Category: The Road to First Oil

Introduction

Column 19 last week summarised how petroleum produced is shared between the Contractor and Guyana represented by the Minister. Now, if the parties were to take their respective shares and act independently, selling their share of the crude, or refining and selling it as they wished, there would be no need for the Agreement to include any provision or rules concerning valuation. In Guyanese parlance, that would be their business. In other words, Guyana can do as it wishes with its share while the Contractor will be able to do likewise. But life is not so simple, nor are petroleum operations.

Guyana’s share of the production, at least in relation to the Liza Block, is a minimum of 14.5% of the number of barrels of oil produced (2% for royalties and 12.5% as minimum profit share). In column 19, I had expressed the view that for practical purposes, Guyana will not physically take up its share and will more than likely request ExxonMobil to refine and dispose of its uptake. I admit that I am discounting, at some risk, the possibility that Guyana may choose to sell its share at the wellhead to one of the other joint venture partners in the Liza Block.

Recall that the shares in the Joint Venture are held 45% Esso Exploration, 30% Hess and 25% CNOOCNexen. It may be far simpler, tidier and will pose less accounting and audit issues, and possibly disputes, if Guyana decides to sell its share to any of the partners at the wellhead. The more curious will immediately ask from whose share does the 14.5% to Guyana come. The answer is that it comes out of the gross and the JV partners will take their respective shares of the net. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 20)”

Disposal of Production

Recall that under a production sharing contract, costs are deducted from the value of production to arrive at profit oil to be shared between the contractor and the Government of Guyana in the proportion set out in the contract: Article 11.6. The contractor is also permitted to use as much production as needed in the operations and within the transportation and terminal system.

If the reader thinks that the system is becoming complicated and therefore subject to dispute, it gets even trickier since there may also be some third party usage of the transportation terminal systems. Where there is such third party usage, the quantities so used or lost outside of the contract area is proportionate to the aggregate use of the that system and the value is excluded from any calculations under Article 11. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 19)”

Trotman and Turbot

The good news

This column keeps meeting distractions from week to week. Column 17 last week indicated that Articles 12 Natural Gas and 13 Valuation of Crude Oil would be addressed later in this series. They will have to wait as we turn to two issues taking place this week, one the good news and the other the bad stuff. Let us start with the good news first. Yesterday October 5, ExxonMobil Corporation announced yet another oil discovery offshore Guyana. This means that since the May 2015 announcement of a huge find we have had four other finds. Liza, Payara, Snoek and Liza Deep, and now Turbot. The well was drilled to 18,445 feet (5,622 meters) in 5,912 feet (1,802 meters) of water on Sept. 29, 2017. The Turbot-1 well is located in the southeastern portion of the Stabroek Block, approximately 30 miles (50 kilometers) to the southeast of the major Liza phase one project.

Guyana is blessed. All we can hope is that good and intelligent leadership and competent and careful management will ensure that we do not transform this blessing into a curse. Experience shows that nothing can be taken for granted, internationally or in Guyana. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 18)”

Introduction

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)”

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)”