Category: The Road to First Oil

Introduction

For a country that will soon become petroleum dependent, Guyana’s petroleum legislation is not particularly expansive. There are two petroleum Acts – the Petroleum (Exploration and Production) Act comprising seventy-one sections and the largely gutted Petroleum (Production) Act which is now something of a misnomer since all it does is vest the ownership of petroleum resources found in Guyana in the State. That Act has a mere two sections. Then there is the Petroleum (Exploration and Production) Regulations made in 1986 comprising thirty-nine paragraphs, one Schedule containing four Forms, one of which has a First and a Second Schedule.

The word “environment” does not appear in any one of the Acts, and only adverbially in the Regulations in which pollution appears a few times. Fortunately, in 1996 the PPP/C Government passed into law the Environmental Protection Act (EPA). Accordingly, it was under the EPA that an environmental permit was issued on June 1, 2017 valid until 2040 for the Liza Phase 1 Project. This 46th column in the series looks at the conditions under which the environmental aspects of the petroleum operations are required to be conducted. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 46)”

Introduction

After the major financial issue last week, we return today to the mundane issue of the provisions on non-associated gas in the 2016 Agreement which the three oil companies signed in June 2016. Those provisions are contained in Article 12.2 and have four paragraphs. Recall from Column 43 that non-Associated Gas is defined as “natural gas or gas other than associated gas”, i.e., gas derived from a reservoir producing predominantly crude oil.

It is probably necessary to reflect on Article 8 which embodies section 30 of the Act. That section requires notice to be given forthwith to the Minister of any discovery in the Contract and to inform him of the tests the Contractor proposes to run on the discovery and for the Contractor to submit test results to the Minister.

In its notification of the Discovery, the Contractor is required to inform the Minister whether s/he believes that such discovery is potentially commercial under the current Agreement terms, or if Contractor requires revised fiscal terms or contract terms under the Agreement to proceed with a Development Plan. It is unclear what revised fiscal terms the Contractor will require since all imports are duty and tax free and a range of income is either exempt from taxes, or better for the Contractor, is paid by the Government of Guyana. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 45)”

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)”