Every Man, Woman and Child in Guyana Must Become Oil-Minded

the methods whereby the Parties nominate and lift their respective shares of crude oil, such procedures being subject to discussion and agreement between them.

Article 14.2 sets out as the principles governing such procedures that the lifting will be so carried out so as to avoid interference with the petroleum operations; that if any party is unable to lift such quantities for any reason, it must notify the other party forthwith; and in the absence of any agreement to the contrary, the Government and the Contractor will share in each type of grade of crude oil in proportion to their respective lifting entitlement.

Challenges to the Government

It seems clear from the two immediately preceding paragraphs that the Government is more than unlikely to take up its entitlement and will have to rely on the Contractor to dispose of its share. Such a possibility is provided for under Article 14.3 which allows the Minister to notify the Contractor to use reasonable efforts to market abroad on competitive terms all or part of Guyana’s lifting entitlement. This is not done for free. The Minister has to pay the Contractor the costs normally borne by the seller in such transactions and other terms to be agreed, including an agreed marketing fee.

Further pressure is placed on the host country by requiring the Minister to give no less than six months’ notice before changing between the right to receive payment in kind and agreeing with the Contractor to market his lifting entitlement. Curiously, the 1999 Agreement (Janet Jagan’s Agreement) does not contain any similar provision for switching between marketing the lifting entitlement and receiving payment in kind. Of course in so far as the Esso Agreement is concerned, the point is moot because Minister Trotman has chosen to replace that Agreement with his own, for reasons best known to him.

Contractor’s rights

Article 14.4, which is subject to Article 17 gives the Contractor the right to export at the export point all petroleum to which it is entitled free of any duty, tax or other financial impost and to receive and retain abroad all proceeds from such petroleum. Readers of this column may recall that the Minister’s share of profit oil includes not only royalty but also certain other taxes (a) the Income Tax Act; (b) the Income Tax (In Aid of Industry) Act; (c) the Corporation Tax Act; and (d) the Property Tax Act will not apply. The contracting oil company may not be entitled to any tax holiday but by the same token it will not be liable to Property Tax and other forms of taxation on its income.

Article 14.4 therefore rounds off the exemption. Of course, if oil prices fall below the cost of production and Guyana will in any case be entitled to a 14.5% share of the revenue (2% royalty plus 12.5% of guaranteed profit oil), the oil company will bear an annual loss.

Another right the 1999 Agreement allowed Esso was the freedom to sell, or deliver or sell and deliver petroleum to third parties in the United States of America.

Part 20 next week will set out a practical example of these provisions.