Oil and gas – The New Economic Horizon – Part 2

Who has oil has Empire.

This statement is attributed to Henry Bérenger, Advisor of French Prime Minister Georges Clemenceau quoted in the editorial in the Daily Argosy of Tuesday 16 July, 1929 on the occasion of a meeting to be held that day at the Town Hall to “discuss the steps, if any, to be taken in the matter of the development of the potential Oil Industry in British Guiana in the placing of an embargo by the British Government on the nature of Capital which should be employed in its exploitation.”

The second in this series of columns on Oil and gas turns its attention to the legislative and regulatory framework for the exploration and production of oil and gas in Guyana. While this column starts with a focus on the legislation put in place in the 1920’s and 30’s, it would not be correct to assume that no legislation existed before that time. Again turning to the Daily Argosy, this time of November 19, 1929, we note references to the imposition of an “Oil Embargo” spurred by the suspicion of the presence of oil deposits in the colony. According to the editorial, the regulations under which exploration licences were issued were modified from time to time “to safeguard the colony and the Empire’s needs.” Those regulations required that “no licences were to be issued or transferred to other than British subjects or to companies in which there was not fifty-one per cent bona fide British control and ownership.”

The effect of a policy of securing the interest of the “colony and the Empire” was to keep out the Americans. It is to be recalled that it was in Pennsylvania, USA in 1859 that the first well for petroleum was mined, allowing the Americans a position of dominance in oil production in succeeding decades. It is therefore somewhat ironic that in post-colonial Guyana, it is an American company ExxonMobil that is at the forefront of oil development, while a British company, Tullow is playing catchup, and the country’s needs and interests still very much dependent on international interests and capital.

The legislative framework

There are three main pieces of legislation governing the petroleum sectors. These are:

Petroleum Act Cap. 92:01 and Petroleum Regulations there under;

Petroleum (Production) Act Cap. 65:05 and Petroleum (Prospecting and Winning) Regulations thereunder;

Petroleum (Exploration and Production) Act Cap. 65:04 and Regulations No. 5 of 1986 thereunder;

Petroleum Act Cap. 92:01

Passed in 1930, this Act regulates the importation, storage and sale of petroleum. It sets out general provisions and procedures governing the manner in which petroleum is imported, stored, tested for temperature and ultimately resold. It contains no provisions relevant to the exploration for oil.

The Petroleum Regulations of 1930 made under the Act expounded on the provisions governing the importation, storage and sale of petroleum and includes additional provisions relating to methods of transporting petroleum, removal of dangerous petroleum which is petroleum having a flash point which is less than eighty-five degrees Fahrenheit, the granting of licences under the Petroleum Act, precautions to be taken with regard to storage of petroleum to prevent accidents from fire or explosion and precautions to be taken with respect to vessels laden with petroleum.

Responsibility for the supervision and enforcement of this Act currently vests in the Guyana Energy Agency (GEA), a statutory body established in 1997 under the Guyana Energy Agency Act. The GEA is the successor agency to the Guyana National Energy Authority established in 1979. The Agency has no direct role in the exploration and development of petroleum products and indeed, has the role of seeking alternatives to the use of petroleum products in the production of energy.

The recently tabled Petroleum Commission Bill gives no role to the Guyana Energy Agency, or to representation on the Commission. Another area of departure is that this Agency falls within the portfolio of the Minister of State, Mr. Joseph Harmon while petroleum exploration and production falls under the Ministry of Natural Resources, Mr. Raphael Trotman.

Petroleum Production Act Cap. 65:05

In 1939, the Assembly passed the Petroleum (Production) Act which vested in the State the property in petroleum and natural gas within Guyana and makes provisions for their exploration and exploitation. As originally enacted, that Act contained fifteen sections and was supported by the Petroleum Regulations No. 5 of 1967.

Under the Act, an exploration licence was granted for a period of two years with an extension on written application for another twelve months. The area over which such a licence could be granted was a minimum of eight square miles and a maximum of 200 square miles. A prospecting licence was granted for a period of five years with an extension period of five years but so that the total period would not be more than fifteen years after the initial commencement term of the licence.

Except for section 2, which vests the ownership of petroleum in the State, the Act was repealed in 1986 and as a consequence, the entire Regulations No. 5 was also repealed.

Petroleum (Exploration and Production) Act Cap. 65:04

The Petroleum (Exploration and Production) Act was passed in 1986. Compared with the earlier Petroleum Production Act, the 1986 Act which is still in force, is a more comprehensive piece of legislation. It applies to the exploration, exploitation, conservation and management of petroleum existing in its natural condition in land in Guyana, including the territorial sea, continental shelf and exclusive economic zone of Guyana.

Unlike its predecessors, this Act makes the Minister rather than the President responsible for the administration of the Act, including the granting of licences.

The Minister is empowered to enter into agreements for the granting of Petroleum Prospecting Licences not exceeding four years. A prospecting licence is renewable only twice for a period of three years on each occasion. The licence gives the licensee exclusive rights to explore for petroleum and the right to carry on such operations as are necessary for that purpose. Renewals are however limited to not more than half in total of the number of blocks for which a licence was granted, or first renewed, where the application is for a second renewal.

Section 31 (1) requires the licensee to notify the Minister within thirty days of the report under section 30 (2), whether or not – in the licensee’s opinion – the discovery is of potential commercial interest.

Where the discovery is of commercial interest, the licensee has two years to apply for a Petroleum Production Licence. Failure to apply for this licence can lead to the licence ceasing to have effect. The prospecting licence may also be brought to an end if the licensee notifies the Minister that the discovery has no commercial interest.

Next week, we turn attention to taxation of oil companies, and the principal conditions which attach to licences and will enumerate the licences currently in force including that of ExxonMobil.

PS: Acknowledgments to Dr. Nigel Westmaas for the historical information in this column.

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