Category: The Road to First Oil

Canadian Sanctity of Contract case offers hope for Guyana: Part 2

Introduction

Last week’s part 1 of this mini-series dealt mainly with the court case and subsequent renegotiation of the Churchill Falls Hydro project in the Canadian province of Newfoundland and Labrador. In that case, the Canadian Supreme Court rejected an application for an increase in the fixed charge for electricity supplied to Quebec Hydro in exchange for the provision of loan guarantees and the undertaking to purchase all the power produced from a hydro project. For continuity, I repeat two passages from the judgment that support a case for renegotiation of the Exxon 2016 PSA.

1. “The Court cannot change the content of the contract or require renegotiation,” emphasising that renegotiation must arise from the contract itself, as with the 2016 PSA.
2. “There is neither inequality nor vulnerability in their (Churchill/Quebec Hydro) relationship. Both parties to the contract were experienced, and they negotiated its clauses at length.” As we shall see, that was not the case with the 2016 PSA.

The failure in the court was not the end of the matter. The parties thereafter successfully renegotiated the Agreement – a case of losing the battle but winning the war!

The ExxonMobil PSA

The Exxon PSA and Churchill Falls agreement differ significantly in how their imbalances arose. In Churchill Falls, what became a significant advantage for Hydro-Québec emerged gradually through market changes under a 65-year fixed price contract that was initially considered fair. In contrast, the PSA’s key provisions reflected fundamental disadvantages from the outset.

Exxon’s discovery of oil in 2015 coincided with heightened vulnerability arising from Venezuela’s claim over two-thirds of Guyana. The oil giant exploited this vulnerability by insisting on terms and concessions unknown in any historical post-discovery petroleum contract. The need and the urgency, coupled with Guyana’s lack of technical expertise, left the government at a disadvantage in what passed for negotiations, conducted mainly at Exxon’s headquarters on a visit by two technical officers from the Guyana Geology and Mines Commission against an army of Exxon’s experts. The GGMC’s report on those negotiations is on public record.

The PSA’s final terms reflect this imbalance. The royalty rate, set at just 2%, is among the lowest globally. Exxon can recover up to 75% of annual revenues as production costs, including a portion of capital and decommissioning costs, before profit-sharing begins, leaving Guyana with minimal immediate financial benefits.

The PSA also defies accounting principles and logic with no provision for ring-fencing, a standard feature in resource contracts. Without such provisions, Exxon has been claiming costs from future projects against existing operations, delaying Guyana’s share of profits and their true economic value. This creates a sustained cycle of deferred earnings, locking the government into a position of dependence on ExxonMobil’s accounting practices.

Perhaps most egregious of all is a provision requiring the government to pay ExxonMobil’s income taxes and to provide it with a certificate that it (the oil companies) has paid such taxes in Guyana.

The Bridging Deed and Procedural Failures

Beyond the financial terms, the PSA’s renewal process raises even more serious concerns about governance and compliance with the law. Under Guyana’s Petroleum (Exploration and Production) Act, companies must relinquish unexplored areas at the end of their license period, retaining only those blocks where discoveries have been made. This provision ensures that unexplored resources revert to state control, allowing the government to attract new investors and maintain competition. However, through a bridging deed, ExxonMobil could bypass this requirement, retaining control over the entire Stabroek Block for forty years and fifty-seven years in total.

The Clyde & Co. report, commissioned to review the PSA, revealed troubling details about the renewal process. According to the report, ExxonMobil was directly involved in drafting the Cabinet paper that justified the bridging deed. This extraordinary corporate influence raises fundamental questions about whether the government acted independently or ceded control to ExxonMobil in exchange for perceived short-term security.

Governance and Sovereignty

Beyond these economic and procedural flaws are deeper issues of governance and sovereignty. Article 32.1—Stability of Agreement freezes the terms of the Agreement effectively for forty-one years (2016 – 2057), nullifying Parliament’s authority over the oil sector. That clause prohibits any changes to fiscal terms or other conditions without ExxonMobil’s consent, thereby placing Exxon outside the reach of Guyana’s democratic institutions.

Guyana’s Constitution vests in Parliament the authority and the duty to legislate for the country’s peace, order and good government, without qualification or reservation. Yet, a minister appointed by the President consented to the Stability Clause, preventing Parliament from exercising its authority – undermining the country’s constitutional framework and raising fundamental questions about the constitutionality of such agreements. What is particularly unprecedented and outlandish is that the full extent of this ouster and incapacitation lasts fifty-seven years, including the seventeen years under the Janet Jagan approved 1999 Agreement. And second, the incapacitation includes the all-powerful Executive President!

Addressing the flaws in the PSA requires more than renegotiating financial terms. It demands a broader effort to restore the integrity of Guyana’s resource governance framework. This includes revisiting the legality of the bridging deed, holding those involved in its approval accountable, and reaffirming the government’s commitment to transparency and compliance with the law.

Comparing Contexts and Outcomes

While both agreements highlight the risks of imbalanced resource contracts, their differences are stark. Churchill Falls became contentious due to inequities that grew over decades as Hydro-Québec’s fixed pricing arrangements became increasingly favourable to one party. In contrast, Guyana’s PSA reflected significant disadvantages from the outset, with terms heavily favouring ExxonMobil and constraining Guyana’s ability to adapt or renegotiate.

Another critical difference lies in the governance frameworks. Newfoundland and Labrador lacked the legal tools to challenge Hydro-Québec effectively during the original term of the Churchill Falls agreement, relying instead on eventual expiration to renegotiate. In Guyana’s case, the Agreement in Article 31.2 anticipates and permits renegotiation.

Finally, the scale of resource control differs. The Churchill Falls contract involved a single, albeit massive, hydropower project. Exxon’s PSA governs an extensive offshore oil block with multiple discoveries and prospects over an area of more than 12% of Guyana’s territory. This gives ExxonMobil an enduring and enormous control far greater than Hydro-Québec’s over Churchill Falls’ electricity.

Next Tuesday’s column 148 will examine the lessons from Churchill and conclude with why that case offers much more than hope for the renegotiation of Exxon PSA 2016.

Part 1: Canadian Sanctity of Contract case offers hope for Guyana

Introduction

Contrary to the clear wishes of the Ali Administration and its sidekick ExxonMobil, the call for the renegotiation of the 2016 Production Sharing Agreement (Exxon PSA) will not likely end soon. I would not be surprised if a cohort of youths in the year 2040 would be asking why Raphael Trotman signed such a diabolical Agreement and why Attorney General of the stature and ability possessed by the incumbent Anil Nandlall S.C. often takes Exxon’s side in any litigation involving the company. We will answer both questions later in this mini-series in which I am again making the case for renegotiation of the Agreement. I do so prompted by a letter written by Terence M. Yhip, a member of the Guyana Diaspora appearing in the 15th. December 2024 Sunday Stabroek, highlighting a compelling parallel between two agreements: Canada’s Churchill Falls hydropower contract (Churchill Falls) and the Exxon PSA.

Ironically, the only error in Mr. Yhip’s letter is his assertion that the Exxon PSA’s life cycle is twenty years and, therefore, ends in 2036. In fact, as of today, it ends in 2057 after including a ten-year exploration period, a one-year COVID-19 force majeure, and a thirty-year production period.

The two agreements, each with its own facts but subject to similar legal systems, demonstrate the long-term implications of resource contracts negotiated under imbalanced conditions. While Churchill Falls is a tale of financial inequity that emerged over decades, Guyana’s PSA presents a broader set of challenges – economic, procedural and constitutional – that were evident from the outset.

Background

The Churchill Falls agreement, signed in 1969, was transformative for the Canadian province of Newfoundland and Labrador. The province wanted to monetise its vast hydroelectric potential but lacked the financial resources and technical expertise to develop the Churchill Falls hydropower plant. Hydro-Québec offered to finance the necessary infrastructure in exchange for the right to purchase most of the electricity generated at fixed prices for 65 years. For the province, the deal brought immediate development benefits. For the company, it guaranteed a stable and affordable energy source to support Quebec’s industrial expansion.

Initially, the agreement appeared equitable. Both parties assumed risks, and Newfoundland lacked other options to unlock its hydroelectric potential. However, as global energy prices rose sharply in subsequent decades, the fixed pricing terms became increasingly unfavourable for Newfoundland. Hydro-Québec profited immensely, earning billions by reselling Churchill Falls electricity at market rates, while Newfoundland’s revenues remained tied to terms negotiated decades earlier.

By the 2010s, this disparity had become untenable for Newfoundland. The province sought renegotiation of the agreement under the principle of good faith, which requires contracting parties to act honestly and fairly toward one another. Newfoundland argued unsuccessfully that the economic inequities undermined the agreement’s spirit and intent.

The judgment

However, in 2018, the Supreme Court of Canada upheld the agreement under the doctrine of sanctity of contract, which prioritises stability over fairness.

Interestingly, while the judgment shows Chief Justice McLachlin as present, it also states -without offering any reason – that he took no part in the judgment. As we shall soon see, the ruling was not unanimous.

The court’s majority opinion emphasised:

“Good faith does not compel a party to forego advantages freely negotiated in the contract. Courts cannot rewrite contracts to address inequities that arise over time.”

Despite affirming the enforceability of contracts, the decision was not unanimous, failing to address the ethical concerns surrounding resource inequities. Justice Malcolm Rowe, a native of Newfoundland, dissenting, warned against the rigidity of this approach, arguing that

“Equity cannot be divorced from justice. A rigid application of contractual terms may serve the letter of the law, but it can erode public confidence in the fairness of resource agreements.”

The judicial loss did not deter Newfoundland, which persisted. It brought the parties together to successfully renegotiate the contract in 2024, resulting in improved revenue-sharing terms while preserving Quebec’s energy stability. This outcome demonstrated that even the most rigid agreements can be revisited through persistence and negotiation.

The Churchill Falls case also offers valuable lessons in the power dynamics of resource contracts. The court also considered the extensive negotiation between the parties, the absence of any provision for adjusting the rate for the electricity supplied, and any renegotiation clause.

Conclusion

The Churchill Falls case illustrates that a court loss is not the end of the road. Public pressure, combined with strategic persistence, can compel change even in the face of rigid legal doctrines like the sanctity of contract. Newfoundland’s eventual success in renegotiating its agreement in 2024 underscores the power of public sentiment, sustained advocacy, and strong leadership to overcome inequities.

The next column will address the Exxon 2016 Agreement drawing comparisons and differences with the Churchill Falls Agreement.

Referendum Rejection Raises Questions About Government’s Commitment to Oil Contract Renegotiation

Introduction

The recent dismissal by Vice President Jagdeo of a potential referendum on the ExxonMobil contract renegotiation exposes deeper questions about the government’s true commitment to securing better terms for Guyana’s oil resources. His announcement ruling out a referendum alongside the 2025 elections – notably made without any statement from President Ali – adds another layer to the administration’s puzzling and anti-nationalist approach to contract renegotiation.

A recent survey I conducted showed that 94% of Guyanese support the renegotiation of the Stabroek Block PSA, presenting a compelling mandate for action. This overwhelming public sentiment has made the referendum question unavoidable, though it would not usually arise in relation to a matter of this nature. The call for a referendum has gained oxygen only because the Government and Jagdeo have refused to do what they promised to do and what the 2016 Agreement expressly allows. Article 32.1 of the Production Sharing Agreement explicitly provides a mechanism for changes to the Agreement. Yet, after four years in office, the government hasn’t taken even the preliminary step to initiate the process.

Constitutional and statutory disorder

The Government’s resistance to public involvement extends beyond mere inaction. Through the Vice President, the oil minister and the Attorney General, it has actively stymied citizens’ efforts to bring Exxon & Co to heel by taking the side of Exxon in any legal action against exploitation, granting Exxon every space and decision it requires and demonstrating a general failure to hold Exxon accountable. This stance starkly contrasts with Jagdeo’s pre-2020 declarations that “they sold us out to the foreigners” and his vow to renegotiate what he then termed a lopsided contract.

What makes this situation particularly troubling is that such a consequential decision about Guyana’s oil patrimony was announced not by President Ali, who holds constitutional authority over such matters, or by the Prime Minister, who is constitutionally the First Vice President, but by his Vice President. This irregular chain of command raises serious questions about who truly drives Guyana’s oil sector policy. The President’s silence while his Vice President makes pronouncements on matters of supreme national importance represents a troubling abdication of executive responsibility. The Constitution vests the President with executive authority to ensure clear, accountable leadership – not a ceremonial role.

This breakdown in proper constitutional order extends beyond the Executive. When questioned about a potential referendum, GECOM’s Chairperson Claudette Singh remarkably passed the policy question to her CEO Vishnu Persaud – a technical officer with no constitutional authority to make such determinations. That Persaud then felt empowered to declare there isn’t “the slightest indication” of the need for a referendum GECOM “should focus on” mirrors the same governance dysfunction we see with Jagdeo making pronouncements that should come from President Ali. Persaud’s subsequent claims about required legislative changes, without specifying what changes, appears coordinated with Jagdeo’s “too complex” narrative, creating artificial barriers to public participation in this crucial national decision.

The Path Forward

The power of a constitutional referendum extends far beyond mere democratic process – it represents a potent negotiating tool that the government seems determined to avoid. A clear mandate from the people would provide unprecedented moral and political authority in any renegotiation attempts and demonstrate to international observers that Guyana can make sovereign decisions about its resources. The coordinated resistance from both government and electoral officials suggests a deliberate strategy of avoiding public empowerment that could force their hand with ExxonMobil.

As Guyana races toward becoming one of the world’s most significant per-capita oil producers, the synchronised opposition to a public vote from Vice President Jagdeo and the GECOM CEO, without intervention from their constitutional superiors, exposes a systematic effort to keep decisions about Guyana’s oil wealth within a tight circle of influence. Instead of embracing overwhelming public support to strengthen Guyana’s negotiating position, the administration has retreated behind claims that a referendum would be “too complex” to handle alongside general elections – an astounding admission of incompetence now being reinforced by bureaucratic obstacles from GECOM’s CEO.

Conclusion

If Guyanese society continues to accept this erosion of proper constitutional governance without protest, we risk not just our oil wealth but the entire framework of accountable government that should protect it.

The coordinated opposition to public participation in this critical national decision reveals a deeper malaise in our governance. When technical officers like GECOM’s CEO can make policy pronouncements, when a Vice President can dismiss constitutional mechanisms without presidential authority, and when the nation’s most valuable resource remains under a contract that 94% of citizens want renegotiated – and society remains largely mute – we are witnessing more than just institutional failure. This silence in the face of constitutional disorder sets a dangerous precedent for Guyana’s democratic future.

Exxon and Hess Give Thanks: A Turkey Named Guyana

Thanksgiving has been silently making its presence felt in Guyana with the Black Friday sale looked forward to by shoppers spending on things they do not need because they will save on Black Friday spending. The idea is an incident of Thanksgiving – a day dedicated by Americans for gratitude and feasting, celebrating their blessings and abundance.

This column can report that the celebration took on a uniquely Guyanese flavour in Exxon and Hess’s boardrooms. At their table, the centerpiece was not just a golden turkey lathered with Guyana oil, but the entire country of Guyana, with steam rising from its golden-brown oil wealth, its aroma drawing corporate vultures and shareholders to circle the feast. It was all made more sumptuous by a phalanx of politicians, professionals, regulatory institutions, and the national cricket franchise providing the stuffing – a mix of ingredients ensuring that the carving proceeded smoothly, with no obstacle along the way.

A Feast of Broken Promises

Before the 2020 elections, Guyana’s now President and chief Vice President thundered against selling out the national patrimony to ExxonMobil, Hess, and CNOOC. They promised to renegotiate terms to ensure fairness, national benefit, and justice. But once in power, these lofty promises dissipated into silence, replaced by the chant of “sanctity of contract.” The transformation mirrors the devastating betrayal of Native Americans centuries ago: invited to share their bounty under the guise of partnership, only to watch as disease decimated their populations, settlers seized their lands, and broken treaties shattered their sovereignty. Their feast of sharing became a near-genocidal tragedy.

Today, Guyana faces its own existential threats. While the weapons are not smallpox, blankets and muskets, the environmental degradation from oil spills and gas flaring poses similar dangers to national health. The economic exploitation through a skewed contract drains the nation’s wealth as surely as land theft impoverished Native nations. Adding cruel irony to injury, Guyanese citizens now face deportation from the United States under harsh immigration policies – forced to return to a homeland whose resources are being carved up by American corporations.

Politicians as the Stuffing

As every Thanksgiving host knows, stuffing is essential to the turkey. At Exxon’s table, a blend of political, legal and regulatory actors ensured that the feast remained undisturbed, each ingredient playing its part in this corporate banquet of exploitation. Here is the bio of some of these players.

The Politicians. Guyana’s political class forms the base of bland and backboneless stuffing crumbs, lacking substance but quick to soak up corporate arguments. These include the leaders who once promised renegotiation but now serve Guyana as the turkey on a platter, parroting Exxon’s line about frightening investors and ruining Guyana’s reputation. Their evolution from defenders to enablers was the toast of the occasion.

The Attorney General – Like spicy sausage, he adds energy and legalese to the stuffing. The AG’s role goes beyond passivity to active defense. In court actions challenging the environmental and contractual terms of oil operations, he frequently appears as a disguised advocate for the oil companies, wrapping corporate interests in the language of national benefit.

The EPA is like celery without the crunchiness, stringy and hollow, having lost its voice, brains, and direction. It fails to hold Exxon accountable for environmental risks, leaving citizens to bear the dangers of oil spills, flaring, and ecological degradation. Its weakness in the face of environmental threats speaks volumes about institutional capture.

Professionals and civil society. Most are like dried cranberries, adding a sheen of professionalism, patriotism and independence while helping to draft contracts, massage numbers and engage in creative writing to perpetuate the status quo. Only a rare few – willing to risk a plate at the table – stand up for the people, offering a faint but vital glimmer of resistance.

Amazon Warriors and their supporters. At the national sports stadium, cricket fans wave at foreign cricketers wearing the Exxon shirt alongside the Golden Arrowhead – nationalism slowly drowning in a sea of corporate branding.

Guyana on the Table

The turkey itself – Guyana’s oil wealth – is as vast as it is vulnerable. With billions of barrels in recoverable reserves, the country should be poised for transformative development. Yet the contract terms leave Guyana with only a fraction of the profits while requiring the nation to reimburse the oil companies for their expenses, including taxes paid abroad.

No Thanksgiving feast is complete without a drink, and Exxon and Hess have the perfect accompaniment: Guyana’s light sweet crude. Former Minister Raphael Trotman once remarked that it is “so sweet you can almost drink it.” And drink it, Exxon and Hess do – straight from the source, savouring every drop as Guyanese have no clue of their operations and how they manage ceded sovereignty. For them, Guyana oil is not just raw crude to be refined but is the driver of profits and dividends for Americans and crumbs for Guyanese.

A New Threat to Sovereignty

Now U.S. lawyers press to practise their trade in Guyana, violating the Local Content Act and national and regional arrangements governing the training and practice of lawyers. This mirrors historical patterns of external forces seeking to dominate Guyana’s resources and institutions. Such an incursion would dilute local legal services and undermine the very laws meant to protect the country. Like the Exxon contract, this demand represents yet another attempt to erode Guyana’s sovereignty under the guise of progress and partnership.

A Call for Courage

Contracts are not sacred texts. They are tools created by humans to be revisited when they fail to serve the greater good. Guyana’s leaders must break free from serving at the Thanksgiving feast to fulfill their sacred duty as guardians of the nation’s sovereignty and resources.

To end the epicurean analogy, Guyana needs more vegetarians, unwilling to participate in Exxon’s feast. While Exxon & Co carve up Guyana’s wealth and politicians line up as ingredients, the vegetarians stand apart, untempted by this gluttonous banquet. Their conscience, like their diet, refuses to consume what is tainted by exploitation.

Trump’s Victory a reality check for Guyana

Introduction

The world continues to process the stunning outcome of Tuesday’s U.S. presidential election, with Donald Trump’s unexpected return to power sending shockwaves through global markets. While the political implications are far-reaching, the focus of this column is an examination of what Trump’s presidency means for the oil and gas sector, particularly given the lessons learned from his first term. The landscape has shifted significantly for Guyana since 2016 – we now stand as an oil producer rather than merely a regional observer, making both historical lessons and future prospects increasingly relevant to our national interests.

The immediate market reaction to Trump’s victory was telling, with both major oil benchmarks showing significant decline. Brent crude dropped 61 US cents to $74.92 per barrel, while West Texas Intermediate fell to $71.69. Citi’s forecast of continued downward pressure through 2025 poses particular challenges for Guyana, which has embarked on ambitious spending plans based on previously optimistic price projections. The potential drop to around US$60 per barrel from July 2024’s high of US$84 represents a concerning 30% decline that could severely impact our budgetary plans, especially as the government contemplates significant payouts to citizens ahead of our 2025 elections.

Trump’s impact

Trump’s potential impact on oil prices presents several counterbalancing forces. At home, his renewed “drill, baby, drill” agenda and promised deregulation of U.S. oil production could increase global supply. Abroad however, there can be offsetting events and activities. Trump had boasted that the war in Ukraine would end almost immediately, possibly putting upward pressure on oil prices by enabling global economic recovery and increasing energy demand. On the other hand, if this leads to the end of sanctions imposed on Russian products, it could result in an increase in supply. It is unlikely that Iran will return to the international market while continuing turmoil in Venezuela is hardly likely to see any significant oil coming to the international market.

For Guyana, this complex dynamic intersects with both structural and regional challenges. Based on its own perverse logic, the Government failed to apply ringfencing between production and prospecting activities. As we have explained in these columns, Guyana is in fact subsidising exploration activities today in the hope that the rewards in the future will make the sacrifice worthwhile. Well, Trump 2 makes that future look far less rosy, and we are now staring at the prospects of 14.5% take each year for an extended period. The PPP/C has become drunk with oil and never for a moment did it consider how vulnerable the 2016 Agreement makes the country to oil price fluctuations. Setting this aside however, Guyana’s position differs markedly from our Caribbean neighbors – while they continue to grapple with energy security concerns, as they did during Trump’s first term, we now face the challenges of managing newfound oil wealth.

Guyana’s response

Trump’s election poses a challenge to Guyana’s policymakers who will have to carefully navigate his mercurial temperament and transactional approach to everything. The challenges outweigh the opportunities. While other Caribbean nations must again brace for potential impacts on development assistance and trade relationships, Guyana needs to balance these regional concerns with our position as an emerging oil producer.
The mixed outlook following Trump’s re-election requires us to focus on those areas within our control: improving our regulatory oversight, building fiscal buffers where possible, and continuing to develop our broader economy. The experience of Trump’s first term shows the importance of preparing for policy volatility while maintaining regional relationships and economic diversification efforts.

The need to diversify the economy has not received the attention it deserved. Sadly, it may now be too late as the Dutch Disease has touched almost every sector of the economy. If ever there was a need to call for the renegotiation of the 2016 Agreement, it is now too late. Routledge will report us to State Department and there will be a call to Georgetown to keep the natives in line. If ever there was need for careful financial planning, management and control, the runaway spending train has already left the station. If ever it was important to draw the line between current expenditure and intergenerational savings, the automatic drawdown level has been set to high.

As the world contemplates Trump 2, Guyana faces some real challenges. The week has been transformational, and the only hope is that things will not be as bad as they seem.