The importance of royalty
In the last column which appeared on August 17, I indicated that I would touch next on royalty in petroleum contracts. The concept of royalty under Guyana petroleum laws gained some prominence when the Minister of Natural Resources had succeeded in negotiating an increase in the royalty rate from 1% to 2%, in each case expressed as a percentage of crude oil produced and sold. In fact, the Model Petroleum Agreement provides that royalty would be paid in kind and at the delivery point which is defined as the “fob point of export in Guyana, either offshore or onshore, which shall be agreed by the oil company and the Minister.
Royalty is not peculiar to any particular type of petroleum agreement which broadly can be one of the concessionary system or the contractual system. In other words, royalty can feature in the concession system or the contractual system. Recall that under the concession system, the host country may be paid a signing bonus, royalties based on production and taxes on taxable profits.
Concessions are recorded as the oldest form of petroleum contracts but these are more recently referred to as the Royalty Tax System. Generally, a royalty tax regime can be made up of a combination of three elements: a royalty to secure a minimum payment, the regular income tax applicable to all companies and a resource rent tax which is aimed at capturing a large share of the profits. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 14)
The Prospecting Licence and the Production Licence under the Petroleum Exploration and Production Act
Much is being made of the world class calibre of the advisers to the Granger Administration and Minister Raphael Trotman as they construct a path to First Oil in 2020. None of them apparently has told Messrs Granger and Trotman that the first steps should have been the adoption of a Petroleum policy, the urgent revision of the petroleum laws and the establishment of a team of skilled individuals with knowledge, competence, integrity and capacity to engage the oil men.
Oil is of course serious business, involves big dollars and is full of messy, technical details. At the end of the day however, it is about negotiations, understanding one’s strength and exploiting the other person’s weaknesses. Of course, the other side would be doing the same and it will boil down to who has the chips, the guts and the skill. Let us leave the world class experts to advise the Government. We need to get on with our work.
Today’s column sets out the provisions of the Petroleum Exploration and Production Act relating to the two licences which operators may apply for. The licences are a Prospecting Licence and a Production Licence, a prerequisite of which is an agreement between an applicant and the Minister under the powers vested and subject to the duties imposed under section 10 of the Act. The Agreement covers both types of licences but each is in turn subject to its own conditions. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 13)
Taxation and the Petroleum Laws
The column today seeks to demystify the question of taxation and the oil companies. It is almost depressing the extent to which some persons, including officials, continue to misrepresent the true position regarding the confidentiality of the oil contracts and the payment of taxes by oil companies. I found it astounding that an online oil and gas blog earlier this week quoted a “source” defending the secrecy surrounding the petroleum agreement on the grounds that it has over a thousand clauses!
That is such nonsense and it is regrettable that the relevant authority has not sought to correct such rubbish. In fact, the model petroleum agreement has thirty-three Articles. That is the model which is given to all the oil companies around which negotiations take place. The model was so generous to the companies because of the low probability of finding oil that there was little, if anything to negotiate. That model contract is widely available but no one wants to make the time to read and analyse it. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 12)
Today we conclude our review of the Petroleum Commission Bill which was begun last week in Part 10. Readers will recall the critical review and adverse comments on the composition and appointment of the Chairman and the eight members of the Board of the Commission who will serve for mere one-year periods after which they may or may not be reappointed. It is instructive to note that under the Ghana Petroleum Commission Act on which the Guyana Bill has been patterned, directors are appointed for three years! Continue reading Every man, woman and child in Guyana must become oil-minded (Part 11)
The National Insurance Scheme holds 8% of the issued shares in Demerara Distillers Limited (DDL) while Secure International Finance Company Ltd owns 18.49%, a combined percentage of 26.49% of the company’s issued shares. My first-hand information is that both the NIS and Secure International have been trying for years to have a seat or two on DDL’s Board so that they can have a say in the strategic decisions of the board, exercise some control of the executive management and have access to the operations of the company.
I am advised that on every occasion their request has been rebuffed by one or both Mr Samaroo and Mr Persaud, one of whom, in the eternal tradition of the family property, is the current inheritor of the executive chairmanship of the company from the other. What makes this situation so strange is that, on paper at least, Messrs Persaud and Samaroo own only 0.27% of the shares in DDL. An examination of the shareholdings in DDL suggests that what one sees is not necessarily the effective or beneficial shareholding in the company. Continue reading Corporate governance in the two most prominent public companies defined by the personalities, interests of their top executives