Govt. is probably taking the course that Oman and Saudi Arabia took in the early days

Feb 28, 2018 Letters

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Dear Editor,
The formation of the Organisation of Petroleum Exporting Countries (OPEC) in 1960 was a direct response by oil-producing nations, most of which were developing countries, to the perceived systemic domination by multinational oil companies.
The principle of profit-sharing in oil transactions, as practiced today, was initiated at the insistence of Venezuela in 1950, and a tax of fifty percent was first imposed by Saudi Arabia; so developing countries are not powerless in their abilities to negotiate with multinational oil companies.
One of the most successful stories of nationalisation took place in the Venezuelan oil industry during the 1970’s. The Venezuelan nationalisations affected exploration and production concessions as well as pipeline, storage facilities and refineries. The Venezuela legislation authorised the government to enter into multiple oil agreements simultaneously.
Another interesting development took place in the Saharan oil industry, where oil companies had to relinquish half of their territory upon the first renewal of their exploration permit; and a quarter of the remaining area upon the second renewal.
NEGOTIATION OF OIL CONTRACTS
Valentine Ataka feels that the features of upstream oil and gas contracts are influenced by the underlying interests of the Host Government (HG) and the Contractor (IOC). On the one hand, the HG is motivated primarily by the need to attract risk capital and modern exploration and production technology and secure socio-economic national interest. The IOC on the other hand is driven by the desire to make a sufficient return on investment. The provisions in an exploration and production contract, be it a production sharing contract PSC or a service contract SC, are therefore a reflection of an attempt to reconcile these competing interests.
There are many sensitive matters concerned with petroleum contracts, such as environmental issues: In order to explore for, and develop their natural resources, many governments rely on international oil companies. Host governments typically attempt to obtain the participation of international companies because of their expertise in exploiting and marketing oil and gas. Governments are aware that most multinational oil companies are very well resourced.
But multinational oil companies usually have another very important strength; they also enjoy the overt and covert support of their host governments. Faced with a paucity of skilled resource personnel, oil contracts are always characterised by secrecy, so that the robust input of civil society is also denied, thus, leaving host countries very vulnerable to the artifice, subterfuge and circuitous tactics habitually employed by some multinational oil corporations.
Jenik Radon noted that: “Oil companies are highly motivated during negotiation. They resent the costly and speculative exploration investments and the number of dry wells encountered, and will seek to recover rapidly such out-of-pocket costs in any negotiations”.
This is certainly the case in Guyana; a little known fact is that oil exploration is a protracted exercise that is capital intensive and very susceptible to market volatility. In the contract, governments usually determine how much they will obtain from their natural resources and whether a government can enforce standards such as: environmental and health standards that apply to the companies.
Essentially two main issues must be determined in all contracts: The method of the division of profits between the government and the companies, and the way of paying for or recovering their costs.
Another very important consideration for multinational oil companies is the exploitation of natural resources in disputed territories, which often result in resource control aggression; as was the case when the Venezuelan military seized and detained the seismic survey vessel MV Teknik Perdana during October 2013 in Guyana waters. And in 2000, when Surinamese military gunboats chased a floating oil exploration rig owned by Canada’s CGX Energy from an area disputed with Guyana.
The petroleum industry is guided by concessions and contracts; there are several different types of contracts which are as follows: Exploration Contract, Production Sharing Contract, Concession Tax and Royalty Contract, Risk Service Agreement, Pure Service Agreement and Technical Assistance Agreement.
While I am not a proponent of the two percent royalty agreement, I am not convinced that a proper comparative analysis of contracts under varying conditions has been undertaken. I am also aware that the circumstances which exist in the Ghanaian scenario are vastly different to our very own; and do believe that risk is a major factor in Guyana’s case.
From my vantage point, I could only postulate that being guided by its energy strategy, the government is probably taking the course that the Sultanate of Oman and Saudi Arabia took in the early days: which is to have Exxon Mobil pave the way for the arrival of other investors, build capacity, and return to the bargaining table in a few years when the contract becomes next due.
Clairmont Featherstone

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