Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 31) The 2016 Petroleum Agreement compared – More than mere tweaks

Introduction

I must start this week’s column by publicly complimenting the painstaking and excellent work done by the technical staff of Ram & McRae in comparing, line by line and word by word, the 1999 Janet Jagan’s Agreement with Esso and the Raphael Trotman’s 2016 Agreement with Esso (not Exxon), Hess and CNOOC. I must also acknowledge that the Ministry of Natural Resources published on its website the annexures to the 2016 Agreement. What it has not published is the Bridging Deed which features prominently in the Agreement, nor has the Ministry published the Prospecting Licence granted to the companies collectively as a group or caused its existence in the Official Gazette as required by law.

Those who have been following the news about oil discovery since June 2015 would have read or seen Trotman on the television with a straight and sincere face that he renegotiated the 1999 agreement by tweaking it here and there and that the only substantive change was an increase in the bonus from 1% to 2%. The comparison shows that Trotman either does not know the meaning of tweaking or – and pardon the strength of my language – he is a compulsive liar. First of all, there was no tweaking of the 1999 Agreement. The 1999 Agreement was completely replaced but to enable the oil companies to retain the benefits thereunder, a Bridging Deed was proposed by Esso and accepted by Trotman.

It would be tedious to readers and take several columns to identify the several significant differences between the 2016 and the 1999 Agreements and the annexures. A general observation between the two Agreements is that while the 1999 Agreement was with Esso, the 2016 Agreement is with three companies – Esso, Hess and CNOOC, each of which will have Affiliated Companies which can benefit from the concessions and facilities under the Agreement. It is also worth noting that none of these three entities have incorporated a domestic company and each has its registered office at the same address – 62, Hadfield and Cross Streets, the same address as Hughes, Fields and Stoby, Attorneys-at-Law.

Now for some of the key new or amended provisions.

Key changes

In Article 1 – Definitions: “Contract Costs” has now been expanded to include, in addition to General and Administrative Costs, an Annual Overhead Charge; the terms “Cost Gas” and “Profit Gas” have been introduced; “Crude Oil” or “Oil” has been amended by reference to technical matters; “Delivery Point” has been substantially expanded; a new Article 1.5 has been added as follows: “The provisions in the Act and Regulations dealing with rights and obligations of the Contractor shall be read as part of but not nullify the provisions of this Agreement and any Licence issued to the Contractor.” This means that the Agreement takes precedence over the Act which is an illegality.

Under Article 3, Trotman undertook to issue the Contractor with a new Prospecting Licence, sixteen years after Esso had received its first Prospecting Licence for the same area!

Under Article 4, the sub-phases of the Exploration Programme and the provision about water depth (3,600 metres) have been removed, giving far more flexibility to the Contractor.

Under Article 5, the legal requirements governing relinquishments have been reduced and exclusions increased. To make sure that the benefits of the 1999 Agreement are not lost, a new Article 5.7 has been inserted providing that “Notwithstanding the provisions contained in Article 4.l (a), (b) and (c) or any other provision to the contrary in this Agreement, the Contractor shall not be required to relinquish any prospecting area consisting of a discovery made pursuant to the terms of the 1999 Petroleum Agreement.

Under Article 8.9 which deals with the renewal of a Petroleum Production Licence, the Minister’s discretion whether to extend such a licence has been removed by the insertion that “The application for renewal shall be granted as long as the Contractor is in good standing under the Licence.” And under the same paragraph of Article 8.9, the following provision has been added:

“(a) Natural Gas. In the event of any Non-Associated Gas discovery within the Contract Area, in recognition of the fact that Natural Gas projects generally have much longer lead times from discovery to first commercial production than is the case for Crude Oil projects, and in order to facilitate long-term sales with stable lifting continuity, the Minister shall grant Contractor’s request for the maximum ten (10) year Petroleum Production License renewal so long as Contractor is in good standing under the Licence.

Article 9 Confidentiality has also been amended mainly to protect data supplied under the 1999 Agreement but not so far as to prevent Trotman or the Government from releasing the Agreement or any of its contents. In fact, assuming that Trotman had received advice from “world class experts”, he clearly chose poorly as they can more appropriately be described, at best, as world class amateurs”.

Article 10 has been amended to replace a number of annual charges with a US$1M per year for annual rental charge. This figure may sound high but it works out at less than 30 US cents per annum per hectare, or 12.5 US cents per annum! What a bargain! But that is not the only thing of interest. But here is an addition: Payments under this Article 10 shall be paid directly into bank accounts held and controlled by the Government of Guyana. Contractor shall verify such bank accounts and the Minister agrees to cooperate, assist and provide Contractor any information it requires to conduct such verification. In other words, Trotman was central to this bank account.

Trotman is not the only liar

Maybe at this stage it is useful to juxtapose this Article 10 with the Signing Bonus Article 33 which provides as follows:

“The Contractor shall pay the Government a signature bonus of eighteen million United States Dollars (US$18,000,000.00). Such payment will be made within a period of fifteen (15) Business Days after the Effective Date, or such earlier date as agreed amongst the Parties. Such payment will be made to a bank account within the Bank of Guyana, which is owned by the Government as designated in writing by the Minister of Finance of the Government. Contractor shall verify such bank accounts and the Minister agrees to cooperate, assist and provide Contractor any information it requires to conduct such verification.”

In other words, Finance Minister Winston Jordan played an integral part in the decision on where the Signing Bonus should be deposited. Yet, like Trotman (or Shaggy), he continued to deny! Worse still, he failed to report it in 2016 and in the 2017 and 2018 National Estimates. A country is in a bad shape when its key Ministers can lie openly and blatantly without any penalty or sanction.

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