Category: The Road to First Oil

Column 43 dealt mainly with Associated Gas and my plan was to deal with non-associated gas this week. However, the availability of the annual returns and financial statements of Hess Guyana Exploration Limited necessitates that attention turns to the famous US$460 million as pre-contract costs.

Readers of this column will be aware that the column has repeatedly lamented the failure of Hess, the holder of a 30% interest in the Stabroek Block, to meet its legal obligations to Guyana to file annual returns together with audited financial statements of the branch. Some attempt to meet that obligation has recently been made with returns for 2014 to 2016 now submitted and placed on file. However, that company’s file at the Commercial Registry shows that the annual return for the year 2015 filed on March 22, 2018 did not contain any financial statements for 2015. This is a critical year since expenditure on recoverable pre-contract cost was divided into two periods – up to December 31, 2015 and from January 1, 2016 to the effective date of the Petroleum Agreement. The amount up to December 2015 was fixed at US$460,237,918 while the amount for the period January 2016 to the effective date of the Agreement was to be agreed on or before April 30, 2017. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 44)”

One feature of the Esso/Hess/CNOOC 2016 Agreement – as indeed the 1999 Esso Agreement signed by President Janet Jagan – which has received little public attention is Gas which is addressed in Article 12 of both Agreements. In both Agreements “gas” or “natural gas” are defined in Article 1 – Definition. Additionally, both agreements have definitions of “associated gas” which is all Natural Gas produced from any Reservoir producing predominantly Crude Oil; and “non-associated gas which is defined as natural gas or gas other than associated gas.

Gas is considered a quite distinct product since the non-liquid physical character of natural gas at ordinary temperatures and pressure imposes economic and practical limits on its use. Gas generally is transported by pipeline while oil can be transported by pipeline, road or rail. In the offshore environment, underwater pipelines can transport either oil or gas but ships can only economically transport liquids. Of course, with development and technology, it is now possible for natural gas to be liquidified under particular temperature and pressure into liquefied natural gas (LNG) and transported by ships.

According to William Hughes in the 2016 publication Fundamentals of International Oil and Gas Law, the LNG industry has been characterised by high capital costs, even exceeding the usual high costs of the oil and gas industry generally, due to costs of constructing specialised facilities to liquefy and load the gas, constructing specialised tankers to transport the LNG, and constructing facilities to receive and regasify LNG at the port of destination. Coupled with this is the comparatively thin market for the product. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 43)”

Introduction

Column 41 which appeared two weeks ago looked at the paltry share capital of the three foreign oil companies which signed the 2016 Petroleum Agreement for the Stabroek Block. The annual returns of two of the three companies showed that their exploration costs were financed by loans from their parent companies. Since one of those companies – Hess Guyana Exploration Guyana Limited (Hess) – had not filed annual returns since its registration in 2014, it is not possible to determine the source of its financing. Still, it would be a safe bet that it too will finance its operations by inter-company borrowings.

This column has not been the only expression of concerns about this strategy of low equity injection and high borrowings being pursued by the three contractors. Mr. Godfrey Statia, Commissioner General has indicated that the Revenue Authority would be paying particular interest in the practice and will no doubt seek to use his discretionary powers to disallow some of those costs. Other countries discourage such practices by what are called thin-capitalisation rules (see column 41).

The challenge for the Commissioner General are not insignificant: no thin-capitalisation rules; a court system that generally avoids getting involved on how companies structure their finances; the tax exempt status of the oil companies; and the jurisdictional overlap between the Revenue Authority and the Petroleum Commission whenever that Bill is pursued in the National Assembly. Of course, inter-company loans are only one tool used by businesses to shift profits from high tax to no/low tax jurisdictions since there is an infinite number of ways to shift income or charge or shift expenses. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 42)”

Introduction

Regulations made under the Petroleum Exploration and Production Act require the application for a prospecting licence to be accompanied by a statement giving particulars of the applicant’s financial status while in the case of a production licence, the application must give full information as to the applicant’s financial status. The Minister has extensive powers under the Act and the Regulations to request such additional information as he thinks necessary or to issue licences with conditions attached.

The applications are not published documents but the Act requires the Minister to cause notice of the grant of a licence stating the name of the licensee and the situation of the land (sic) in respect of which the licence has been granted. Whether the framers of the 1986 legislation did not consider that licences may be granted for off-shore exploration is unclear but it cannot be that only land-based licences require publication. Let us leave that technical matter for a while and return to the financial capacity of the licence holders.

We know that what our local media continue to dub the ExxonMobil Petroleum Agreement of 2016 actually has three contractors – Esso Exploration and Production Guyana Limited (Esso), CNOOC Nexen Petroleum Guyana Limited (CNOOC) and Hess Guyana Exploration Guyana Limited (Hess) – all incorporated in offshore tax havens and operating in Guyana as branches of the offshore companies. We know too that the two non-Esso companies which hold 55% of the interest have appointed Esso as the Operator. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 41)”