Introduction
In the absence of the explicit ring-fencing of costs, the Guyana 2016 Production Sharing Agreement (2016) has provoked unqualified and perhaps even one-sided condemnation. The argument has been that this constitutes a fatal weakness of the contract, and, consequent to that, “proof of poor negotiation” capability. Even the IMF seems to be heading in this particular direction, despite the fact that otherwise, the IMF has championed caution on this matter, and indeed resisted any rush to judgment on the ring-fencing of costs.
The predicted outcome of the adverse effect of there being no ring-fencing, may very well turn out as accurate. This, however, cannot be established a priori. It can only be established definitively, after a case study of the operations of Guyana 2016 PSA is conducted sometime post-2020. As of now, despite the pretensions of the advocates for ring-fencing their claims must remain speculative, and by no means a foregone conclusion. In this matter, therefore, the informed reader needs to beware of all claims of certainty of outcomes for Guyana’s 2016 PSA. At this stage, this is premature, based on the uncertainties and risks facing that PSA, and indeed all petroleum contracts designed to operate in a world in which future uncertainties and risks are inextricably imbedded.
As promised last week, today’s column starts with a further discussion as to whether the absence of ring-fencing of recoverable costs in the Guyana 2016 PSA, should be condemned as fatal, and rejected a priori, without deeper and more analytic evaluation than that which has appeared in the local media thus far.