Amended pact with Exxon subsidiary says gov’t `inaction’ also constitutes force majeure

Government “inaction” would also form grounds for the declaration of force majeure by ExxonMobil’s subsidiary Esso Exploration and Production Guyana Limited (EEPGL) based on an amendment concluded in 2016 to the 1999 Production Sharing Agreement (PSA).

“Inaction” on the part of a government is not a customary trigger and could lead to very broad interpretations by ExxonMobil on how it could invoke force majeure.

This amendment to the 1999 agreement which gives a further advantage to ExxonMobil was pointed out by commentator Christopher Ram in his oil and gas column in today’s Stabroek News.

While words like “act of God”, “earthquakes”, “floods”, “tsunamis”, “quarantines” and “piracy” were inserted as events that would be considered as warranting “force majeure” under any jurisprudence, Ram said  what is astounding is that “governmental inaction” now constitutes force majeure.

“I have scoured a range of sources and found no instance in any country or agreement where government inaction constitutes “force majeure”.  The source of the amendment is either (Natural Resources Minister Raphael)  Trotman or Esso and since it favours Esso one has to assume that the amendment was at Esso’s request”, Ram stated.

Paragraph 24.1 of the 1999 PSA began with the words “Any non-performance or delay in performance” has now been qualified with the words “wholly or in part”, meaning that a force majeure in one part of the area over which EEPGL exercises control may arguably be grounds for “force majeure” in the rest of the Contract area which extends to thousands of square miles, Ram said.

He said that the term “wholly or in part” has replaced the following words in the 1999 Agreement: “If any Party then determines that on account of the force majeure in a portion of the contract area they are unable to perform their obligations in the remaining portion of the contract area, in a manner consistent with good oil field practices, the force majeure shall apply to the entire contract area.” He said that there is a difference as in the 1999 Agreement such a determination could only be made after the Parties have “carr[ied] out friendly discussions regarding the impact of the force majeure and possible remedies to the force majeure.”

Paragraph 24.3 now reads as follows: “Where any Party is claiming suspension of its obligations on account of Force Majeure, such Party shall promptly notify the other Parties in writing of the occurrence thereof giving particulars of the Force Majeure and obligations affected” and ends with the words “Each Party shall promptly notify the other Parties as soon as the Force Majeure has been removed or no longer prevents it from carrying out its obligations hereunder.”

Disagreement on whether the event meets the threshold of a “force majeure” constitutes a ground for referring the matter to Arbitration under Article 26 of the PSA.

Ram said that the sentence in the 1999 and the 2016 PSAs that “the Contractor shall have the option of terminating this Agreement without any further obligation if Force Majeure exceeds one (1) year” is quite instructive.

“For those who have taken the time to read reports in the press about how for eight years Esso had claimed `force majeure’ as a result of the CGX boat – Suriname military action, this sentence shows how investors will hold on to large number of blocks where the cost to them is low to negligible. For those who prattle how Esso stuck with us, they need to think of this fact”, he asserted.

Even in more expansive definitions addressing political issues, “government inaction” would not qualify as a trigger for force majeure and the question would now be how this would be defined by ExxonMobil, observers said.

The World Bank Group’s Public-Private-Partnership in Infrastructure Resource Center addresses what are termed as political force majeure triggers but nothing as bald as “government inaction” is envisaged as can be seen from definitions below.

  • to the extent they take place in [country], acts of terrorists, blockade, embargo, riot, public disorder, violent demonstrations, insurrection, rebellion, civil commotion and sabotage;
  • to the extent that they are politically motivated, strikes, lockouts, work stoppages, labour disputes, or such other industrial action by workers, save in relation to the Concessionaire, when such event is directly related to, or in direct response to any employment policy or practice (with respect to wages or otherwise) of the Concessionaire;
  • failure or inability of the Concessionaire to obtain or renew any Consent, on terms and conditions as favourable in all material respects as those contained in the original Consent relating to the Concessionaire’s Business (other than due to a breach by the Concessionaire of any of such terms and conditions);
  • any action or failure to act without justifiable cause by any Competent Authority, other than a court or tribunal (including any action or failure to act without justifiable cause by any duly authorised agent of any Competent Authority, other than a court or tribunal);
  • expropriation or compulsory acquisition of the whole or any material part of the Concessionaire’s System or Investor’s shares in the Concessionaire, except where such appropriation or compulsory acquisition is on account of contravention of law by the Concessionaire or by the Investor;
  • any legal prohibition on the Concessionaire’s ability to conduct the Concessionaire’s Business, including passing of a statute, decree, regulation or order by a Competent Authority prohibiting the Concessionaire from conducting the Concessionaire’s Business, other than as a result of the Concessionaire’s failure to comply with the law or any order, Consent, rule, regulation or other legislative or judicial instrument passed by a Competent Authority;
  • in relation to the Concessionaire, non-performance by a counter-party under a contract relating to the Concessionaire’s Business by reason of an event or circumstance that would constitute a Political Force Majeure Event under this Agreement.

The amendments in 2016 to the 1999 PSA have drawn increasingly negative comments from Ram and other commentators as ExxonMobil’s hand has been strengthened via the changes while only minor concessions have been made to Guyana. Furthermore, Minister Trotman had described the 2016 PSA as having made only minor amendments to the 1999 PSA. This has not been the case as evidenced by the inclusion of a vastly altered stability clause and other changes.

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