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According to oil contract… ‘Govt. inaction’ constitutes an unforeseen catastrophe
By Kiana Wilburg
Chartered Accountant, Chris Ram
Force Majeure is a common feature in most Production Sharing Agreements (PSA). This provision speaks to natural and/or unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.
This can take the form of unexpected military action, earthquakes or tsunamis.
But in Guyana’s Production Sharing Agreement (PSA) with ExxonMobil, force majeure also constitutes “government inaction.”
According to Chartered Accountant, Chris Ram, this is not only unheard of, but absolutely ridiculous.
Ram recently noted that Article 24 of Guyana’s PSA speaks to force majeure, the definition of which is set out in paragraph 2.6. When one examines the 1999 Agreement, it is clear that the definition was amended during the review in 2016.
The Chartered Accountant stated, “Without any significance, words like ‘act of God’, ‘earthquakes’, ‘floods’, ‘tsunamis’, “quarantines” and “piracy” have been inserted, events that would be considered as warranting ‘force majeure’ under any jurisprudence. But what is astounding is that ‘governmental inaction’ now constitutes force majeure.”
Ram continued, “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 Trotman or Esso (a subsidiary of ExxonMobil) and since it favours Esso, one has to assume that the amendment was at Esso’s request.”
WHOLLY OR IN PART
There is also another worrying aspect of the force majeure clause. Ram pointed out that the non-performance or delay in performance by the government has now been qualified by the words “wholly or in part.” The lawyer said that this means that a force majeure in one part of the massive area over which Esso (Exxon) exercises control, may arguably be grounds for “force majeure” in the rest of the contract area, which extends to thousands of square miles.
Ram also stressed that the inclusion of the words ‘wholly or in part’ should not be taken lightly. In this regard, he said, they were used to replace several important words in the 1999 Agreement.
The words replaced were, “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.”
The Chartered Accountant explained, “But there is a difference: in the 1999 Agreement such a determination could only be made after the Parties have carried out friendly discussions regarding the impact of the force majeure and possible remedies to the force majeure.”
The 2016 agreement signed by Trotman makes no provision for such friendly discussions to be carried out. Instead, if the contractor claims suspension of obligations on account of Force Majeure, he is expected to promptly notify the other Parties in writing of the occurrence thereof, giving particulars of the Force Majeure and obligations affected. The contract notes that 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”.
Ram also pointed out that if there is a disagreement on whether the event meets the generous threshold of a “force majeure” then it is to be referred to Arbitration.
The Chartered Accountant emphasized that since governmental inaction, whether wholly or in part, constitutes force majeure, it might be quite instructive for readers to know that the agreement also allows ExxonMobil to terminate the Agreement without any further obligation should force majeure exceed one year.
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