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…..