Government should take over Hess’ share
Introduction
The disagreement involving the three Contractors under the 2016 Agreement (Exxon Guyana, Mobil, Hess and CNOOC) and Chevron over the friendly takeover of Hess by Chevron has gone to arbitration in the United States. There is nothing to indicate that the Irfaan Ali Administration has expressed any interest in the matter before the Arbitrators, although it clearly should. Guyana not only has standing and a direct interest in the matter, but a duty to do so. It is too rare an opportunity to pull something back from Trotman’s diabolical act of historical proportions, and we must not let it slip by.
Recent appearances on American television channels CNBC and Bloomberg by Exxon CEO Darren Woods and Chevron CEO Mike Wirth have brought this conflict into the international public eye. Both executives touted their companies’ robust performance in the first quarter of 2024, but Woods’ focus on delivering value to Exxon’s American shareholders while failing to acknowledge the Guyanese people, whose resources are being exploited, has drawn criticism.
The dispute
At the heart of the current dispute is Chevron’s attempt to acquire Hess Corporation, whose Cayman Islands subsidiary has a branch in Guyana which holds a 30% stake in the Stabroek Block. Exxon and CNOOC, themselves branches of shell companies incorporated in low/no tax jurisdictions holding 45 and 25 percent respectively, are claiming that they have preemptive rights over Hess’ shares, as outlined in a secret Joint Operating Agreement (JOA) between them. Woods has publicly accused Chevron of disregarding these rights in its pursuit of Hess.
For his part, Woods is not only insensitive to the host country Guyana but appears oblivious to the fact that the JOA is subordinate and subject to the Petroleum Agreement signed in very controversial circumstances in 2016 between the Government of Guyana and the three shell companies. Woods boasted about value-creation by Exxon engineers ignoring the fact that the true value lies in the abundant resources and the country’s generosity under arguably the worst petroleum agreement ever – no exaggeration intended. The Agreement itself is governed by the country’s Petroleum Exploration and Production Act and its associated regulations, the essential provisions of which are:
Any transfer of rights, privileges, duties, or obligations under the Agreement or related licenses is subject to prior written consent from the Minister responsible for petroleum.
The Minister is obligated to approve the transfer if it does not adversely affect the performance or obligations, is not contrary to Guyana’s interests, or is to an approved affiliated company.
If the Minister fails to respond within 60 days of receiving the request for transfer, consent is considered to have been granted.
The assignee is bound by all terms and conditions of the agreement or license.
A specific form must be used when applying for an assignment or transfer.
Ignoring Guyana
Neither Woods nor Wirth made any reference to the Guyana legislation or the Agreement. But now that the matter is brought to its attention, it would be interesting to see how Guyana’s government will address the matter on which it has so far been totally silent. The Government should use this opportunity to assert our national interest, a successful outcome of which could have significant benefits for the country’s economy and its ability to benefit from its substantial oil reserves on behalf of the people of Guyana. As managers and trustees of the people’s patrimony, the Government needs to get off its knees in supplication to the oil colonialists and function as the law states, “that the property of petroleum existing in its natural condition in strata in the national territory is vested in the State.” And in keeping with the government’s overriding duty to the people of Guyana.
The law and the Agreement vest in the Minister responsible for petroleum a decisive role in the matter. He can refuse approval for the transfer of Hess’ interest to Chevron, which could potentially result in the interest reverting to the Guyanese government. On the grounds that the transfer of Hess’ interest to Chevron is contrary to the interests of Guyana, he could refuse to grant approval.
Woods insists, without proof – other than that Exxon wrote the JOA – that under the JOA, the transfer is subject to the preemptive rights of Exxon and CNOOC. Whether or not Chevron’s acquisition of Hess violates such rights as may exist, once the JOA is found to be inconsistent with the Petroleum Agreement and with Guyanese laws, the Minister has sufficient grounds to refuse approval for the transfer. There is a catch. If an application has been made to the Minister, he must respond in sixty days, failing which consent is deemed to have been given. Therefore, if the Minister wishes to refuse approval, he will need to do so within the stipulated time. The question is whether any application has been made to the Minister. It is frightening to contemplate that an application might have already been made and that the Minister has done his usual nothing, then we “caak duck.”
In the event that the Minister refuses to grant approval and the refusal is found to be in accordance with Guyanese laws and the Petroleum Agreement, Hess’ 30% interest ought to revert to Guyana. It is not without legal significance that each of the three oil companies is a separate contractor, and in any case, a share participation is a capital and not an operating issue. It seems clear that if the Government gives to Hess a licence, it is not Hess’ to pass on to whomsoever it will. It should pass it back to the Government. The Agreement defines “contractor” as the three named companies and their “permitted assignees.” (Emphasis added).
The Government’s starting gambit should be refusal and a statement that it will buy out Hess’ interest, paying for it out of future profit oil. It is not inconceivable that Exxon and CNOOC would be presumptuous enough to tell the Government of a sovereign state that it cannot take a stake in its own resources. Exxon is known to walk over developing countries.
Sadly, relevant as they are, the real issue is not about Exxon, CNOOC or Hess/Chevron but whether the Government has the courage, the rectitude and the independence to show the oil companies that at the end of the day, the resources belong to Guyana and its Government will not allow itself to be excluded or pushed around. Not that this is going to be easy, and we all know about the litigious nature and instinct of oil companies. Let us be as prepared to protect and regain something of Guyana’s patrimony.