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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 44)

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)”

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 43)

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)”

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 42)

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)”

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AFC has exhibited duplicitous leadership

I find the report by Mr. Raphael Trotman, leader of the key coalition party Alliance For Change (AFC) that his party will not support the Sedition Clause (clause 18) in the Cybercrime Bill of 2016 most astonishing. Mr. Trotman must be aware that Chairman and immediate past leader of the AFC and Vice-President of Guyana Khemraj Ramjattan and AFC MP Mr. Michael Carrington were members of the Committee and that both were present and voted to retain the dangerously offensive clause 18.

In fact, Mr. Ramjattan played a key role in the Committee, including referring the Bill to a lecturer at a meeting of the Commonwealth Parliamentary Association which he attended and also in offering guidance to the Select Committee that the “Commonwealth has a standard Legislation/Model Act and the Cybercrime Bill emanated from that Act.” At best, Mr. Ramjattan could only have been referring to the 2002 Commonwealth Computer and Computer Related Crimes Model Law. Incidentally, a 2014 Discussion Paper on Cybercrime Model Laws prepared for the Cybercrime Convention Committee (T – CY) reports that the Commonwealth Model Law could not be found on the Commonwealth Secretariat’s website and has “been of little relevance in terms of impact upon Commonwealth countries or even generally.”

The reason that I find Trotman’s statement so offensive is that it represents a pattern of conduct in which Trotman and the leadership of the AFC seek to distance the Party whenever questions arise in the public over odious matters supported by the Party in private. Under the Party’s duplicitous leadership, the policy is to support even the most reprehensible and outrageous acts of the Coalition and in the event there is public outrage, the reaction is distance, deny and disown. They did so in relation to VAT on education, the parking meter contract and the Esso/Hess and CNOOC/NEXEN petroleum contract.

Having played a leading role in the formation of the AFC, including hosting and chairing pre-formation meetings, the writing of the party’s constitution, the selection of the party’s logo, and participation in almost every single meeting of the parliamentary party to plan strategies and responses to the annual budgets under the PPP/C, I am shocked to see what the party has become – opportunistic, self-serving and dishonest – seeking only to promote the interests and comforts of a few leading members.

Having read the Report and the Minutes of the Select Committee and the Bill as recommended to the National Assembly, it is clear to me that the high-powered Select Committee did a rather superficial and poor job under the chairmanship of the Attorney General Basil Williams. The APNU and the AFC have used the ruse of a Cybercrime Bill to reintroduce Sedition Legislation nakedly seeking to protect not the State but the Government. That is not what cybercrime laws are about.

My recommendation is that the entire Bill be scrapped and replaced by a Bill based on the Budapest Convention.

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 41)

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)”