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Stabroek PSA lets oil companies take an unquantified amount from Guyana’s revenue – Melinda Janki
Melinda Janki, an international lawyer, recently criticised the Production Sharing Agreement (PSA) that governs the Stabroek Block.
Stabroek PSA lets oil companies take an unquantified amount from Guyana’s revenue – Melinda Janki
It is rife with controversy. It has been called illegal by some because of the circumstances under which the concession was granted, and it has been deemed unfair because of a range of provisions tucked into it.
Article 11 of the PSA speaks about Cost Recovery and Production Sharing. Article 11.9 affords the Contractor the right to use from the production for its operations.
It states “The Contractor shall have the right to use in any Petroleum Operations as much of the production as may reasonably be required by it therefor and the quantities so used or lost shall be excluded from any calculations of Cost Oil and/or Cost Gas and Profit Oil and/or Profit Gas entitlement.”
The Contractors on the Stabroek Block are Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL); Hess Guyana Exploration Limited; and CNOOC Nexen Petroleum Guyana Limited.
Janki says that the quantity of the production that the companies are allowed to take covers all the prospecting operations and all the production operations that they carry out.
“Esso, Hess and Nexen can take as much oil as they reasonably require for their Petroleum Operations.” Janki says.
“Don’t ask me what these oil companies reasonably require. I don’t know. The Government doesn’t know either. It could be anything. It could be one barrel. It could be 99 barrels. The Petroleum Agreement doesn’t have a limit.”
Janki contends that this provision, by not capping the amount the oil companies are allowed to use for their operations, is “willfully obscure”.
“Don’t ask me what Petroleum Operations Esso, Hess and Nexen are carrying out. I don’t know. The Operations are 120 miles offshore. The Government isn’t there so they don’t know either. They just rely on what the oil companies tell them.”
She believes that the provision ultimately undercuts Guyana’s revenues from this Block, as the profit is only calculated based on what is left after the oil companies take from the production for their operations. The profit is not calculated on all of what is produced, only on what is produced and sold, she said.
“Guyana will never know for sure how much oil is produced. All Guyana can do is trust that these three oil companies are telling the truth, and that if they say they produced 100 barrels of oil, it’s 100 barrels of oil, not 120 or 150 or 1000,” Janki added.
“We have to get past the ugly truth of Guyana’s oil deal.”
Attorney-at-Law Christopher Ram says, “Melinda Janki is correct.”
Yesterday, Ram pointed out that from the Production, the Contractor’s use of the production is not limited to within the contract area.
In article 14.1, it is stated, “The Contractor shall have the right to use as much production as may be needed in any Petroleum Operations within the Contract Area and also within the transportation and terminal system.”
It doesn’t stop there. Companies not contracted under the Stabroek PSA may also use from the production.
The Article states, “In the event of third party usage of the transportation terminal systems the quantities so used or lost outside the Contract Area shall be proportionate to aggregate use of that transportation and terminal system.”
Furthermore, it states, “All quantities so used or lost shall be excluded from any calculations of entitlement pursuant to Article 11 [which speaks about Cost Recovery and Production sharing]”.
Ram was keen to note that Article 11.9 doesn’t just take away from Guyana’s profit but that it takes from the country’s royalty as well.
Ram pointed to Article 15.6 of the agreement, which refers to Guyana’s royalty share. It states that “the Contractor shall pay … a royalty of two percent (2%) of all Petroleum produced and sold, less the quantities of Petroleum used for fuel or transportation in Petroleum Operations.”
Attorney-at-Law, Charles Ramson Jr. is in agreement with Janki’s interpretation of 11.9. But he says that Guyana isn’t the only party to benefit from the profit. The agreement splits the profit 50-50 between Guyana and the Contractors.
Therefore, Ramson says that if the oil companies take from the production for their operations, they wouldn’t just be undercutting Guyana’s profit, they’d be undercutting their own.
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