Petroleum Agreement – Comprehensive Page-by-Page Notes

Page 1

• Front-matter of the Deed.
• Identifies the document as a $1994/2016$ Petroleum Agreement (“the Agreement”).
• Parties: Government of the Co-operative Republic of Guyana (GoG) and three companies (collectively, “Contractor”):
  • Esso Exploration & Production Guyana Ltd. (EEPGL)
  • CNOOC Nexen Petroleum Guyana Ltd.
  • Hess Guyana Exploration Ltd.
• Filed in the Guyana Deeds Registry.

Page 2

• Table of Contents lists $34$ Articles and four annexes.
• Key structural takeaway: Agreement covers the full project life-cycle—licensing, exploration, development, production, fiscal regime, HSE, dispute resolution and termination.

Page 3

• Annexes enumerated:
  • A – Contract Area description
  • B – Map
  • C – Accounting Procedure
  • D – Pre-Approved & Certified Petroleum Operations Items.

Page 4

• Execution date: 27 June 2016.
• Filing costs:
  • Attestation fees $US\$20.00$
  • Registration $US\$10{,}000$
  • Stamp duty $US\$4{,}000$.
• Corporate particulars of the three companies and their overseas incorporation jurisdictions (Bahamas, Barbados, Cayman Is.).

Page 5

• Statutory basis: Petroleum (Exploration & Production) Act $\text{Cap. 65:05}$ & Regulations 1986 give Minister authority.
• GGMC is technical arm of the Ministry.
• Contractor warrants financial/technical capacity and will provide affiliate guarantee per Act §13.

Page 6

Article 1 – Definitions (excerpt)

• 1999 Agreement & Licence are predecessors to be replaced (via Bridging Deed).
• “Agreed Interest Rate” = 6-month $\text{LIBOR}+3\%$.
• “Commercial Discovery” – economic in contractor’s sole opinion.
• “Contract Area” dynamically shrinks after relinquishments & production licences.
• “Contract Costs” categories mirror Annex C.

Page 7

• Technical definitions (Associated Gas, Barrel, Business Day, Calendar Year, Field, GGMC, etc.).
• “Lifting Entitlement” – volumetric share of production.

Page 8

• Further definitions (Natural Gas, Profit Oil/Gas, Recoverable Contract Costs, Service Costs, Third-Party Sales).

Page 9

• Exploration Well = non-development well.
• Clarifies “Government” vs. “Minister”.
• Act & Regulations always read together with Agreement.

Page 10

Article 2 – Agreement, Operator, Liabilities

• Agreement is a PSA giving Contractor an economic interest.
• Esso is Operator; change to non-party requires Minister’s approval; change to Hess/Nexen merely notify.
• Contractor parties are joint & several liable.
• Indemnity: Contractor covers GoG against 3rd-party claims caused by Contractor’s negligence. Liability capped at insurance; no consequential damages.

Page 11

Article 3 – Prospecting Licence & Guarantees

• Initial prospecting term: $4$ yrs; two renewals of $\le 3$ yrs each.
• Affiliate guarantees equal to $10\%$ of approved work-programme budget for each phase; excess work waives proportionate guarantee.

Page 12 / 13

Article 4 – Exploration Programme & Expenditure

• Work obligation table:
  • Initial $4$ yrs – 3D seismic interpretation + $\ge 1$ exploration well.
  • 1st renewal $3$ yrs – $\ge 1$ well.
  • 2nd renewal $3$ yrs – $\ge 1$ well.
• Depth, basement, discovery or $\text{US\$ budget}$ spend can satisfy well obligation.
• Extension for force-majeure “for good cause”.

Page 14

Article 5 – Relinquishment

• At end of 1st renewal Contractor relinquishes $\ge 20\%$ (with protective carve-outs).
• Max three discrete retained areas.
• Sole-expert procedure if map dispute.

Page 16

Article 6 – Delegation & Co-operation

• GGMC monitors operations; meets Contractor ≥ quarterly.
• Minister approval deemed if silent $60$ days.
• GoG assists on visas, imports, security, right-of-way, etc.

Page 19

Article 7 – Annual Work-Programme & Budget

• First programme due $60$ days post-Effective Date; thereafter each year $\ge 1$ month before year-start.
• Amendments allowed; must not cut minimum obligations.

Page 20–22

Article 8 – Discovery & Development

• Detailed appraisal & development plan procedure, incl. 6-month training programme obligation.
• Production licence issued within $60$ days if compliant; term = $\le 10$ yrs with one $\le 10$ yr renewal.
• Minister must impose any production caps pro-rata across country.
• Gas discoveries trigger separate “Gas Annex” negotiation.

Page 22–25

Article 9 – Records & Confidentiality

• Petroleum Data = joint property; becomes GoG’s on relinquishment.
• Samples may be exported if duplicates left.
• Confidentiality period: life of licence + $1$ yr after relinquishment.
• Multi-client data under 1999 agreement unaffected.

Page 25

Article 10 – Annual Licence Rental

• Contractor pays $US\$1{,}000,000$ per year regardless of acreage retained; paid to verified GoG bank.

Page 26–28

Article 11 – Cost Recovery & Production Sharing

• Cost recovery ceiling: $75\%$ of monthly production (cost oil/gas).
• Profit split: $50\%$ GoG – $50\%$ Contractor regardless of R-factor.
• Unrecovered costs carry forward.

Page 28–33

Article 12 – Gas Provisions

• Associated Gas: priority use = reinjection, lift, power-gen.
• Feasibility study for excess AG within $5$ yrs of development plan.
• If Contractor declines AG dev’t, Minister may take gas free of charge at separator outlet.
• Non-Associated Gas: Parties negotiate revised fiscal terms (“Gas Annex”); possible $5$ yr retention after exploration term.
• Domestic demand obligation priced at $90\%$ of LSFO + freight.
• Contractor has right to LNG, CNG, NGL, third-party infrastructure, etc.

Page 33–36

Article 13 – Valuation

• Primary test = Third-Party Sales ≥ $50\%$.
• If <$50\%$, Platts‐linked formula with quality adjustments.
• Domestic gas priced as in Art. 12.

Page 36–38

Article 14 – Disposal of Production

• Each Party lifts in kind; Minister may request Contractor to market share for fee.
• Gas election – Minister must choose cash vs. in-kind within $30$ days of dev’t plan.

Page 38–42

Article 15 – Tax & Royalty Regime

• GoG pays Contractor’s Income & Corporation Tax out of GoG’s Profit Oil (tax‐paid mechanism).
• Royalty: $2\%$ of gross production (cash or kind; GoG election lasts min 1 yr).
• VAT, duties waived except:
  • $10\%$ excise on fuel imports (Art 21).
  • Local property tax exempt.
• Withholding on interest/dividends = $0\%$.
• Expatriates exempt if ≤ $183$ days/yr.

Page 42–44

Article 16 – Contracts & Assignments

• Provide GoG copies of sales contracts, deeds of assignment, pledges.

Article 17 – Domestic Supply Obligation (DSO)

• Applies only if GoG’s own entitlement insufficient.
• Contractor’s max DSO = its Profit Oil/Gas share.
• Pricing via Art 13; $30$-day invoice terms; non-payment suspends supply.

Page 46–48

Article 18 – Guyana Content

• Preference to Guyanese goods/services if competitive.
• Annual local-content plan & bi-annual performance reports.

Article 19 – Employment & Training

• Contractor pays $US\$300{,}000$ per year to GoG training fund (recoverable).
• Annual Guyanese personnel utilisation plan + reports.

Page 48–52

Article 20 – Assets & Insurance

• On termination GoG may:
  • (i) Take fixed assets free if cost fully recovered.
  • (ii) Buy movables at unrecovered cost.
• Abandonment fund via cost-recovery amortisation; affiliate guarantee for remaining liability.
• Insurance may be self-insured with approval.

Page 52–55

Article 21 – Import Duties

• Duty-free import of all items in Annex D + operational equipment; only $10\%$ excise on fuel.
• Expat staff duty-free personal imports within $6$ months.

Article 22 – Forex

• Full offshore retention & free convertibility; GoG waives FX controls.

Article 23 – Accounting & Audit

• Annex C governs.
• GoG audit right within $2$ yrs of each CY; deemed accepted if no claim in $60$ days.

Page 55–57

Article 24 – Force Majeure

• Covers $\text{Act of God}$ etc.; FM ≥ $1$ yr gives Contractor right to terminate.

Article 25 – Assignment

• Minister consent deemed if no response in $60$ days.
• Transfers to affiliates auto-approved if not adverse to performance.

Page 59–61

Article 26 – Dispute Resolution

• Primary amicable talks $60$ days.
• ICSID arbitration; fallback UNCITRAL, seat Washington DC.
• Consolidation clause with Bridging Deed; tribunal may modify Agreement to restore economics (stability support).
• Sole-expert for technical matters (pricing, relinquishment, etc.).

Page 62

Article 27 – Applicable Law

• Laws of Guyana + relevant international law/custom.

Page 63–64

Article 28 – Social & Environmental

• EPA authorisation required; Contractor pays $US\$300{,}000$/yr to GoG for social & environmental projects (non-recoverable).

Page 65–66

Article 29 – Termination

• Cancellation requires $30$-day show-cause notice + $60$ days to cure.

Article 30 – Effective Date

• Agreement effective when new Prospecting Licence in force; 1999 Agreement continues via Bridging Deed until then.

Page 67–68

Article 31 – Miscellaneous

• GoG assures sovereignty over entire Contract Area despite any border claims.
• Written amendments only; headings non-operative.

Article 32 – Stability Clause

• No new fiscal burdens; if new law materially harms Contractor economics, GoG must restore benefits; arbitration can amend Agreement or award damages.

Page 69

Article 33 – Signature Bonus

• Contractor paid GoG $US\$18{,}000{,}000$ within $15$ Business Days of Effective Date.

Page 70

Article 34 – Notices

• Addresses for Minister, Esso (Georgetown), CNOOC Nexen (Calgary), Hess (Houston & New York).

Page 71–75

• Execution page: signed by Minister Raphael Trotman and company VPs on 27 Jun 2016; witnessed by Joanna Homer & Rafael Rincón.

Page 76–78 (Annex A & B)

• Describes 26,806 $\text{km}^2$ Stabroek Block – coordinates $7°30'$N–$10°05'$N, $56°00'$W–$59°30'$W.
• Map (Annex B) shows block offshore Guyana adjacent to Suriname & Venezuela borders.

Page 79–101 (Annex C – Accounting Procedure)

• Sections:
  • 1 – Definitions, documentation, audits (GoG 2-yr window).
  • 2 – Classifies Contract Costs: Exploration, Development, Operating, Service, G&A, Overhead.
  • 3 – Recoverable costs list and non-recoverables (e.g., marketing, fines).
  • 4 – Asset records & inventories.
  • 5-10 – Mandatory quarterly/annual statements: Production, Pricing, Expenditure, Cost Recovery, End-of-Year, Budget.
  • Pre-contract cost recognised = $US\$460{,}237,918$ (through 2015) + actual $2016$ pre-effective.

Page 102–108 (Annex D)

• Exhaustive list of pre-approved duty-free equipment ⟹ acids, ATVs, BOPs, bits, seismic gear, LNG equipment, etc.

Page 109–110

• Affidavits of due execution by witnesses Joanna Homer & Rafael Rincón before Notary Penelope Whyte, dated 7 Oct 2016.