Today’s column looks at what is called Cost Oil, both in the petroleum industry around the world and in the Petroleum Agreements signed by Guyana with contractors. Generally the term is used to mean the expenditure which the operator can charge against income in arriving at what is called profit oil. Cost oil falls under Article 11 of the Model Petroleum Agreement which carries the broader heading “Cost Recovery and Production Sharing”. A comparison of the Model Agreement and the 1999 Agreement signed by Janet Jagan with Esso Exploration and Production Guyana Limited (Exxon) shows that the two are identical, give or take the capitalisation of a few letters!
Here are two of the opening paragraphs extracted from the Agreement.
“11.1 Subject to the terms and conditions of this Agreement, the Contractor shall bear and pay all contract costs incurred in carrying out petroleum operations and shall recover contract costs only from cost oil as herein provided.
“11.2 All recoverable contract costs incurred by the Contractor shall, subject to the terms and conditions of any agreement relating to Non-Associated gas made pursuant to Article 12, be recovered from the value, determined in accordance with Article 13, of a volume of crude oil (hereinafter referred to as “cost oil”) produced and sold from the contract area and limited in any month to an amount which equals [seventy-five percent (75%)] of the total production from the contract area for such month excluding any crude oil used in petroleum operations or which is lost. “Recoverable contract costs” means such costs as the Contractor is permitted to recover, as from the date they have been incurred, pursuant to the provisions of Annex C. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 17)
A couple of days after Minister of Public Security Khemraj Ramjattan said some kind words to the media about Crime Chief Wendell Blanhum, the Prime Minister-controlled, state-owned Guyana Chronicle sought to discredit the Crime Chief. It did so by serialising extracts pulled from the confidential report to President Granger by his hand-picked Mr. Paul Slowe to carry out a one-man Commission of Inquiry (COI). Only the President, those very close to him, and Mr. Slowe himself would know the source of the leak. But make no mistake, if Prime Minister Nagamootoo wanted to shut down the drip, drip series by the Guyana Chronicle, all he needed to do was to pass on the instruction through one of his many mouthpieces.
With the extensive but selective disclosure by the State media, it would be irrational for the President to delay the tabling of the report in the National Assembly, and releasing it to the public. What the public will learn, and which explains why the Chronicle was so selective, is that Slowe himself found the allegation of a plot by an opportunistic and possibly unhinged complainant “unsubstantiated and therefore tenuous”. Mind you, these are the exact words used by Police Legal Adviser Justice Claudette Singh in her first note to the Police and repeated at the Commission of Inquiry, and by Blanhum at the COI. As the Americans would say, there was simply nothing there. Continue reading President ought to have shown better judgement in appointment of Slowe commission of inquiry
Trotman’s new Agreement
Today’s column seeks to address an issue which has largely gone under the radar because Mr. Raphael Trotman, the Minister of Natural Resources has been less than forthcoming in disclosing his actions in relation to ExxonMobil since the APNU+AFC Government took office in 2015. On every occasion that Mr. Trotman was asked about ExxonMobil (Exxon) he has always answered rather evasively, and only that he had negotiated an increase in the royalty from 1 % to 2%. In my research for a Moray House presentation last Friday on the challenges and opportunities posed by the discovery of oil in offshore Guyana, I realised Mr. Trotman actually did more than that.
Some background would be useful from the following timeline.
– June 14, 1999: Petroleum Agreement and Prospecting Licence signed by President Janet Jagan as responsible Minister for approximately 600 blocks.
– Sept. 29, 2001: Exxon declares force majeure due to hostile action by Surinamese naval vessels against the CGX oil rig and drillship C.E.Thornton.
– Sept. 7, 2007 UN pronounces on Guyana/Suriname dispute.
– October 2008: Exxon lifts Force majeure status.
– October 2008: An Addendum and Extension Deed to the Petroleum Prospecting License signed, modifying the Contract Area, the relinquishment obligation, and the initial period.
– Aug. 2, 2016: Official Gazette reveals that a new agreement was signed between Guyana and Exxon and its JV partners on 27 June 2016. That document has not been released to the public or the National Assembly. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 16)
There is a wide variety of petroleum contracts which countries, with the single exception of the USA, may choose to adopt. The USA is unique in that the state or the Government does not have blanket ownership of petroleum resources. If it is on government land, then yes, the property with the petroleum vests in the government and so too if the petroleum exists offshore. But otherwise, petroleum found under the land owned by a person belongs to that person.
In Guyana, as in every other country, the ownership of petroleum vests in the State, whether or not the petroleum is found in private property. Section 2 of the Petroleum Exploration and Production Act which was passed since 1939 vests in the State the property in petroleum existing in its natural condition in Guyana and grants the State the exclusive right of searching for and getting such petroleum. This may not be popular, nor does it seem right and the day may not be too far off when the issue is tested in our courts, whether on the basis of the technical definition of land or the constitutional right to property or on the basis of fair and adequate compensation. We will leave that discussion for another day!
We continue the discussion begun last week when we discussed the concession System /Royalty Tax System practised by some countries, particularly in the early days of petroleum production. This of course is just one of the options at Guyana’s disposal in what is described as the petroleum fiscal system. It is a term which refers to all payments to government required under a petroleum agreement and may be defined as the framework which the government of an oil producing country employs in managing, regulating and sharing the revenues that accrue from the stages of petroleum exploitation. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 15)
The public discussion on the Access to Information Act organised by the Guyana Bar Association was both useful and timely, particularly in the light of public calls for the disclosure of contracts entered into by the Government of Guyana.
However, the reported guidance in the media about the eligibility of persons to apply to the Commissioner of Information for disclosure is disturbing. The report states that an applicant must either be a Guyanese or a person domiciled in Guyana and adds that a company cannot be domiciled here, nor can an NGO. It is a matter of elementary law, not requiring the citing of any case authorities, that a company does indeed have a domicile. And in so far as persons are concerned, the Interpretation and General Clauses Act defines a ‘person’ inclusively as “any body of persons corporate or unincorporate …” (emphasis mine). Continue reading Companies may apply for information under the Access to Information Act