Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 114 – November 17, 2023
Introduction
The Kaieteur News this past Wednesday reported that Minister of Natural Resources Vickram Bharrat as stating that the Government has written ExxonMobil directing that it relinquish portions of the Kaieteur and Canje Oil Blocks. There are two issues which arise from the news report. Exxon is not the Contractor for either of these Blocks. Mid-Atlantic Oil and Gas Inc. holds the Canje Block and Ratio Energy Ltd. and Ratio Guyana Ltd. Exxon is the Operator.
It is not particularly clear on what the letter requires Exxon to do, and why Exxon in the first place. Relinquishments are a function of application for extensions of a Prospecting Licence. If there was no application for extensions, then the full Contract area should be returned to Guyana. Not 20%, not 25%, but everything. These omissions appear to have eluded Minister Bharrat. Mr. Bharrat’s statement raises questions whether he understands what relinquishment is and how the relevant provisions of the respective Petroleum Agreements operate.
How relinquishment works
Each Petroleum Agreement allows for an exploration period of ten years broken down into an initial period of four years and two extensions of three years each. The 1986 Act provided that subject to a petroleum agreement, an applicant for the first renewal of a petroleum prospecting licence, i.e., after four years, was required to give up 50% of the blocks assigned to it, and on the application for a second renewal, i.e. after seven years, 50% of the balance, leaving for the final three years, 25% of the blocks for which the exploration licence remained valid.
Under Regulations made under the Act, the licence holder is required to apply for the extension at the latest within 90 days of the expiration of the prospecting licence. The application must state the work carried out and the amount expended, on the prospecting area for which renewal is sought. If it is for a first renewal, the information is required for the first four-year period and for the second renewal, the application must state the work carried out during the first renewal period.
The application must also contain adequate proposals for work and minimum expenditure in respect of the block or blocks specified in the application, and in particular, details of the programme of work to be performed in the first year of the renewal period.
Janet Jagan
The 1999 Agreement signed by former President Janet Jagan came closest to the law but then came the 2012 Model by President Ramotar and Robert Persaud, which is the cause of many of the problems confronting the country today. That model Agreement left the Regulations in place but set the stage for the agreements which followed, including the two which Minister Bharrat has confused out of all reason. The Model changed the period at which relinquishment kicks in and the percentage of the blocks to be relinquished. In fact, Ramotar and Robert Persaud left it to the oil companies to negotiate their own relinquishment terms and conditions which appear to have been blindly followed by Raphael Trotman.
It is unknown whether Trotman was aware that the 13,535 sq. KM Kaieteur Block was subject to the following relinquishments: 20% of the Blocks in 2017, 25% in 2019 and 20 % in 2022. Then for the 4,808 sq. KM Canje Block, relinquishments of 20% should have taken place in 2019 and another 20% in 2022. These of course, would have been subject to any force majeure applied for. Thanks to the generosity of Trotman, Exxon does not have to relinquish any of its Blocks until seven years plus one force majeure year after June 27, 2016.
The differences in the relinquishment terms are evident from the Table below.
What is frightening is that the 2023 Act leaves it to the Minister to set the relinquishment rules, which should send a chill through the spine of all Guyanese.
Something to think about
Let us look briefly at the overlapping impact of the recently enacted 2023 Petroleum Activities Act. Pre-2023 Agreements are protected by the Stabilisation Clause of which Exxon’s 2016 Agreement is well-known. The Act appears to be silent on its application and impact on petroleum agreements signed before it came into operation. We therefore have Agreements and Licences issued under the 1986 Act and will soon have some issued under the 2023 Act. So far, the 1986 Regulations remain in place but surely, if the Act needed modernisation, the Regulations do as well. That will be interesting, no doubt quite confusing and conducive to hanky-panky. It would be no surprise if the pre-2023 oil companies try to exploit our confusion. It also means that the playing field will not be level, with one law for one set of agreements and another law for another set.
Our politicians wait for problems to arise, rather than be proactive. It needs to think through the problem.
By Chris Ram
Article Originally Published At: https://www.chrisram.net/?p=2386
