Dispute settlement over oil expenses can take up to one year

Apr 12, 2023 News

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…Guyana to foot legal fees for both parties – Contract says

Kaieteur News – The findings and recommendations of an audit may not be enough to ensure Guyana is not cheated by the Stabroek Block partners- ExxonMobil, Hess and CNOOC- during production activities.

This is so as the 2016 Production Sharing Agreement (PSA) states that while the Contractor will be allowed to recover costs in dispute, the matter will only be resolved through arbitration, if the two sides fail to reach an agreement within 60 days after the disagreement is flagged.

This process can go on for over one year, after the tribunal is fully constituted.

According to the oil contract at Article 26.1: “The Parties shall make reasonable efforts to resolve amicably all Disputes by negotiation. A notice of the existence of a Dispute shall be given by another Party in accordance with Article 34. In the event that no agreement is reached within sixty (60) days after the date on which a Party notifies the other that a Dispute exists, or such longer period as specifically agreed by the Parties in writing, any Party shall have the right to have such Dispute determined by arbitration as provided for in this Article 26. Notwithstanding the above, such period of negotiation is not required where the running of this time period may bar access to arbitration.”

This would allow for any claim, demand, cause of action, dispute or controversy arising out of, or in connection with the agreement to be settled.

Notably, Guyana has agreed to submit its dispute to the International Centre for the Settlement of Investment Disputes (ICSID) for arbitration before three arbitrators- pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Research by this newspaper found that the institution was established in 1966 for legal dispute resolution and conciliation between international investors and States. It is parented by the World Bank Group.

The 2016 PSA states at Article 26.3 that: “…The Government hereby irrevocably waives any claim to immunity for itself, its agencies, its enterprises, and any of its assets with regard to any arbitration pursuant to this Article 26 and to any proceedings to recognize or to enforce this Article 26 or any proceeding to recognize or enforce an arbitral award rendered in an arbitration thereunder. Without prejudice to the generality of the foregoing, the waiver of immunity shall include immunity from service of process and immunity from jurisdiction of any competent court or any arbitration tribunal, and immunity of any of the Government’s, its agencies’, or its enterprises’ property from execution of any arbitration award or judgment entered thereon.”

The contract goes on to note that if the General Secretary of ICSID refuses to register a request for arbitration or if a tribunal or arbitrators constituted is outside of ICSID’s jurisdiction, any party to the contract may submit the dispute for arbitration before three arbitrators pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

According to the PSA at Article 26.4, “…The American Arbitration Association shall administer the arbitration under the UNICITRAL Arbitration Rules and shall act as the appointing authority when the UNICITRAL Arbitration Rules call for an appointing authority.”

The agreement further points out that the seat of the arbitration shall be Washington DC, United States, but hearings may be held in other places agreed to by the Parties.

As it relates to payment for the arbitral services, Article 26.8 of the contract explains that the arbitrators shall assess the expenses and any other costs related to the arbitration and shall decide by whom such costs shall be paid in their award.

It must be noted that the same PSA makes all legal expenses for the oil company recoverable- this therefore means that the costs for the process will ultimately be borne by Guyana.

The decision of a majority of the arbitrators shall be final and binding on all parties according to the contract. It also states “…judgment on the award may be entered by any court of competent jurisdiction.”

On Tuesday, Kaieteur News reported that the country will be left to foot costs associated with the activities in the Stabroek Block, even though these may be deemed inappropriate by the minister responsible for the sector.

This is clearly outlined in the 2016 agreement the country signed with ExxonMobil and its partners, Hess and CNOOC. Annex ‘C’ of the PSA at Section 1.5 (b) outlines the procedures of an audit and rights of the government; it is explained: “…In the event that an audit claim by the Minister is not settled to the Minister’s satisfaction by the Contractor’s reply as provided for above, the Contractor shall be entitled to recover any disputed amounts pending final resolution of the claim…”

The same Section goes on to note that upon resolution of the claim, the Minister shall be repaid with interest.

Based on the agreement, Guyana can conduct an audit within two years from the end of each calendar year. At the conclusion of the process, the Contractor must be furnished with the report and its findings within 60 days to provide a response. The response from Exxon will detail its objection or acceptance of the audit claim, along with explanations thereof.  The contract also allows the subject Minister to conduct further investigations within 60 days of receiving the Contractor’s response.

It must be noted that the PSA makes it clear at Section 1.5 (b) that: “…If within sixty (60) days of the Minister’s further investigation, the Parties are unable to agree to the disposition of the Minister’s audit claim, the claim shall be submitted to the sole expert in accordance with Article 26 of the Agreement.”

Article 26 of the contract sets out the conditions as it relates to arbitration.

A leaked preliminary report from the first audit conducted of ExxonMobil’s expenses found that the Government of Guyana (GoG) has reasonable grounds to dispute US$214.4 million in costs being claimed. The review was conducted by a British firm, IHS Markit. The company was tasked with reviewing some US$1.6 billion in expenses that accrued between 1999 and 2017.

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• Audit, dispute, PSA, settlement, year

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