The Prospecting Licence and the Production Licence under the Petroleum Exploration and Production Act
Introduction
Much is being made of the world class calibre of the advisers to the Granger Administration and Minister Raphael Trotman as they construct a path to First Oil in 2020. None of them apparently has told Messrs Granger and Trotman that the first steps should have been the adoption of a Petroleum policy, the urgent revision of the petroleum laws and the establishment of a team of skilled individuals with knowledge, competence, integrity and capacity to engage the oil men.
Oil is of course serious business, involves big dollars and is full of messy, technical details. At the end of the day however, it is about negotiations, understanding one’s strength and exploiting the other person’s weaknesses. Of course, the other side would be doing the same and it will boil down to who has the chips, the guts and the skill. Let us leave the world class experts to advise the Government. We need to get on with our work.
Today’s column sets out the provisions of the Petroleum Exploration and Production Act relating to the two licences which operators may apply for. The licences are a Prospecting Licence and a Production Licence, a prerequisite of which is an agreement between an applicant and the Minister under the powers vested and subject to the duties imposed under section 10 of the Act. The Agreement covers both types of licences but each is in turn subject to its own conditions.
Section 9 of the Act restricts licences being granted to: (a) individuals who are citizens of Guyana; and (b) a body of persons which is a company or a corporation whether formed in Guyana or elsewhere. If the foreign company does not wish to incorporate in Guyana all it is required to do is register as an external company before beginning or carrying on any undertaking in Guyana.
The form of the prospecting and production licences is set out in the Schedule to the Act and incorporates conditions subject to which they are granted. The Minister has wide powers to deal with applications under the Act and Regulations including directing the applicant to publish details of his application or execute a performance bond; carrying out investigations, negotiations and consultations; and requiring such other information as may be relevant.
Prospecting licences
The Regulations require the grant of prospecting licences to be done by way of competitive bidding, pursuant to s. 20 of the Act. The Minister is required to publish a notice in the Official Gazette inviting application by anyone within the period specified in the notice. He is required to select for negotiations those applications he considers to be in conformity with the best interests of Guyana, and he may reject any or all applications; and may collect fees for any information or data supplied to any of the applicants.
The maximum number of blocks an applicant may apply for is sixty, but the Minister has the power to increase this number if he is satisfied that special circumstances exist. As these columns have shown, this limit has largely been ignored. A prospecting licence may be granted initially for four years and subject to two renewals of no more than three years, making a maximum period of ten years for the validity of a prospecting licence. Renewals are however limited to not more than half in total of the number of blocks for which a licence was granted or first renewed, where the application is for a second renewal. Again, there is no indication that this provision is being observed.
The Minister must refuse to grant a renewal of a petroleum prospecting licence if the licensee is in default but may still do so if he is of the opinion that special circumstances exist which justify the granting of the renewal notwithstanding the default.
Where a discovery of petroleum is made, the licensee is required to inform and notify the Minister of the discovery and of the results of tests carried out in connection therewith, and to take steps to determine the quantity of the petroleum in the reservoir. The licensee is also required to notify the Minister whether the discovery is or is not of potential commercial interest.
Petroleum Production Licence
Where the discovery is of commercial interest, the licensee has two years to apply for a Petroleum Production Licence. An application for a production licence must be made to the Minister and be accompanied by detailed proposals by the applicant for the construction, establishment and operation of all facilities and services for and incidental to the recovery, processing, storage and transportation of petroleum and such other particulars as may be required by the Regulations.
The applicant must also indicate the proposed date of commencement of production; the capacity of production and scale of operations; the estimated timing and overall recovery of petroleum and by-products; the form and nature of the petroleum and by-products; marketing arrangements; proposals for safeguarding the environment and any other matter he wishes the Minister to consider.
Article 8.4 of the Model Petroleum Agreement under the Act specifies, inter alia, that the Development Plan submitted with the application shall provide that not later than six months after the grant of the first Petroleum Production Licence, the Contractor shall in consultation with the GGMC prepare and implement a programme for training and employment of Guyanese nationals in each phase and level of Petroleum Operations and for the development and management of technical skills for the safe and efficient conduct of Petroleum Operations.
Article 8.5 of the Contract requires that where the Minister considers that the application has not met the requirements of Article 8.4, he shall notify the Contractor within 60 days of receipt of the application and GGMC and Contractor shall meet to discuss the application with a view to ensuring the requirements are met. If the parties are unable to agree on amendments to the application to meet such requirements within 60 days from the date of aforesaid application (or such longer period as the Parties shall agree), or where the Minister fails to respond to or act on the aforesaid application within 60 days, the Contractor may refer the matter to a sole expert pursuant to Article 26 for determination as may be agreed between the Contractor and the Minister.
The initial term of a Petroleum Production Licence shall be 20 years commencing from the date of the grant of the licence.
Renewal of Petroleum Production Licence
A holder of a petroleum production licence may apply, in accordance with the Regulations, for the renewal of the licence, but not more than once. The period for which a petroleum production licence may be renewed shall not exceed ten years.
Article 8.9 of the Contract stipulates that the application for renewal of 10 years shall be granted as long as the Contractor is in good standing under the licence.
Termination
The Agreement between the Parties is deemed terminated if the Petroleum Prospecting Licence or Petroleum Production Licence has expired, been surrendered by the Contractor, or cancelled by the Minister if the licensee is in default and has failed to address the default after notice by the Minister.
Next week, we will discuss royalties as a source of revenue.