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Stabroek Block contractors get “cost recovery galore” for gas operations

Jun 02, 2018 News

Chartered Accountant and Attorney at Law, Christopher Ram has pointed to what he considers to be yet another flaw in the Production Sharing Agreement (PSA) signed between the Government of Guyana and the three oil companies operating the Stabroek Block.
Ram has said that the three companies—Esso Exploration and Production Guyana Limited (a subsidiary of ExxonMobil) Hess and CNOOC-Nexen—will be enjoying a “cost recovery galore” for gas operations.
Ram said that according to the contract, all costs incurred in carrying out an appraisal programme are to be charged as exploration costs and are recoverable as contract costs.
He said that similarly, “all costs without exception, which are incurred by the Contractor outside the production area but which are associated with an approved development plan for an export gas project, including costs associated with utilization of third-party infrastructure or construction of onshore processing facilities, are also recoverable contract costs to be borne as cost oil before Guyana can receive its half share of profit oil.”
Friendly, good faith negotiation
Ram added that the agreement allows the Contractor to propose revisions to the agreement to the Minister.
This will constitute the basis for entering into good faith negotiations leading to better terms, which will provide the Contractor with a commercially competitive return on investment for development of the Non-Associated Gas discovery.
However, the Chartered Accountant pointed out that the agreement does not define what a commercially competitive return on investment is “but it would be inconsistent and counter-intuitive if the numbers do not overwhelmingly favour the Contractor.”
The terms agreed to during the good faith negotiation will become part of and be included as an annex to the Agreement, and not only benefit from the Stability Clause but will benefit from additional extensions under the Contract.
Ram said that, for example, if a Non-Associated Gas field is known to have potential commercial value but cannot be developed because of market conditions, the period for retaining the field in the contract area can be extended for five years.
If the time required for the market to develop and for the consuming facilities to be constructed for the gas field exceeds such extended period, the Contractor can request from the Minister a grant of further extended (unspecified) period.
Further Ram noted, “There is more latitude for the Contractor with timelines determined under Section 31 (1) regarding notification whether a discovery is of potential commercial interest, and 31 (2) regarding the application for a Petroleum Production Licence.
“How we came to pass an Act with such absurd provisions defies all logic but surely Minister Raphael Trotman did not have to apply such a discretionary power over such an extended Contract Area in a post-discovery oil contract.
“And that is not all. Negotiations on revised terms for Gas can run for twenty-four months or such further time as mutually agreed! For emphasis, the Articles require that the negotiations must be friendly.”

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