A liberal democracy can survive for a while on institutional strength and widespread agreement. As long as most people are generally satisfied with how things are going (or have made peace with the status quo), it is easy to imagine that something like a social contract will keep things on track. Hamish MacAuley makes a persuasive case that many Canadians came of age politically between the collapse of the Berlin Wall and the 2008 financial crisis, when consensus was widespread and politics seemed optional, thus many chose to stay out. We abandoned democratic governing habits during prosperous times. Instead, we played politics. In response, McGill's Jacob T. Levy advocates for political action that rejects the status quo while also refusing to burn it all down or take our ball and go home. We should participate in politics, even if it is unsatisfying. When the foundations of our democratic structure or the rights of vulnerable people are jeopardized, it makes sense to delegate aut
Brazil has also adopted two other types of company guarantees. One of them is the oil pledge, in which the company with E&P rights to an offshore field offers oil or gas production from another field with E&P rights that it also owns as a guarantee of decommissioning costs. The other option is self-insurance, in which the company with E&P rights to the offshore field submits an extrajudicial executive title to the regulatory body to ensure compliance with decommissioning obligations. According to Hammerson and Antonas (2016), financial institutions that issue insurance must have a ranking that demonstrates their financial capacity to protect homeowners.
It is recommended that companies providing other types of guarantees also have their economic power certified.
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According to Anderson et al. (2020), there were thousands of orphan wells in the United States following the 2014 crisis, and American taxpayers paid approximately $35 billion as a result of companies' failure to pay decommissioning costs. The defaulting companies had been exempted from providing guarantees to ensure the decommissioning obligations. These authors also discuss the default by the Redwater Energy Corporation in Canada. Fortunately, the Canadian government had insurance that could be used for decommissioning purposes. However, this was only possible after the Supreme Court of Canada ruled in favour of decommissioning operations over debts owed to private creditors, citing the polluter pays principle and the public's interest in a safe environment over creditors' private interests. In the event of default, the HG can execute letters of credit and bonds with the respective financial institutions to receive the estimated amount to cover the costs of decommissioning (ANP, 2020 - docs public hearing). A parent or affiliate guarantee, also known as a corporate guarantee, is issued by another company within the same group as the company that owns the E&P rights to the offshore field, taking into account the guarantor's greater financial capacity. This type of Guarantees serve as bail. Thus, in the event of a guaranteed default, the guarantor company is responsible for paying for or carrying out decommissioning operations (ANP, 2020 - docs public hearing).
Types of Financial Guarantees
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Thus, default cases highlight the importance of obtaining guarantees from companies with E&P rights to an offshore field early in its productive life. Hammerson and Antonas (2016) identify the following types of guarantees that HGs typically request: Cash, a bond from a bank or insurance company, parent or affiliate guarantee, and a letter ofCredit from a bank. Other types of guarantees include pledges of oil and gas production and auto insurance, which have been adopted in Brazil, as well as trust funds in countries such as the United States, Tanzania, and Belize. Cash or provisioning funds are equivalent to savings, in which companies that own E&P rights to a field provide financial resources in a bank account throughout the field's productive life, with the HG as the beneficiary. These resources can only be used to carry out an approved decommissioning plan. According to Cameron (2014), this fund provides security for both HG and the company or consortium of companies that owns E&P rights to a field. According to this author, contributions to the fund are considered cost recoverable because they can be classified as operating expenses for the purposes of industrial taxes. Furthermore, the remaining amount in the fund should be treated as income tax for tax purposes. If the field is under a PSA, the fund's remaining balance must be divided into profit oil. HGs will work to keep costs from falling on the government and, as a result, taxpayers, if one or more holders of the rights to the offshore field that is to be decommissioned fail to meet their decommissioning obligations. The goal is to protect HGs and their taxpayers from unexpected and high costs caused by companies' default when production stops and the field must be deactivated.
Anderson et al. (2020) emphasize the importance of the bank's safety, stating that the fund's stability is dependent on it.
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These authors argue that national banks are frequently chosen for nationalist reasons, but they are not always safe options. It must also be ensured that resources are allocated only for decommissioning operations. According to these authors, choosing the beneficiary is another issue that requires attention. They provide an example of Angola, where the fund must be paid to the NOC. However, NOCs are frequently subject to the current government's decisions, which may result in resources being diverted to other causes. Furthermore, the authors claim that corruption is widespread in most HGs. A letter of credit is a security issued by a bank or financial institution that covers the estimated cost of decommissioning operations. A bank or insurance company issues the bonds, guaranteeing to the HG that the company with E&P rights to an offshore field will be able to pay for the decommissioning costs. Nonetheless, finding a balance between default protection and incentives to extend the productive life of offshore fields is currently the most difficult challenge for countries producing offshore oil.
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