Sep 23, 2021 Letters
When we enter into a contract, we expect that whatever was agreed would be executed, whilst simultaneously holding the firm reassurance that the law would sort things out with reference only to what was agreed, should either party fail to perform or seek to evade performance. This understanding is often referred to as the sanctity of contracts.
Nobody would bother to commit their resources, property or labour to a contractual undertaking if the terms agreed could be adjusted willy-nilly at the request of either party after signing. It might be argued that this is more so the case when the contractual consideration is significant – as in the financial commitment made by ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN. In my opinion, this seeming imbalance has certainly evened out since the consideration given by Guyana has within a very short time significantly increased in value – as in becoming much more than anticipated at the time of entering into the contract. To date ExxonMobil has drilled 19 successful wells with our estimated reserves consequently increasing by some 30 percent beyond all initial expectations.
In business, like in life generally, things can turn out to be significantly better or conversely much worse than initially expected. Still, the law of contract makes allowances in some cases where the parties were of uneven standing – for example, where the parties’ bargaining power was significantly disproportionate – but Guyana is a country whereas ExxonMobil is just a company it might be argued. It must also be noted that Guyana pumped first oil in December 2019, whereas ExxonMobil has been in the oil business for more than 150 years.
The London-based, non-profit non-governmental organisation, Chatham House, whose mission it is to analyse and promote the understanding of major international issues and current affairs, supports the insertion of renegotiation clauses in future Government of Guyana oil contracts, including terms that specify what would trigger renegotiation. The United Nations Development Programme (UNDP) also supports this outlook.
According to Chatham House, new circumstances such as a major discovery being made may prompt many producers to seek to change the terms of their contracts with foreign companies. I think the conclusion of Chatham House that renegotiation is sometimes necessary in order to maintain a long-term partnership between oil companies and governments, because refusal to do so could be “destabilising and unfair to some countries” is very sound. Guyana, with the almost daily remorseful criticism of the oil contract and the many new successful wells drilled since June 2016, fits perfectly into this precarious position of potential instability and a national feeling of being hard-done by, as ExxonMobil’s estimated profits mushroom with each new discovery. It is anticipated that Guyana’s relationship with the company will last 20 years at least.
All that having been stated, Guyana’s deal will work out to somewhat more than 50-50 including royalties after cost recovery is complete – and that’s certainly not a bad deal at all. Unavoidable questions however remain, like why should Guyana be paying ExxonMobil’s Income Tax to GRA out of Guyana’s share of the profits and also paying ExxonMobil’s insurance premiums and the interest on loans that company took on to finance its operations? Yes, a deal is a deal, but nobody but an enemy would want ongoing instability and an entire nation harbouring feelings of ill will against a company that in fact brings so much that is of benefit, and indeed pivotal, to the transformational development of our resource-rich country. There is good practical justification for ExxonMobil to now consider in good faith making a few adjustments to what was agreed on 27 June, 2016.
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