For four consecutive days during last week, the Earth recorded its hottest days, with the global average temperature reaching 62.92 degrees Fahrenheit. This was due mainly to the effects of El Nino as well as greenhouse gas emissions caused by the burning of coal, oil and gas. The latter has resulted in extreme weather events, such as unprecedented heat waves, sea-level rise, frequent flooding and massive wildfires. In China, 15 people have died last week while some 20,000 have been displaced due to severe flooding caused by excessive monsoon rains; while the eastern part of the United States continues to be covered in smoke from wildfires in Canada that can be seen from outer space. And powerful heat waves in recent weeks claimed lives in Texas, Mexico and the Southwest, and across the globe in India. The solution to the problem lies in a significant scaling back on the extraction and burning of fossil fuels and replacing them with clean, renewable energy, such as from wind and the sun.
Last week, we began a discussion of the Petroleum Activities Bill 2023 that was released to the public on 20 June 2023 with a 14-day deadline for the receipt of comments. We considered this period too short for a comprehensive review of the Bill, considering its importance, especially since it will replace the Petroleum (Exploration and Production) Act 1986. We suggested the deadline be extended by another 14 days, but it is not clear whether this has been done.
Our main concern so far about the Bill is the over-concentration of powers in the hands of the Minister of Natural Resources. This is notwithstanding that the Minister may delegate any of the powers in the administration, supervision and inspection of petroleum operations to a department, agency or government body under its administrative authority. The word “may” would suggest that it is not mandatory for the Minister to do so. He/she can decide not to delegate any of his/her responsibilities, or if the Minister does decide to do so, he/she can be selective in his/her approach.
It will be recalled that in 2017 the Petroleum Commission Bill was presented in the National Assembly, providing for the establishment of a Commission to oversee and manage the oil and gas industry to ensure, among others, compliance with the policies, laws and agreements relating to petroleum operations, including compliance with health, safety and environmental standards as well as local content and participation requirements. The Bill was referred to a Special Select Committee for detailed scrutiny. However, to date the Commission is yet to be established. Had this been done, the responsibilities of the Minister would have been considerably reduced, thereby freeing him/her up to focus on policy matters.
In today’s article, we continue our discussion of the Petroleum Activities Bill 2023
Part III – Exploration
Section 20 provides for the Minister to grant petroleum exploration licences, based on competitive bidding or by direct negotiation ‘where such approach is the most efficient manner to allocate resources in a defined area, promote regional energy cooperation or safeguard the national interest and security of Guyana’. The latter provision could very well open the flood gates for abuse, hence the need to have the Petroleum Commission in place. The Commission was to act as an advisory body to the Minister, while the board of directors was to comprise of experts in various fields as well as representatives of civil society and the parliamentary opposition.
As regards competitive bidding, Section11(3) provides for the Minister to select for negotiation the ‘highest responsible qualified bidder or bidders which it considers to be in the best interests of the State and may, where he deems fit, reject any or all applications’. Should it not be “the highest responsive qualified bidder” instead?
A petroleum exploration licence must include: (i) the date of the grant of the licence; (ii) identification of the block or blocks to which the licence relates; (iii) the conditions subject to which the licence is granted, including conditions necessary to give effect to any petroleum agreement entered into by the applicant for the licence; and (iv) the minimum exploration work commitments agreed in the petroleum agreement. The licence may also include a provision with respect to the exercise by the State, or any agency of the State of an option to acquire, on prescribed terms and conditions, or on terms to be agreed in the future, an interest in any production licence.
The licence must specify the term of the licence and may provide for an initial preparation period to enable the licensee to make the necessary preparations to carry out exploration operations. Where a preparation period is specified in the licence, the date of the grant of the licence is deemed to be the date immediately following the expiration of that period. The Minister may prescribe by regulation the maximum term for a licence and any subsequent renewals.
The licensee must submit to the Minister adequate annual work programmes and budgets with respect to work and expenditure to be carried out or made in each calendar year. However, the Minister may, on application by the licensee, amend or suspend any obligation, either conditionally or unconditionally. The Minister may also, upon the request of the licensee, allow the transfer of minimum work obligations from one exploration licence to another licence held by the same licensee. Such transfer is at the sole discretion of the Minister and may be permitted if it results in expeditious development of petroleum resources. If the licensee fails to carry out any part of the requirement with respect to work plan and expenditure, there is provision for liquidated damages payable to the State.
The holder of a petroleum exploration licence may apply for the renewal of the licence, in accordance with the Regulations and the terms of the petroleum agreement. The licensee may be required to relinquish a portion of the original licence blocks as a condition for the first renewal of the exploration licence; or a portion of the remaining licence blocks for subsequent renewals of the exploration licence. In determining the number of blocks, account has to be taken of any discovery block or blocks excluded from the exploration area and any discovery block existing in the exploration area at the date on which the application for the renewal is made. The blocks for which an application for the renewal is made, must be such as to ensure that they constitute a continuous area.
The Minister shall refuse to grant a renewal of a petroleum exploration licence if the licensee is in default, unless the Minister is of the opinion that special circumstances exist which, in the national interest, justify the granting of the renewal notwithstanding the default. However, notice of intention not to grant a renewal must be given to the licensee along with the reason(s) for doing so. The licensee must also be given a reasonable time to take remedial action for any default cited by the Minister or to make any representation relating to the default. The Minister shall not refuse to grant a renewal of the licence: (i) if the licensee has remedied the default within the timeframe specified; (ii) where the default cannot be remedied and the licensee has paid adequate compensation in relation to the default; and (iii) the licensee has made representation to the Minister in relation to the default and the Minister is satisfied either that there is no default or that there are adequate reasons for the failure to remedy the default.
Where exploration operations result in a petroleum discovery, the licensee must:
(a) Immediately inform the Minister of the discovery;
(b) Supply to the Minister in writing particulars of the discovery within timeframes specified in the petroleum agreement;
(c) Promptly run tests in respect of the discovery and thereafter submit to the Minister evaluated test results; and
(d) Take promptly all reasonable steps relating to the discovery to ascertain the quantity of the petroleum in the petroleum reservoir to which the discovery relates.
Where petroleum has been discovered in an exploration licence area, the Minister may, from time to time, direct the licensee to supply particulars of: (i) the chemical composition and physical properties of the petroleum; (ii) the stratigraphical position and depth of the discovery; and (iii) any other matters relating to the discovery that are specified by the Minister. The Minister may also require the licensee to carry out such actions as the Minister considers necessary to ascertain the chemical composition and physical properties of the petroleum discovered.
Where petroleum has been discovered in an exploration area, and the licensee has submitted to the Minister evaluated test results in respect of the discovery, the licensee must inform the Minister whether or not, in the opinion of the licensee, the discovery is of potential commercial interest. If this is so, the licensee may submit to the Minister for approval an appraisal programme to be carried out within a specified period. The programme must detail activities that will enable the licensee to determine the extent of the discovery and to inform the Minister accordingly.
Part IV – Development and Production
Where exploration has resulted in the discovery of petroleum in commercial quantities, the licensee may apply for the grant of a petroleum production licence in respect of any discovery block. The Minister shall grant the licence on such conditions as he/she determines consistent with the requirements of the Act. He/she may refuse to grant the licence applied for, giving reasons for doing so. The conditions under which the licence is granted include:
(a) The proposals of the applicant would ensure the most efficient recovery and beneficial use of the petroleum resources concerned;
(b) The applicant has adequate financial resources and technical and industrial competence and experience to carry on effective production operations;
(c) The applicant is able and willing to comply with the conditions on which the licence is proposed to be granted;
(d) The applicant’s proposals for the employment and training of citizens of Guyana are in compliance with Local Content Act;
(e) The applicant’s proposals with respect to the procurement of goods and services obtainable within Guyana satisfy the requirements of the Local Content Act;
(f) The exercise of any option given to the State under Section 20(3) has been satisfactorily completed or arrangements satisfactory to the Minister have been made for that purpose; and
(g) If the applicant is in default, the Minister determines that special circumstances exist which, in the national interest, justify the granting of the licence, notwithstanding the default.
To be continued –
