Global Dynamics call for “strike out” of the oil agreement

“Absurd”

This was the word used by Texas-based Dynamic Global Advisory Company to describe a 2008 oil and gas agreement signed by the 2003-2008 New National Party (NNP) government of Dr. Keith Mitchell with some Russians who formed a company known as Global Petroleum Group (GPG).

Global Dynamic was contracted by the former National Democratic Congress (NDC) government to review the agreement that was initialed on behalf of Grenada by then Energy Minister and former Deputy Prime Minister, Gregory Bowen.

A copy of the report obtained by THE NEW TODAY newspaper indicated that Grenada should not proceed with the agreement since it heavily favoured the interest of the Russians and put the government and people of Grenada at a tremendous disadvantage.

According to Global Dynamic, the evidence sen seem to suggest that there was “conscious manipulation” of the agreement in favour of GPG and that the Russians were the one most likely to make a financial killing on any oil and gas discoveries.

This week, THE NEW TODAY would highlight the final part of the review of the Grenada/GPG oil deal that was done by the Texas group which has over 30 years experience in the oil business:

 

The Exploration License

The fourth Whereas clause of the Exploration License recites that GPG applied for an Exploration License covering 11 blocks on February 15, 2008. This is the only place in either the Exploration License or the PSA that the number of blocks covered by the Exploration License and PSA appears in writing.

Schedule I of the Exploration License sets out the same description of the Exploration Licensed Area that is contained in Annex 2 of the PSA in terms of the letter and number designation, coordinates and sea depth of the 11 blocks.

Part 7(3)(b) of the Petroleum Regulations contemplates that an application for an Exploration License may request the grant of more than one block, and part 8(1)(a) states that the Minister may “grant an exploration licence on such terms and conditions as he or she may determine.”

While the Minister had the authority and discretion to issue the Exploration License covering 11 blocks, the GOG may not have been aware that the failure to incorporate the concept of ring-fencing, which requires each block so granted to be covered by a separate production sharing contract, would be a significant detriment to the GOG.

Otherwise, the Exploration License is written in accordance with the provisions of sections 5, 6, 7 and 8 of the Petroleum Act. However, it should be noted that section 6 of the Petroleum Act refers to “an agreement” generally when referring to the Minister’s authority to enter into an agreement in connection with the Exploration License.




 

A specific type of agreement is not mentioned, which may provide the Minister with more flexibility on one hand, but does not provide any guidance on the other hand. In addition, the definition of “petroleum agreement” in section 2 of the Petroleum Act merely refers to section 6.

We believe it would be more advantageous to the GOG if section 2 of the Petroleum Act named the production sharing contract as the type of international petroleum agreement that is acceptable, and then set forth in section 6 a detailed outline of the topics it should cover.

Also, we believe it would beneficial for the GOG to develop a separate model production sharing contract that would serve as the starting point for negotiations.

The seven substantive paragraphs of the Exploration License cover some basic topics, as well as obscure and unusual topics. The basic topics include the work program and the schedule (paragraphs a and c), possible boundary disputes with Venezuela (paragraph d), the Minister’s right to acquire an interest in the PSA (paragraph e), and possible cancellation of the Exploration License (paragraph g).

An obscure requirement is contained in paragraph (b), wherein the shareholders of a Belizean company named Multiple Investments Limited and their percentage holdings and identities must be provided to the Minister, which typically would have been done in a side letter.

Finally, paragraph (f) recites GPG’s obligation to pay for any legal costs or awards resulting from the RSM arbitration proceeding that might arise from the GOG’s decision to grant the Exploration License to GPG.

The obligation in paragraph (f) is redundant with respect to the Undertaking described in paragraph 5 of the Analysis of the Documentation section of this report above, and seems out of place in an administrative, rights granting document of this type.

Grenada currently has no hydrocarbon production. It is considered by industry to be a high risk area for exploration, with only modest gas-prone prospectivity. Little or no petroleum-related geological and geophysical data are publicly available. Certain offshore boundaries with adjacent sovereign nations are yet-to-be delineated and legally defined.

Taken together, these circumstances would normally serve to discourage rather than attract exploration investment if the PSA was too favorable to the government. Therefore, assuming the GOG wished to attract investment in exploring for hydrocarbons, it may have chosen to negotiate a PSA that would be advantageous to an exploration company.

The key question is how advantageous and what is a reasonable expectation in such a situation?

(A document showed to (Dynamic Global) gave some insights into PSAs and the percentage of Government Take for a broad range of countries. The Government Take from the GOG-GPG PSA has been added to the chart for comparative purposes. It is clear that this PSA has a lower Government Take than any of the other PSAs shown. This raises red flags due to the extreme deviation of the GOG-GPG PSA from industry norms.

 

(To be continued)

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