Exxon-Guyana agreement provides for renegotiation of terms for Associated Gas, no provision for disposal
Petroleumworld 05 14 2018
…Ram says provision flies in the face of those who said it can't be done
Members of the coalition administration have said time and again, that the ExxonMobil-Guyana contract cannot be renegotiated; that there must be respect for the “sanctity” of contracts. But there is a provision of that same contract which flies in the face of this viewpoint.
The Production Sharing Agreement that Guyana has with ExxonMobil actually makes way for renegotiation of terms pertaining to excess Associated Gas.
This was recently pointed out by Chartered Accountant and Attorney-at-Law, Chris Ram.
In this writings, the lawyer referenced Article 12.1 (c) of the oil contract to support his contention.
Ram said, “Article 12.1 (c) provides that where the Contractor believes that excess Associated Gas of an Oil Field has commercial value, the Contractor is entitled, but not required, to make further investment to utilize such excess Associated Gas subject to terms at least as attractive as those established for Crude Oil in Article 11 dealing with Recoverable Contract Costs.”
“In any case in which the Contractor believes improved terms are necessary for the development of excess Associated Gas, the Agreement requires the Government and the three oil companies to “carry out friendly negotiations in a timely manner to find a new solution to the utilization of said excess Associated Gas and reach an agreement in writing.”
While conceding that such renegotiation is provided for in the Petroleum Agreement, the Chartered Accountant said that this provision flies in the face of those who insist that there can be no renegotiation.
Ram opined that those who keep repeating such banality are doing the country a great disservice.
The coalition Government is still to state if it will tap into the expertise of an international group which helps countries in the successful renegotiation of contracts on a pro bono basis. The group is called, the International Senior Lawyers Project (ISLP).
Over the past 17 years, with support from law firms, foundations and government agencies, ISLP has mobilized hundreds of experienced lawyers to provide more than $100 million worth of pro bono legal assistance in support of just, accountable and inclusive development in more than 80 countries.
ISLP is also no stranger to Guyana, as it has provided support to the Attorney General's Office for the review of Guyana's Cybercrime Bill and Electronic Transactions Bill.
CALL FOR RENEGOTIATION
Local commentators have also expressed concern over the lopsided deal Guyana signed with ExxonMobil, especially when it is compared with the agreement Exxon Mobil signed onto with the African country, Ghana.
The glaring disparities between the two contracts also underscore the need for the Guyana-ExxonMobil contract to be scrutinized by Parliament, critics say.
The Ghanaian contract, for example, has an entire section dedicated to procurement laws, which ExxonMobil must follow at all times. Those provisions are in place to ensure that a significant number of the local companies are able to benefit from the nation's oil sector. On the other hand, Guyana's contract mentions nothing about procurement laws.
Given the aforementioned and other factors, locals have been calling for the contract to be renegotiated.
NO PROVISION FOR DISPOSAL
The Guyana-ExxonMobil agreement makes provisions for the discovery of Associated Gas, a form of natural gas which is found with deposits of petroleum. But if it is not found in commercial quantities, then the contractor and its partners may dispose of it in “the most economic manner.”
This finding has not only worried several local and regional environmentalists but also Chartered Accountant, Chris Ram.
Ram in his recent writings said that indeed, the Contractor may dispose of the associated gas in a manner that is consistent with good international petroleum industry practices, but “the contract emphasizes that this is provided that there is no impediment to normal production of Crude Oil.”
Ram, who does a weekly analysis of the Guyana-ExxonMobil contract, said that the absence of any specific language and requirement concerning environmental standards must be a cause for concern.
One “economic” means oil companies use to get rid of unwanted gas is gas flaring. This is a combustion device that is used to burn associated or excess gases and liquids. Gas flaring is a significant source of greenhouse gases emissions.
If this process is used, it would go against the very grain of Government's “green”. Also of significance is the fact that Guyana, unlike many other countries, is without a no-flaring policy. But Natural Resources Minister Raphael Trotman has already announced that there will be no flaring.
Ram also said that all costs and expenses incurred by the Contractor in the production, use and/or disposal of the Associated Gas of an Oil Field and those incurred in carrying out any feasibility study on the utilization of the excess Associated Gas shall be charged to the Development Cost of the Oil Field and shall be Recoverable Contract Costs.
All costs incurred by the Government for the infrastructure and handling of excess Associated Gas which are not included in an approved Development Plan shall be at the sole risk and expense of the Government and will not affect the amount of Cost Oil and Profit Oil due to Contractor, he said.
The Chartered Accountant said that once again, the provisions of the Production Sharing Agreement (PSA) favour the company, leaving Guyana with little to no protection for its environment.
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