May 08, 2021 News
Kaieteur News – While US oil major, ExxonMobil, shares a long-standing business relationship with the World Bank across countries where it operates, it is of interest to many industry stakeholders that the American based International Financial Institution’s (IFI) dispute arm is named as the arbitrator for the Stabroek Block operations, should there be any disagreements over financial claims.
This state of affairs obtains since the Production Sharing Agreement (PSA) signed between the Guyana Government and Esso Exploration & Production Guyana Limited (EEPGL) and its partners, named International Centre for the Settlement of Investment Disputes as the sole arbitrator.
Under the PSA, should there be a financial disagreement with the oil major, the country would still have to pay whatever amount is demanded by ExxonMobil as Cost Oil before an arbitration is held by the World Bank funded Centre to determine ‘who owes who and how much.’
The provisions are laid out in the PSA at Article 26, which outlines that in the event of a dispute, the parties should first make reasonable efforts to resolve the matter amicably within two months or at a specified time. Failing this, the matter is referred to the arbitrator.
According to the Article, in this event, the parties “hereby consent to submit any dispute to the International Centre for the Settlement of Investment Disputes.”
Under the provisions of the PSA, EEPGL and its partners are allowed to use up to 75 percent of total oil production for the month to offset pre-contract and other costs incurred by the oil companies.
Article 11 of the PSA provides for cost recovery and production sharing. Under this provision in the PSA, the contractor—EEPGL—shall bear and pay all contract costs in carrying out Petroleum Operations and shall recover costs from cost oil.
The contract provides that should the amount identified by EEPG—as costs for a month—exceeds the 75 percent cap on oil being produced monthly, then that amount would be taken out the following month.
The same obtains for profit oil, which is to be divided 50/50 between partners and if the amount is not known, the calculations for reconciliation will be done monthly.
Additionally, the contract provides that the Contractor must provide the Ministry of Natural Resources with a work program and importantly a budget.
Importantly, if the Minister with responsibility for the sector or his delegate—identified in this case to be the Guyana Geology and Mines Commission (GGMC)—disagrees with a proposed work programme and budget, it would still be deemed as adopted.
With respect to the submitted work programmes and budgets, the PSA stipulates that should the Minister or delegate wish to make any proposals with regards what is submitted, then these are to be provided to the Contractor within a reasonable timeframe.
Additionally, the PSA stipulates that they would meet and endeavour to come to an agreement and that the Contractor should take into account the Minister’s proposal and attempt in good faith to reach such agreement.
According to the PSA however, if the two fails to find an agreement within two months, the proposed work programme and budget “shall [still] be deemed adopted.”
Importantly, the contract also provides that expenses can be recovered from any oil field that is in production in the Block.
As such, Guyana has already been presented with a bill for in excess of US$460M in pre-contract costs for exploration activities prior to 2015.
Additionally, the development costs for the Liza I and II production phases have already been incurred and is said to be in excess of US$25B—monies that are already being recovered from oil produced in the Stabroek Block.
The contract signed does provide for audits of the spending, which can be disputed. This process however, calls for audits to be done in accordance with the accounting procedures set out in Annex C of the contract.
That section of the PSA however, dictates that the Minister in order to conduct the audit, three months notice must first be provided.
At the conclusion of the audits, should there be any disputes, the government will have two months with which to lodge a report of its objections after which the contractor will have two months to reply to say whether the objections are rejected or accepted.
If the parties however still fail to reach an agreement at this point in time, the matter will be referred to the sole expert as provided for in the PSA—the World Bank.
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