana will be joining a group of eleven countries which discloses its contracts despite having no statutory obligation to do so. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 25)
In Part 23 this column noted that Indonesia which had taken a lead role in the Production Sharing Contract (PSC) had moved to the Gross Sharing Production Sharing Contract. In fact, in 2015 Mexico and India are the two other countries which have migrated to similar systems, India after considerable debate. That does not mean that there will be a migration wave: just that in the industry nothing stands still. Today’s column looks at a much more basic or preliminary issue involving the petroleum sector – how contracts are in fact awarded.
The real issue is whether there is a policy for the sector to start with. The APNU+AFC was confronted practically from day one with the news of a major oil find. If they were unprepared it would be most natural, even if Robert Persaud, the Minister of Natural Resources and the Environment had briefed the new Minister. Two years on however, there is no policy, no new primary or secondary legislation and one wonders whether and when Minister Trotman will introduce new legislation. In fact, the Minister continues to behave as if he is still to learn the very basics of the sector although this does not suggest that his job is at risk. His two major achievements to date are the signing of a new Petroleum Agreement with the ExxonMobil subsidiary and causing Guyana to become a member of Extractive Industries Transparency Initiative (EITI). Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 24)
Indonesia explores new model
Indonesia, the country that is credited with giving the petroleum world the petroleum production sharing agreement (PSC) in the nineteen sixties, now seems to be walking away from the model. Under that model, the profit determined after deducting prospecting, exploration, production and operating costs is shared between the host state and the oil company in agreed percentages. Not surprisingly, disputes over what could and could not be deducted were frequent. So from the beginning of this year, that country took a huge step toward eradicating the cost recovery regime for upstream cooperation contracts.
To be clear, the new rules do not affect contracts signed prior to that date. The new system, called the Gross Split Production Sharing Contracts sets out a new economic structure for production sharing contracts (“PSC”) based on dividing gross production between the state and PSC Contractors, without a mechanism for the PSC Contractor to recover operating costs. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 23)
Oil and the Environment
The title of this week’s column is borrowed from a presentation by Annette Arjoon-Martins, Mr. Anand Goolsarran and Ms. Melinda Janki held at Moray House last evening. Annette is of course particularly known for her work with the community in Region One at Shell Beach in protecting marine turtles. Goolsarran is a former Auditor General of Guyana who also served the United Nations in Sierra Leone and Afghanistan, which probably required as much of a skill in auditing as in dodging bullets. Melinda Janki is an attorney-at-law specialising in international environmental law and indigenous and human rights who has also worked for a number of international oil companies.
Not surprisingly, there was much discussion on the environmental permit issued by the Environmental Protection Agency to Esso Exploration & Production Guyana Limited (ExxonMobil) which should see the oil giant and its two JV partners begin to pump oil in 2020. Melinda Janki was adamant that given the weaknesses identified in the documents submitted by ExxonMobil for the issue of an Environmental Permit, the permit that has been issued should be revoked. The documentation comprises an Environmental Impact Assessment, Technical Appendices, Environmental and Socio-Economic Management Plan and Oil Spill Response Plan. Citing statistics and information contained in the documents, Ms. Janki is convinced that a case can be made for the Environmental Permit to be set aside by the Court! Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 22)