Every Man, Woman and Child in Guyana Must Become Oil-Minded – Column 149
Introduction
Having established in the previous parts the considerable assistance that Guyana can draw from the Churchill Falls case in pursuing renegotiation of the 2016 Agreement, this part examines the specific mechanisms available under the 2016 Agreement that allow Guyana to achieve that end. Additionally, I argue that ExxonMobil’s recent categorical refusal to consider any modifications to the Agreement provides the very leverage needed to compel meaningful negotiations.
Article 31.2 of the 2016 Agreement is not a mere aspirational provision – it creates binding obligations on Guyana and the oil companies. The provision requires them to consult on modifications and amendments proposed by either. This is a positive obligation: neither party can refuse to engage in good-faith discussions on proposals by the other party. While Exxon may ultimately reject any change proposed by the Government or make its counterproposal, an outright refusal to enter negotiations represents a distinct breach. It is the same principle when Exxon seeks a force majeure or any other proposal. Guyana does not have to agree, or it may suggest an amendment to the proposal. However, it is required to consider the request in good faith since failure will trigger arbitration.
ExxonMobil’s categorical public declaration through its local President opposing any renegotiation potentially constitutes a breach of this contractual obligation. Such an unconditional refusal contradicts the fundamental purpose of Article 31.2, which contemplates periodic review and potential modification as circumstances warrant. This breach would provide grounds for Guyana to initiate arbitration proceedings.
Good faith obligations
The obligation for good faith engagement in contract modifications extends beyond Guyana’s Agreement. It represents a cornerstone principle of contract law, firmly established across both common law and civil law jurisdictions. This universal principle gains particular force in Guyana’s case, as amendments are explicitly enshrined within the Agreement, creating an even more compelling position than that established in the Churchill Falls case.
ExxonMobil’s unequivocal public opposition to renegotiation elevates this beyond a mere negotiation impasse to a potential contractual breach. Their blanket refusal to consider modifications, irrespective of merit or changing circumstances, contravenes the letter and intent of Article 31.2 and fundamentally undermines its core purpose as a mechanism for contractual adaptation.
This breach assumes critical significance when viewed against the Agreement’s fundamental defects previously analysed. The glaring absence of ring-fencing provisions, the unprecedented requirement for government payment of ExxonMobil’s taxes, and the extraordinary subordination of parliamentary sovereignty to an agreement secured under demonstrable and well-documented duress collectively constitute compelling grounds for pursuing modifications under Article 31.2.
These structural flaws and ExxonMobil’s categorical refusal to engage strengthen Guyana’s position in subsequent arbitration proceedings.
Legal mechanisms available
The Agreement’s dispute resolution provisions provide multiple avenues for addressing ExxonMobil’s refusal to engage in good faith discussions—from formal dispute notification to arbitration proceedings. However, before pursuing such measures, the government must adequately document both the grounds for seeking modifications and ExxonMobil’s refusal to engage in meaningful discussions.
The key is transforming ExxonMobil’s blanket refusal from a negotiating position into evidence of a breach. This requires careful documentation of attempts to initiate discussions and the company’s responses, creating a record demonstrating their violation of Article 31.2’s obligations.
Strategic considerations
Enforcing Article 31.2 aims to secure meaningful improvements in the Agreement’s terms beyond winning a legal argument. The threat of legal action should serve as leverage to compel ExxonMobil to negotiate. Guyana’s position is strengthened because many proposed modifications reflect standard industry practices, such as ring-fencing provisions common in global petroleum agreements. ExxonMobil’s refusal to discuss such standard terms undermines its good faith claim.
The timing for action is optimal. With high oil prices and Guyana’s growing importance as a significant oil producer, ExxonMobil’s leverage is not absolute. While substantial, the company’s investments in Guyana make it vulnerable to reputational risks from appearing to exploit a developing nation. Commercially, Exxon cannot risk undermining the jewel in its crown as the Stabroek Block has proven to be and which now forms part of its core investment strategy.
Precedent and practice
The international petroleum industry has numerous examples of successful contract renegotiations, often triggered by circumstances far less compelling than those facing Guyana. Indonesia’s renegotiation of its production-sharing contracts, when initial terms proved inadequate for national interests, set a defining precedent. Similar renegotiations globally – from China and Kazakhstan to Libya, Tanzania, Uganda, and Vietnam – demonstrate this is an established industry practice.
While Article 31.2 provides the legal framework, successful renegotiation requires leveraging the broader context. ExxonMobil’s mounting concerns over environmental and governance issues create pressure points that strengthen Guyana’s position. The company’s rigid stance towards Guyana contradicts its public commitments to corporate responsibility and fair dealing with developing nations.
This, however, is not a problem for Exxon alone. At home, the Ali Administration’s reluctance to invoke Article 31.2 is particularly troubling since this provision creates a permanent mechanism for seeking improvements in the national interest. The contrast between available legal tools and their non-utilisation becomes stark when viewed against the agreement’s fundamental flaws. This gulf between legal potential and government inaction demands more than just public scrutiny.
Conclusion
ExxonMobil’s categorical refusal to consider modifications could ultimately backfire. Article 31.2 creates legal obligations that cannot be dismissed by mere refusal. An adequately documented case would transform the obstacle from their intransigence to our opportunity.
Yet, despite the compelling grounds for renegotiation and precise legal mechanisms to pursue them, our government shows no interest in action. The question is stark: why?
Column #150, appearing on Old Year’s Day, will confront this troubling question.