Guyana for higher profit share from increased production under Tullow/Eco oil pact

A map showing the Orinduik Block, which is being operated by Tullow Oil in collaboration with Eco Atlantic Oil and Gas.

Under the agreement the APNU+AFC government signed with Tullow Guyana B.V. and Eco (Atlantic) Oil and Gas Incorporated, Guyana will receive a 1% royalty and a greater share of profits with increased production.

The Ministry of Natural Resources released the agreement on Friday in keeping with a commitment by the administration to make petroleum agreements public after initial criticism over the secrecy that attended the agreement signed with ExxonMobil subsidiary Esso Exploration and Production Guyana Limited and its joint venture partners.

The 69-page agreement, which was signed in January, 2016, commits the two contractors to pay a royalty of 1%, while profits will be shared on a sliding scale.

Article 11 of agreement, which addresses “Cost Recovery and Production Sharing,” explains that the government will receive 50% of profits earned from the first 25,000 barrels of oil, 52.5% from the next 25,000 barrels, 55% from the next 15,000 barrels, 57.5% from the next 15,000 barrels and 60% for production above 80,000 barrels.

Under its much criticised agreement with Exxon, Guyana is to earn a 2% of gross earnings and 50% of the profits after production begins.

Another major difference appears in Article 5 of the Tullow/Eco agreement, which notes that the contractor is not required to relinquish any area of the contract at the end of the initial petroleum prospecting licence if they decide to renew. A relinquishment of 25% of contract area is required for all renewals after the first.

Following an initial contract period of four years, the agreement allows for two renewals for a period of three years each.

The three agreements previously released all provided for relinquishment of areas at each extension. The Exxon agreement calls for a relinquishment of 20% of the original contract area, while the CGX agreement requires relinquishment of 25% of its contract area upon each renewal and the Ratio Energy Limited agreement requires that the company relinquish 25% in the first instance and 20% thereafter. The areas do not include any discovery or production area for both companies but ExxonMobil has also been able to exclude “any area under an Appraisal program should the area be larger than the discovery area.”

In other aspects, the Tullow/Eco agreement appears to follow the model used in the three previously released agreements signed with ExxonMobil, CGX and Ratio Oil.

Minor differences include the absence of a signature bonus and differences in rental fee. Only Exxon has provided a US$18 million signing bonus; a provision which has been acknowledged as unusual.

The rental charges for 1,776 sq. kilometres block referenced in the Tullow/Eco agreement is US$40,000, while Exxon and its partners will pay US$1 million annually, CGX US$100,000, and Ratio US$200,000.

The Exxon agreement covers 26,806 sq. kilometres, the CGX agreement 4, 000 sq. kilometres and the Ratio agreement 13,535 sq. kilometres.

Under Article 19, Tullow and Eco Oil will pay US$25,000 annually for the training of locals. It is the smallest sum of any of the contracts released so far.

Ratio will pay US$60,000 for each of its three renewals, while Exxon has to pay a sum of US$300,000 annually to government and CGX is contracted to provide US$100,000, which will provide Guyanese personnel nominated by the Guyana Geology and Mines Commission (GGMC) with on-the-job training in the contractors’ operations in Guyana and overseas.

According to its website, Tullow Oil is a leading independent oil and gas exploration and production company. The Group has interests in 90 exploration and production licences across 16 countries, which are managed as three Business Delivery Teams: West Africa, East Africa and New Ventures.

The released agreement relates to an award of 60% operated interest in the Orinduik licence, a 1,776 square kilometre block offshore Guyana.

The other 40% is held by Eco Atlantic, which describes itself as an oil and gas exploration company focused on the acquisition and development of unique upstream petroleum opportunities around the world.

According to the agreement between the companies, Tullow Oil will be the operator and will pay Eco Atlantic US$0.4 million and fully carry Eco Atlantic for approximately CDN$3 million of the 2D and 3D survey for an initial four years work commitment.

The current administration has faced continued criticism over the terms of the renegotiated agreement with Exxon—which was inked after the agreement with Tullow and Eco—with critics saying that the company’s oil find here in 2015 provided the basis for a better agreement to be negotiated.

This criticism continued after the release of the CGX contract showed that the Donald Ramotar government had signed a similar agreement, which included a much maligned stability clause and tax concessions.

Article 32, which specifies that “government shall not increase the economic burdens of the contractor,” reappears.

Within its four paragraphs it specifies that if Guyana after signing the agreement were to change its laws, whether through the amendment of existing laws (including the hydrocarbon laws, the customs code, or tax code) or the enactment or new laws, any of which has a material effect on the oil companies, the government is required to take prompt and effective action to restore the benefits so lost.

The Article requires that the obligation of the government includes the obligation to resolve promptly, by whatever means may be necessary, any conflict or anomaly between the Agreement and any new or amended legislation, including by way of exemption, legislation, decree and/or other authoritative acts.

Article 32.4 further provides that any delay by the government to respond to any notification from the contractor that they may have suffered any adverse effects can result in the contractor taking the matter to arbitration.

In such a case, the arbitral tribunal is authorised to modify the agreement to reestablish the economic benefits under the agreement to the contractor. Where such restoration is not possible, the tribunal has the power to award damages to the contractor that fully compensates for the loss of economic benefits under the agreement, both for past as well as future losses.

Also identical is Article 27, which in both agreements direct that the contract “shall be governed by, interpreted and construed in accordance with the laws of the Co-operative Republic of Guyana, and, consistent with such rules of international law as maybe applicable or appropriate, including the generally accepted customs and usages of the international petroleum industry.”

Ramotar has maintained that the contract he signed with CGX followed a template for all agreements clinched before petroleum was discovered in 2015. He has said it should in no way distract from the fact that that the contract signed with Exxon in 2016 was flawed since it came after a major hydrocarbon discovery here in 2015.


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