Introduction: Catalogue
The catalogue of desirable features energy economists promote for effective PSAs are that 1) ownership of the petroleum wealth should remain within the domain of the country in which it is discovered; 2) the State/Principal should maintain managerial control of this wealth, but 3) the Contractor/Agent (in Guyana’s case Exxon and its Partners) should maintain operational control of contract-assigned petroleum activities. 4) For the purposes of 3) above, the Contractor/Agent must submit annual work programmes and budgets for approval by the State/Principal; and 5) the Contractor/Agent should be responsible for providing finance, technology and skills, required for petroleum operations.
Further: 6) the Contractor/Agent should bear responsibility for all financial risks; 7) the facilities acquired by the Contractor/Agent for purposes of executing petroleum production should become the property of the State/Principal, except those belonging to its service companies and leased equipment; 8) the recovery of cost should be allowed to the Contractor/Agent, up to a specified percentage of production (75 per cent in Guyana’s PSA); and 9) the remainder (profit oil and profit gas) should be split between the State/Principal and the Contractor/Agent (in Guyana the split is 50:50). The carrying forward of costs should also be allowed. Finally, the legal foundation of PSA contracts should reside in production sharing and not profit sharing.
Schedule 1 illustrates these features:
Carrying forward
Under the PSA, recoverable cost recovered is a critical determinant of profit oil. Therefore, a few observations on this would aid understanding of Guyana’s 2016 PSA. Thus, Article 11 (Cost Recovery and Production Sharing) and Annex C (Accounting Procedure) treat with the procedure and regulation of cost. Article 11 states: “subject to the terms and conditions of the Agreement the Contractor shall bear and pay all Contract Costs incurred in … petroleum operations”. Further, the Contractor “shall recover [all] Contract Costs … pursuant to the provisions of Annex C”.
