New oil production sharing agreement must allow govt to ask for renegotiation-lawyers

Last Updated on Sunday, 29 January 2023, 22:46 by Denis Chabrol

The 2016 Production Sharing Agreement (PSA) between the Guyana government and the ExxonMobil subsidiary, Esso Exploration and Production Guyana Limited (EEPGL),  prevents government from asking for renegotiation of that accord without the company’s agreement, and although the company has the right to request renegotiation, it does not specify what should be the subject of those talks, according to two Guyanese lawyers.

Writing on the topic a “A Legal Review of the Renegotiation Clauses in Guyana’s 2016 Petroleum Agreement” in the Organisation of Commonwealth Caribbean Bar Associations (OCCBA) Journal (January to June 2022 edition), Attorneys Frances Carryl and Michael Ron Monroe recommended that the new PSA allow the Guyana government to ask for that accord to be renegotiated based on stated grounds.

“Furthermore, and perhaps most importantly, future PAs should ensure that both parties enjoy equal agency when initiating the renegotiation process. That is to say, instead of allowing only one party the ability to unilaterally initiate the process, renegotiation should be at the request of either party once a triggering event occurs,” they said. Triggering events, they say, may include a lapse of time, a specific issue or outcome, changes in financial and economic circumstances which adversely affect the parties’ economic benefits.

Ms Carryl and Mr Monroe are Caribbean-trained lawyers. She holds a Master of Laws Degree in Oil and Gas Law from the University
of Aberdeen. At present, her primary area of research and practice is Oil and Gas Law with a focus on Environmental Risk and Regulation. He is  also the holder of a Master of Laws Degree (LLM) in Oil and Gas Law from the University of Aberdeen and a Masters of Law Degree ( in Legislative Studies the University of Ottawa respectively. His primary area of research and practice is Oil and Gas Law with a focus
on contract management, petroleum regulation and legislative drafting.

They noted that often times host states call for renegotiation because they have seen missed opportunities and consider investors profits to be unfairly high after international oil companies have sunk substantial resources into a project and production has begun. The lawyers also cite changes in political and economic circumstances as reasons for the parties returning to the negotiation table.

Counsel Carryl and Monroe say that the PSA contains a clause that blocks the Guyana government from asking for renegotiation or otherwise seeking to avoid, alter or limit that accord without the prior consent of the contractor. They said that means that the Contractor first has to agree to renegotiation. “Unlike the Government which has to acquire the prior consent of the Contractor, the Contractor does
not need to acquire the prior consent of the Government in order to require renegotiation. The Contractor seems free to unilaterally require renegotiation. That is to say, where the Contractor reinvites the Government to the negotiation  table, the Government has to participate. Of course, this does not guarantee Government’s acceptance of the Contractor’s proposed change in terms. However, it glaringly illustrates
how Article 32.1 crisply neutralises the Guyana government’s ability to force renegotiation or compel the Contractor’s participation,” the lawyers say.

In 32:4 of the PSA, the lawyers state that the trigger is the need for restoration of the economic equilibrium of the PSA. In so doing, it clarifies that the triggering event is an instance where the Contractor’s overall benefits have been materially and adversely affected by a change in the laws of Guyana,” they said.

Recommending a balanced approach to renegotiation, the lawyers say in the OCCBA journal said the inclusion of precise triggering events and allowing either party to request renegotiation would prevent unilateral action. Instead of allowing only one party the ability to unilaterally initiate  the process, renegotiation should be at the request of either  party once a triggering event occurs. In this way, there would be no circumstance in which a call for renegotiation by one party is declined by the other. Instead, once the triggering event occurs,
either party would be free to require renegotiation, at which point, the other would be mandated to participate.,” they said.

They say Article 32.1 does not outline any specific circumstance which must occur in order to trigger renegotiation, a silence  that has been considered objectionable and prone to causing conflict and inefficiencies. Though it inures flexibility by leaving the question of the triggering
event open, in future, they add that it would be prudent for parties to precisely define what the triggering event should be,