Cur­tis Williams

cur­tis.williams@guardian.co.tt

Could a de­ci­sion by state-owned Petrotrin to change the roy­al­ty pay­ment terms for A&V Oil and Gas cost the state-owned com­pa­ny hun­dreds of mil­lions of dol­lars with­out it re­ceiv­ing a bar­rel of oil?

That is one of the is­sues that the ar­bi­tra­tion pan­el is still to de­cide on, in the dis­pute be­tween Petrotrin and A&V Oil over Petrotrin’s de­ci­sion to stop A&V from op­er­at­ing its Cat­shill oil field in Rio Claro, based on al­le­ga­tions that A&V was claim­ing to be pro­duc­ing more oil than it re­al­ly was and de­fraud­ing Petrotrin of sig­nif­i­cant sums of mon­ey.

The ar­bi­tral pan­el, which com­prised Sir Den­nis By­ron, Lord David Hope and CVH Stollmey­er not­ed that A&V was re­quired by the In­cre­men­tal Pro­duc­tion Shar­ing Con­tract (IP­SC) to in­vest in im­prov­ing oil pro­duc­tion from the Cat­shill Field by, among oth­er things, con­duct­ing a com­pre­hen­sive sur­vey of the field, work­ing over ex­ist­ing wells us­ing its pro­duc­tion rigs, drilling new wells, us­ing its drilling rigs and im­prov­ing the in­fra­struc­ture to fa­cil­i­tate in­creased pro­duc­tion. The de­ci­sion not­ed that in its sub­mis­sions the A&V ac­cept­ed that its pro­duc­tion lev­els were low at the out­set, and on­ly be­gan to in­crease from mid-2015 when new wells and work over ex­ist­ing wells start­ed to pro­duce re­turns from the in­vest­ment.

It then turned its mind to in­creas­ing its in­vest­ment with a view to car­ry­ing out a drilling pro­gramme of new wells to in­crease pro­duc­tion.

On 18th April 2016 A&V wrote to Petrotrin seek­ing its com­mit­ment to re­new the IP­SC for a fur­ther 10 years to 2029. It ex­plained that it ex­pect­ed to com­plete its work oblig­a­tions by the end of that month with the drilling of its last com­mit­ment well. It had al­ready of­fered to drill an ad­di­tion­al 12 wells com­menc­ing in May 2016. At the end of that drilling pro­gramme, it would of­fer to drill up to 22 ad­di­tion­al wells, mak­ing up a to­tal of up to 40 wells drilled in the field. It said that an ex­ten­sion of the Con­tract was re­quired to make that pro­gramme eco­nom­ic.

Guardian Me­dia checked the records of the Min­istry of En­er­gy and En­er­gy In­dus­tries and it showed that A&V drilled the most num­ber of wells of any com­pa­ny in T&T in 2016 and 2017, but most of these wells were shal­low and all were de­vel­op­men­tal drilling.

By let­ter dat­ed 13th June 2016, in re­ply to the A&Vs’s let­ter of 18th April 2016 Petrotrin said that its Board of Di­rec­tors had ap­proved a se­ries of re­vi­sions to the IP­SC which al­tered the over-rid­ing roy­al­ty rate, the base pro­duc­tion rate and the first tranche crude oil rate pro­vide for by Sched­ule C of the IP­SC.

Al­though it did not com­mit it­self to re­new­ing the IP­SC for a fur­ther 10 years as had been re­quest­ed, the pe­ri­od of years set out for the re­vised base pro­duc­tion rate and the first tranche crude oil rate ex­tend­ed for five years be­yond the term of the Con­tract to the end of 2024.

It is this de­ci­sion and what quick­ly fol­lowed that could end up cost­ing Petrotrin tens of mil­lions of dol­lars.

At a quar­ter­ly meet­ing on 16th June 2016, A&V in­formed Petrotrin of its plan to em­bark on an ag­gres­sive drilling pro­gramme. It re­mind­ed the Petrotrin of its re­quest for a re­new­al of the term of the con­tract for an­oth­er 10 years and asked for an ur­gent re­sponse to that re­quest.

By Sup­ple­men­tary Agree­ment on the 18th Ju­ly 2016, a se­ries of re­vi­sions to the IP­SC re­ferred to in the Petrotrin let­ter of 13th June 2016 were agreed in­clud­ing a clause that, if the A&V had giv­en writ­ten no­tice of its de­sire to re­new the con­tract for a fur­ther term of five years pri­or to the ex­piry of its term, the par­ties would use their ‘best en­deav­ours to ne­go­ti­ate in good faith the terms on an agree­ment for the re­newed term’.

It is this that A&V is now re­ly­ing on to say it had a le­git­i­mate ex­pec­ta­tion that the con­tract would have been re­newed post-2019 and that it should be paid sig­nif­i­cant sums to re­coup po­ten­tial loss­es.

“The Claimant says that in re­liance on that agree­ment it charged the Re­spon­dent on the ba­sis of the changed roy­al­ty rates in its in­voic­es, and it in­vest­ed a sub­stan­tial sum in drilling new wells to in­crease its pro­duc­tion...The Claimant ac­cepts in para­graph 374 of its Clos­ing Sub­mis­sions that the par­ties did not agree on a five-year ex­ten­sion to the IP­SC when they ex­e­cut­ed Sup­ple­men­tal Agree­ment No.6. But it says that that agree­ment was not with­out ef­fect when cal­cu­lat­ing fu­ture loss, as it pro­vid­ed in the new Ar­ti­cle 3.3 that the par­ties would use rea­son­able com­mer­cial ef­forts to ne­go­ti­ate in good faith the terms and con­di­tions for the re­newed term fol­low­ing the Claimant’s no­tice of its de­sire to re­new the IP­SC. The ques­tion, it says in para­graph 379, is what could one rea­son­ably ex­pect to have hap­pened had it giv­en such no­tice? Its case is that it had a rea­son­able ex­pec­ta­tion that it would have been re­newed for five years from 19th No­vem­ber 2019,” the Ar­bi­tral Pan­el not­ed.

For Petrotrin’s part, it is ar­gu­ing that A&V had con­sis­tent­ly failed to ob­serve and per­form the terms and con­di­tions of the IP­SC and, ac­cord­ing­ly, that the con­di­tions for re­new­al could not be met.

“That ar­gu­ment rais­es is­sues of fact to which the Claimant has had no op­por­tu­ni­ty to re­ply as it was in­tro­duced on­ly in the Sub­mis­sions in Re­ply, and which we can­not re­solve with­out hear­ing fur­ther ar­gu­ment. Our de­ci­sion on this is­sue must there­fore be re­served for fur­ther con­sid­er­a­tion at the fur­ther hear­ing,” the pan­el said.

The A&V Oil and Gas is­sue first came to light when Op­po­si­tion Leader Kam­la Per­sad-Bisses­sar read on a po­lit­i­cal plat­form a re­port that al­leged A&V Oil and Gas, which is owned by Naz­im Baksh, a man Prime Min­is­ter Dr Kei­th Row­ley de­scribes as his friend, was charg­ing Petrotrin for oil his com­pa­ny did not ac­tu­al­ly pro­duce.

Petrotrin would sub­se­quent­ly in­ves­ti­gate the is­sue and dis­con­tin­ue its con­tract with A&V drilling for crude from the Cat­shill field in Rio Claro.

The ev­i­dence be­fore the tri­bunal al­so gave a look in­to some of the in­ter­ac­tions that hap­pened be­tween per­son­nel of A&V drilling and Petrotrin.

The de­ci­sion not­ed, “As the Re­spon­dent points out in para­graph 170 of its Clos­ing Sub­mis­sions the ev­i­dence about any con­ver­sa­tions be­tween Mr. Baksh and Mr. (Visham) Ram­nar­i­nesingh fell well short of show­ing that there was an agree­ment to ex­tend the IP­SC. Fur­ther­more, Ar­ti­cle 45 of the IP­SC [5344] pro­vides that no mod­i­fi­ca­tion or amend­ment of the Agree­ment shall be valid or bind­ing un­less pro­vid­ed in writ­ing that specif­i­cal­ly ref­er­ences the Agree­ment and that has been du­ly ex­e­cut­ed by an au­tho­rised rep­re­sen­ta­tive of the par­ties. Ir­re­spec­tive of what may have been agreed to in con­ver­sa­tions be­tween the par­ties, no such agree­ment could take ef­fect un­til the IP­SC was amend­ed in the way pro­vid­ed for by Ar­ti­cle 45.”

Petrotrin’s at­tor­neys are urg­ing the com­pa­ny to take the mat­ter to the High Court to pre­vent the state-owned com­pa­ny hav­ing to pay to A&V hun­dreds of mil­lions of dol­lars.