Provisions in one-sided Exxon contract make any legal challenge detrimental to Guyana

Dec 25, 2019 News

Pull quote : “All costs and expenses of litigation and legal or related series necessary or expedient for the procuring, perfecting, retention and protection of the contract area and in defending or prosecuting lawsuits involving the contract area or any third party claim arising out of the activities under the agreement or sums paid in respect to legal services necessary or expedient for the protection of the interest of the parties are recoverable. Where legal services are rendered in such matters by salaried or regularly retained lawyers of the contractor or an affiliated company of the parties comprising contractor, such compensation will be included instead under sub-section 3, 1 (B) or 3.1(D) above as application”

Pull quote : “The term ‘Force Majeure’ shall mean any event beyond the reasonable control of the party claiming to be affected by such event which has not been brought about at its instance and which has caused such non-performance or delay in performance, and without limitation to the generality of the foregoing, including acts of God, natural phenomena or calamities , earthquakes, floods, tsunamis, epidemics, quarantines, fires, wars declared or undeclared , hostilities, invasions, blockades, riots, strikes, insurrection, civil disturbances, mining of the seas, piracy, international disputes affecting the extent of the contract area and any governmental action or inaction that would prevent the performance of an obligation or ability of the contractor to export petroleum.”

Pull quote: “After the signing of this agreement and in conformance with Article 15, the government shall not increase the economic burdens of the Contractor under this agreement by applying to this agreement or the operations conducted there under any increase of or any new petroleum related fiscal obligation, including, but not limited to any new taxes whatsoever any new royalty , duties, fees, charges, value-added tax or other imposts.”

By Kiana Wilburg

The Production Sharing Agreement (PSA) between Guyana and ExxonMobil along with its partners, Hess Corporation and CNOOC/NEXEN is deemed by reputable international and regional transparency advocates to be lopsided. And in spite of calls for renegotiation, which span over four years, both government and the political opposition have held one head that the deal would remain intact.
In the face of this, there have been discussions on the possibilities of challenging the contract, particularly those provisions which are discriminatory, in contravention of the law, and/or make the contract itself immune to any new laws the country’s legislative arm would pass in the future.
Just recently, Attorney-at-Law, Sanjeev Datadin told Kaieteur News that it is indeed possible to challenge provisions in a contract which are deemed to be offensive to the law of the land. But applying this principle to the ExxonMobil deal would be to Guyana’s detriment should the country emerge victorious in any such challenge.
There are three key provisions in the contract which effectively put any legal challenge at an immediate disadvantage.
According to Annex C of the contract which outlines all accounting procedures to be undertaken, all legal expenses incurred by ExxonMobil for any matter brought against it in direct relation to operations in Guyana shall be included in cost recovery.
That section which falls under the subheading “Legal Expenses” specifically states, “All costs and expenses of litigation and legal or related series necessary or expedient for the procuring, perfecting, retention and protection of the contract area and in defending or prosecuting lawsuits involving the contract area or any third party claim arising out of the activities under the agreement or sums paid in respect to legal services necessary or expedient for the protection of the interest of the parties are recoverable. Where legal services are rendered in such matters by salaried or regularly retained lawyers of the contractor or an affiliated company of the parties comprising contractor, such compensation will be included instead under sub-section 3, 1 (B) or 3.1(D) above as application”
Subsection 3, 1(B) speaks to labour and associated labour costs and 3, 1 (D) speaks to third party contracts.
The other provision which puts any legal challenge at an immediate disadvantage relates to Article 24 of the contract which speaks to Force Majeure.
In most contracts in the industry, it is not unusual to see force majeure provisions implemented, as it removes liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict companies from their fulfilling obligations. But in the Exxon deal, force majeure can mean just about anything that prevents the contractor from continuing its production on schedule.
Article 24.4 states, “The term ‘Force Majeure’ shall mean any event beyond the reasonable control of the party claiming to be affected by such event which has not been brought about at its instance and which has caused such non-performance or delay in performance, and without limitation to the generality of the foregoing, including acts of God, natural phenomena or calamities , earthquakes, floods, tsunamis, epidemics, quarantines, fires, wars declared or undeclared , hostilities, invasions, blockades, riots, strikes, insurrection, civil disturbances, mining of the seas, piracy, international disputes affecting the extent of the contract area and any governmental action or inaction that would prevent the performance of an obligation or ability of the contractor to export petroleum…”
Should the Minister object to any circumstance the operator wants to deem as Force Majeure then Exxon has the right to take the matter to Arbitration in Washington. Here again, Guyana would have to compensate the operator.
Further, if any litigation should be brought against the contract on the grounds that Guyana did not get a fair value, then Exxon is still protected. According to Article 32 of deal which speaks to stabilization, it notes, “After the signing of this agreement and in conformance with Article 15, the government shall not increase the economic burdens of the Contractor under this agreement by applying to this agreement or the operations conducted there under any increase of or any new petroleum related fiscal obligation, including, but not limited to any new taxes whatsoever any new royalty , duties, fees, charges, value-added tax or other imposts.”
Article 32 also states that if any action affects the overall economic benefits of the contractor, “the government shall promptly take any and all affirmative action to restore the lost or impaired economic benefits to the contractor…”