The 2016 Petroleum Agreement compared – Generosity on a monumental scale

Every Man, Woman and Child in Guyana Must Become Oil-Minded Part 36


Readers will recall that Article 27 – Applicable Law, was addressed in Column 29 which is available on the website of the Stabroek News as well as on Moving on to Article 28, it is interesting to note that the title of the Article has been modified by the insertion of Social Responsibility before Protection of the Environment. While curious, it is unclear whether this was intentional by the negotiators on the Guyana side, or whether they conflated financial social responsibility with environmental disasters, or worse, they simply could not give a damn.

With the international debate on the environment having been radically altered by undeniable evidence of climate change since Janet Jagan signed the first Esso Agreement in 1999, it would have been expected that Article 28 would have been substantially strengthened. Alas, that is not the case and the only amendment of any substance to this Article is the insertion of a new 28.7 which requires the Minister and the Contractor to establish a programme of financial support for environmental and social projects to be funded directly by the Contractor to the tune of three hundred thousand United States Dollars per calendar year.

On a positive note, this expenditure is not to be included as Recoverable Contract Costs, meaning that the oil companies will bear the cost. 

More than a generation

Article 29 – Termination and Cancellation itself has remained largely unchanged. Operating under the principle that the Agreement continues in full force and effect so long as the Contractor continues to hold a ten-year prospecting licence (original for four years, plus two extensions of three years each) or a thirty-year production licence (original for twenty years plus extension of ten years), the relationship with Esso/Hess/CNOOC now potentially extends to 2056 and beyond, unless sooner terminated.

Article 29.2 which has not been amended, provides that if there is a referral to arbitration on whether or not there is a default, the Agreement continues in force pending resolution. The Minister is required to give thirty days’ notice of any intention to cancel as a result of a default but while under the 1999 Agreement the Contractor was allowed “reasonable time” to remedy the default, under the 2016 Agreement the Contractor now has sixty days to do so.

Article 30 – Effective Date has been modified so that while the effective date of the 1999 Agreement was the date of the signature of the Agreement, in the case of the 2016 Agreement, the effective date is the date when the Prospecting Licence is in “full force and effect”. The 1999 Agreement is not however dead and “continue[s] to be legally binding on the Parties until it terminates or is terminated in accordance with its terms and the Bridging Deed.” The signatory to the 1999 Agreement Mrs. Janet Jagan may be dead, but as the saying goes, Long Live Janet Jagan!

The Bridging Deed and the Annexes were not released when the body of the Agreement was made public in the dying moments of 2017, and while the Annexes were subsequently released, there is an inexplicable stubbornness in making public the Bridging Deed and the prospecting licence issued on the date of the Agreement.

Article 31 – Miscellaneous which contains an assurance by the Government of Guyana that “the Contract Area lies entirely within the territorial limits of Guyana and that Guyana has sovereignty over such area”, remains largely intact except that in respect of supersession and replacement of earlier agreements, the 2016 Agreement is subject to Article 30 which contains the reference to the Bridging Deed.

Constitution and Anti-Constitution

Article 32 – Stability which has been substantially expanded, was addressed in Column 26 of December 8, 2017. However, every reading of the provision strikes the observer as breathtaking, crippling, terrifying and without parallel with more recent oil contracts in its scope and application. By conceding on this Article, the Granger Government has not only emasculated itself but every succeeding Government up to the year 2056 and quite possibly later, depending on the rate of exploration and exploitation of what is possibly the largest petroleum area to have ever been granted to a foreign oil company by any sovereign state in the world in the post-colonial era.

The companies making up the Contractor enjoy water-tight protection against any changes proposed by the Granger and subsequent Governments. They are exempted from any new or additional taxes passed by the Parliament for the several decades during which the Agreement can legally subsist. And on a referral by the companies, an arbitral tribunal has the authority to modify the agreement to re-establish the economic benefits to the Contractor, or to award damages for past and future losses of economic benefits – direct and indirect – under the Agreement stemming from any government action. Such action is defined to include changes in “hydrocarbons law, the customs code or tax code”, a moniker that is not common to our jurisprudence.

Just imagine. A sovereign state is prevented from altering the Agreement either directly or indirectly by new laws or policies, but an arbitral tribunal can do so! If Chapter 1:01 of the Laws of Guyana sets out the country’s constitution, this Petroleum Agreement, signed AFTER the world’s largest oil find in 2015, constitutes its anti-Constitution.

The missing lawyers

It is still hard to accept that serious, responsible and educated national leaders – including five attorneys-at-law – can sit in Cabinet more than fifty years after Independence, and one year AFTER the Contractor had made the world’s largest oil find, and agree to trade the future of an entire country and generations to come. All its prevention required was a single adult in that Cabinet room who read the text of the Article, understood the language and conscious of its implications to warn her/his colleagues of its grave and practically lasting consequences for the country.

If no other, this was certainly an Article which required the contribution of the learned Attorney General, the Government’s chief legal officer, who has so far stayed out of, or been excluded from, the discussion and debate on the Agreement. It would be particularly interesting to benefit from information on his involvement, learning and contribution, and that of the remaining four attorneys, to the discussion on this Article which raises serious constitutional issues about the extent to which one government can bind successor governments.

Article 33 Signature Bonus was an addition to the 1999 Agreement and provides for a signature bonus of US$18 million. The secrecy, denials and obfuscation of this bonus and the payment into an account outside of the Consolidated Fund have earned infamy and attracted the inevitable speculation.

Not in Guyana

The body of the Agreement concludes with Article 34 – Notices. On the Guyana side, the major change is the removal of a reference to the Geology and Mines Commission, to which Notices are to be sent. With the establishment of the Ministry of Natural Resources since the 1999 Agreement, the role of the GGMC has been downgraded.

With respect to the oil companies, the Article requires notices to be sent to their local addresses and copied to their overseas addresses. The Article identifies for Esso a local address only, while Hess and CNOOC/Nexen have provided foreign addresses only, neither of which is in their country of incorporation. Section 318 of the Companies Act requires an executed power of attorney resident in Guyana be filed with the Commercial Registry for the purpose of receiving, service of process in suits and proceedings and “all other notices”.

Finally in respect of the Agreement proper, it is worth noting that while the Agreement is dated 27th June 2016, the date juxtaposed with the signature and stamp of the Notary Public is “7/10/2016”, months after its execution. Signing on behalf of the Government is Minister Trotman while his legal officer, and not the de facto Chief Inspector, the second most important person in the petroleum regulatory regime, signed as a witness.

Next week’s column will turn attention to the Annexes.

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