Category: The Road to First Oil

Introduction

Column 37 which appeared last week dealt with the classification of costs and as indicated there, attention now turns to what Annex C describes as Pre-contract costs. In this regard, a major insertion in the 2016 Agreement which has aroused considerable curiosity relates to an amount of US$460,237,918 by the Contractors for pre-Contract costs incurred under the 1999 Agreement. This is included in section 3.1 of Annex C “Costs Recoverable Without Further Approval of the Minister”. This is also not the entire sum for pre-contract cost but represents only those costs claimed to have been incurred up to December 31, 2015. Additionally, the 2016 Agreement also provides that cost incurred between January 1, 2016 and the Effective date of the Agreement constitute part of the cost of petroleum operations. All that was required in the latter case was for the Contractor to notify the Minister of those costs no later than October 31, 2016. The Minister had six months to agree such costs.

The separation of the two costs suggests that the US$460,237,918 is final while in the case of the costs incurred between January 1, 2016 and the effective date, the time for any challenge was April 30, 2017. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 38)”

Size

Column 36 published on Friday February 16, concluded the comparison of the 1999 and the 2016 Agreements proper. Today’s column therefore turns attention to the Annexes to the Agreement. Both Annex A and Annex B deal with the Contract Area, Annex A giving a description of the Contract Area while Annex B sets out a map of the Area. The term “Contract Area” in both Agreements is identically defined as the area that would be subject to a Prospecting Licence and a Production Licence.

The 2016 Agreement states that the Contract Area is 26,806 square kilometres while the 1999 Agreement describes it as comprising 60,000 square kilometres, a huge difference. I have written to the Guyana Geology and Mines Commission seeking a clarification on the difference.

Meanwhile it should be noted that an ExxonMobil news Release dated February 8, 2018 gives the gross acres held offshore in Guyana at 11.5 million, which is greater than the Contract Area stated in the 2016 Agreement. The explanation I believe is that the Release seems to make no distinction between acreage in which Esso/Exxon was the original licencee (the Stabroek Block), and where it is not the primary licencee but in which it has an interest (the Canje and the Kaieteur Blocks). Nor does it take account of the percentage shares in the Blocks whether as primary licencee or buy-in. For example, in the Stabroek Block, having sold 55% of its interest to Hess and CNOOC, Esso holds 45% of that Block while in the Canje Block and the Kaieteur Block it acquired interest of 35% and 50% respectively. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 37)”

Introduction

Readers will recall that Article 27 – Applicable Law, was addressed in Column 29 which is available on the website of the Stabroek News as well as on chrisram.net. Moving on to Article 28, it is interesting to note that the title of the Article has been modified by the insertion of Social Responsibility before Protection of the Environment. While curious, it is unclear whether this was intentional by the negotiators on the Guyana side, or whether they conflated financial social responsibility with environmental disasters, or worse, they simply could not give a damn.

With the international debate on the environment having been radically altered by undeniable evidence of climate change since Janet Jagan signed the first Esso Agreement in 1999, it would have been expected that Article 28 would have been substantially strengthened. Alas, that is not the case and the only amendment of any substance to this Article is the insertion of a new 28.7 which requires the Minister and the Contractor to establish a programme of financial support for environmental and social projects to be funded directly by the Contractor to the tune of three hundred thousand United States Dollars per calendar year.

On a positive note, this expenditure is not to be included as Recoverable Contract Costs, meaning that the oil companies will bear the cost. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 36)”

Government inaction now constitutes force majeure!

Today we take up from Article 24 which deals with force majeure, the definition of which is set out in paragraph 2.6. This definition has been amended in the 2016 Trotman Agreement. Without any significance, words like “act of God”, “earthquakes”, “floods”, “tsunamis”, “quarantines” and “piracy” have been inserted, events that would be considered as warranting “force majeure” under any jurisprudence but what is astounding is that “governmental inaction” now constitutes force majeure. I have scoured a range of sources and found no instance in any country or agreement where government inaction constitutes “force majeure”. The source of the amendment is either Trotman or Esso and since it favours Esso one has to assume that the amendment was at Esso’s request.

Paragraph 24.1 of the 1999 began with the words “Any non-performance or delay in performance” has now been qualified with the words “wholly or in part”, meaning that a force majeure in one part of this massive area over which Esso (Exxon) exercises control may arguably be grounds for “force majeure” in the rest of the Contract area which extends to thousands of square miles! Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 35)”

Just a reminder that this series within a series seeks to compare the Janet Jagan administration’s 1999 Agreement with the Trotman 2016 Agreement and as we closed last week’s column we were on Article 20. We now pick up where we left off last week.

Article 20 (1) also contains provisions requiring and regulating abandonment of petroleum fields, the obligation of notice by the Contractor, and the respective liabilities of the Minister and the Contractor for costs incurred or to be incurred. Article 20 (1) (d) (iii) refers back to the Development Plan required to be submitted under Article 8.4 and provides that “the Contractor shall submit for the Minister’s approval a proposed abandonment programme and budget covering all such installations and pipelines provided by Contractor under this Agreement.” This provision is amended by addition in the 2016 Agreement to allow the Contractor to revise the abandonment programme and budget with the agreement of the Minister to account for any changes in the Development Plan.

Absurdly, the 2016 Agreement retains the section of the 1999 Agreement which requires that if the Contractor does not present a timely proposal to the Minister for abandonment, the Minister may, after giving thirty (30) days’ notice to the Contractor, prepare an abandonment programme and budget for the Contract Area!!! Such a major matter should constitute a fundamental breach but instead, the Minister undertakes this substantial responsibility, apparently at his cost! Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 34)”