The 2016 Petroleum Agreement Compared – Insurance

Every Man, Woman and Child in Guyana Must Become Oil-Minded Part 34

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!

Retained in the 2016 Agreement is the provision that all costs included in the approved abandonment programme and budget are operating Contract Costs, recoverable on a unit of production basis. Such costs, once approved, are recoverable from the period in which the abandonment programme and budget is approved. Also retained is a requirement that within seven days of the approval of the budget, an Affiliated Company of each of the parties will provide the Minister with an undertaking to ensure provision of financial and technical resources necessary to conduct the approved abandonment programme.

Also of significance, and also retained, is the provision that in the event that the Minister inherits any assets under Article 20, the Government will also assume any liabilities that go with them. After that event, the Contractor is relieved of any liability, responsibility or obligation against any claim which may arise from the use or abandonment of any such asset.

Article 20.2 deals with Insurance in respect of but not limited to assets, pollution, third parties and employees. The Agreement does not require any loss of production insurance as will apply in the case of any major disruption of production or environmental accidents. There is no provision regarding any adverse impact on fishing grounds and coastal communities or on neighbouring countries. The 1999 Agreement allowed for insurance to be taken out by Esso’s affiliate insurance company.

That requirement has been changed and now allows the Contractor to have the right to self-insure against the risks identified. This is a major concession by Trotman on an issue that only specialist lawyers know about. What it means in practice is that anyone seeking to make an insurance claim will have to lodge that claim against Esso, CNOOC/Nexen or Hess, all of which are external companies. Those potential claimants must thank Raphael Trotman for making their chances even more difficult to succeed.

Article 21 dealing with Import duties has been drastically revised and is clearly a touchy issue, having prompted advertisements and statements by Esso and the Government of Guyana defending the most generous provisions available anywhere in the world. In the 1999 Agreement, Esso, its affiliated companies and subcontractors engaged in petroleum operations were permitted to import, free of duty or other taxes or imposts,

“machinery, equipment, vehicles, materials, supplies, consumable items (other than foodstuffs or alcoholic beverages or fuel), and movable property, where imports in any of the said categories have been certified by the Chief Inspector designated as such under section 3 of the Act to be for use solely in carrying out petroleum operations.”

That has now been changed in the 2016 Agreement, extending to “drillships, platforms, vessels, geophysical tools, communications equipment, explosives, radioactive sources, oilfield supplies and lubricants, as well as all items listed on Annex D.” Annex D lists nearly 250 classes of items which can be imported under the Agreement. Not only has the list been widened but the process is now carte blanche. Whereas under the 1999 Agreement the items had to be certified by the Chief Inspector to be for use in the operation, under the 2016 Agreement no such certification is necessary as Trotman has now agreed that all those hundreds of items, as well as any other items, shall be deemed approved and certified by the Chief Inspector.

This is almost farcical since after thirty two months, Trotman is yet to appoint a Chief Inspector as required by law. It means that the fictitious and unreal deeming is being done by a non-existent officer. What is also means is that Trotman has effectively stripped the Commissioner General of his statutory duty to examine imports and to take action as he considers necessary.

Article 21.3 which allowed expatriate employees of the Contractor to import into Guyana free of import duty personal and household effects including one (1) motor vehicle has now been extended to the employees of sub-contractors while the exemption from duties has not been extended to all taxes. A new Article 21,4 has been added to permit those employees the right to export from Guyana, free of all duties and taxes, and at any time, all of the items so imported.

While Articles 22 – Foreign Exchange and 23 – Accounting and Audits remain unchanged, the provision in Article 23 that the Minister has the right to audit the accounting records of the Contractor – but not it seems the Operator – in respect of Petroleum Operations in accordance with Accounting Procedure (emphasis added) is nonsensical. Audit is done according to Auditing Standards, not Accounting Procedure.

To be continued