The production figures will determine whether a force majeure existed

Aug 25, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – The APNU+AFC government did what was reasonably expected of it. When the pandemic broke out around March 2020, no one could have reasonably predicted how long it would have lasted or how it would have unfolded.

As such, ExxonMobil would have made some assumptions given the lockdowns and restrictions that were in place locally and elsewhere. The company no doubt feared that its work programme would have been affected and therefore this could affect its adherence to relinquishment provision.

The Production Sharing Agreement, signed between Guyana, ExxonMobil, Hess and CNOOC requires a relinquishment of 20% of the areas allocated to the oil companies. There are good reasons for relinquishment requirements.

One of the main reasons is to ensure that the oil companies do not ‘skin-cock’ with exploration. Relinquishment requirements apply only to areas where there are no discoveries. The relinquishment provisions serve to encourage the oil companies to engage in continuous exploration.

If companies were allowed to hold onto blocks indefinitely, it could lead to delays delaying the discovery and development of potential oil and gas reserves. Another criticism is that the oil companies would get more time to map out all the fields and then to hand over unproductive assets – that is fields without any oil – to the government.

Holding on to oil blocks without exploration can help the oil companies raise their asset value on their books. This can boost their shareholding value.

Secondly, releasing relinquished oil blocks back into the market creates opportunities for new players to enter the industry. This avoids monopolies from developing which can be a risk for a country’s development.

The third reason for relinquishment has to do with maximizing economic benefits. Relinquishment requirements allow governments to auction or lease relinquished blocks potentially earning more revenues and attracting new investments.

It is because of this latter benefit that there is no much concern over the decision to grant Exxon Mobil and ‘extension’ of one year for its relinquishment. This decision has led to strong criticisms of the government.

The PPPC government has shamelessly to transfer the blame for relinquishments to the APNU+AFC which had granted a conditional extension to the oil companies, But the extension which was granted was based on a force majeure caused by the pandemic. At the time of the extension, no one could have predicted how the pandemic would have panned out. As such the APNU+AFC did the safe and advisable thing and granted the extension on condition that the decision is reviewed every three months.

If for example the pandemic turned out to be a false alarm, then there would be no need for the one year extension. As such, the government could revert to the original relinquishments.

The first quarterly review was due in September 2020. But by then the APNU+AFC had been replaced as the government. As such, it was the responsibility of the incoming PPPC government to undertake the review and to determine whether the pandemic acted as a force majeure sufficient to extend the period for relinquishment.

The PPPC however is dodging responsibility for undertaking the necessary review. It begs the question whether it undertook the review due in September of the one due in December. In both instances they could have assessed the extent to which the oil company’s operations were affected by the pandemic to determine whether the force majeure would apply.

A force majeure is an unforeseen and exceptional circumstances or events that are beyond the control of parties in a contract, making it impossible or highly challenging for them to fulfill their contractual obligations. These events are often considered as events that are unforeseeable and unavoidable, such as natural disasters, wars, strikes, pandemics and other major disruptions, and they may temporarily excuse or suspend the parties’ obligations under the contract due to the extraordinary nature of the situation.

The fact that an event is unforeseeable or unavoidable does not necessarily mean that it is a force majeure. One of the main criteria is that the event must result in an inability to perform the contractual obligations, all other things being equal. The force majeure must result in non-performance.

Whether the pandemic acted a force majeure is best measured by the production numbers. Critics of the extension have argued that ExxonMobil continued to work during the pandemic, since its operation was deemed an essential service. It was said that special flights were even arranged for the oil company’s workers even though the country’s airspace was closed to other commercial traffic.

If Exxon’s production targets were being met, then regardless of lockdowns or restrictions, a force majeure could not be said to exist. If it can be established that the pandemic did not drastically curtail Exxon’s operations in Guyana, a force majeure would not exist and as such the original relinquishments would apply.

But do not tell that to Jagdeo before he blows a fuse and turns red. His government continues to dodge requests for it to say whether it undertook the quarterly reviews that were pegged to the approval of the relinquishment extension.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• APNU+AFC, ExxonMobil, Government, Guyana, Hess

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