This article deals with the contingencies that an investor may face when acquiring, by means of an assignment, an oil operations Contract in Guatemala.
There are certain circumstances that must be analyzed by a potential investor.
The first is that - according to Article 18 of the Hydrocarbons Law of Guatemala and Article 30 (literal "b") of the regulations of the aforementioned law - the assignee must expressly assume all obligations and responsibilities of the assigned oil operations contract.
The second is that, according to paragraph "d" of Article 31 of the aforementioned regulation, the "contractor" (i.e., the assignor) must be "solvent" with the State.
Therefore, the question is whether it is feasible for the Ministry of Energy and Mines of Guatemala to authorize an assignment if the contractor (or the assignor) is not solvent, and, if authorized, whether the assignee (i.e., the interested investor acquiring the contract) would assume the obligation to respond for all debts prior to the assignment.
The assignment of rights is an institution that the Civil Code of Guatemala regulates in the first part of the fifth book, specifically in the third title called "transfer of obligations". Article 1443 of the Civil Code, which is the first rule that such body of law devotes to this institution, states that "The creditor may assign its rights without the consent of the debtor (...)".
The wording of this article has led some authors to state that in Guatemala only credits (or credits) can be transferred under this figure ; however, in the exposition of motives of the Civil Code, Federico Ojeda Salazar explains that the assignment can be of any right, whether personal or real, and this logic has been followed by important national authors, such as Ernesto Viteri Echeverría.
Therefore, under this broad conception of the figure of assignment of rights, in Guatemala the "assignment of contractual position" is allowed through the Hydrocarbons Law (which dates back to 1983), which, in its article 18, allows the assignment - or transfer - of rights derived from oil operation contracts.
It is important to take into account that in Guatemala the assignment of contractual position (which is derived from the broad conception of the assignment of rights) lacks a general legal regulation; however, based on the principle of free will (contained in articles 1517 and 1256 of the Civil Code), the scarce national bibliography that deals with the subject accepts its application.
In Guatemala, at least 3 of the 5 companies with current oil contracts owe royalties to the State of Guatemala; therefore, as a first point, it is necessary to analyze whether it is viable for the Ministry of Energy and Mines of Guatemala to authorize an assignment of an oil contract if the eventual assignor has debts with the State.
Paragraph "d" of Article 31 of the General Regulations of the Hydrocarbons Law, referring to the procedure to obtain authorization for the assignment, stipulates that "The Ministry shall obtain the appropriate opinions to establish: (...) d) If the contractor is solvent with the State in terms of work committed and payments in accordance with the Law, these regulations and the contract (...)".
The "contractor", as defined in Article 1 of the Hydrocarbons Law, refers to the person who enters into the oil operations contract, i.e., the assignor.
Therefore, it is evident that the aforementioned regulatory provision orders the Ministry, among other things, to determine, by means of "opinions", whether the assignor is solvent with the State.
However, it should be pointed out that the wording of the regulation does not state that the solvency of the assignor is a requirement for the authorization to be granted, it simply regulates it as a procedural requirement; in fact, according to article 32 of the aforementioned Regulation, such information will only be useful for the National Petroleum Commission to issue an opinion on the convenience of authorizing the assignment, together with other data.
In this regard, it is important to point out two aspects: 1) the opinions, in accordance with Article 3 of the Contentious Administrative Law and various jurisprudence of the Constitutional Court of Guatemala, are not binding; 2) if the assignor is in default, it can be deduced - at least in general terms - that it is more convenient for the interests of the State that the contract be handled by another entity (assignee) with greater financial stability and less susceptibility to become in default.
Therefore, it is concluded that it is possible for the Ministry of Energy and Mines to authorize an assignment if the assignor is in arrears with the State.
However, it should be recalled that Article 18 allows the Ministry to require "additional conditions" in order to grant the respective authorization, so that it enjoys broad discretion.
It is worth noting that - according to Article 18 of the Hydrocarbons Law and Article 1447
of the Civil Code - partial assignment of contracts is allowed; therefore, for example, an assigning entity could keep a percentage of the rights and obligations of an assigned contract, and the assignee could operate the contract and act before the Ministry of Energy and Mines.
Articles 18 and 20 of the Hydrocarbons Law require the respective guarantees for oil operation contracts to be authorized.
The guarantee, according to Article 3 of the Regulations, refers mainly to the surety bond or bank endorsements, and its purpose - according to Article 116 of the same regulatory body - is to ensure compliance with the works committed in the contracts.
The aforementioned regulation establishes the parameter according to which the guarantee must be set, which is basically the annual budget of the works submitted to the Ministry of Energy and Mines.
However, in the hypothetical case that the assigning entity is not solvent and owes royalty payments, the question is: What additional guarantees could the State have to ensure payment of the debts once the assignment is approved?
Article 18 of the Hydrocarbons Law could be the legal basis for requiring additional guarantees, since it allows the Ministry to require "additional conditions" to grant the respective authorization.
These additional conditions give rise to a wide range of possibilities; therefore, a guarantee established according to the parameters of the Hydrocarbons Law and its regulations (which have already been discussed), a guarantee trust, opening an account for conditional payment, etc., may be considered.
As previously indicated, the figure of the "assignment of contractual position" (which is derived from the assignment of rights) does not have a general regulation in Guatemala that determines its scope; for that reason, the national legal bibliography is extremely scarce on this subject and it is necessary to resort to foreign texts.
The assignment of a contractual position is "the subjective transfer of the contractual relationship without modification of the covenants and conditions arising from the contract being transferred".
Vladimir Aguilar Guerra, Guatemalan author of Civil Law, gives an overview of the subject in his book "Derecho de Obligaciones", and practically limits himself to pointing out that - based on the principle of autonomy of the will - it is viable to apply this figure in our country, and that one of its main effects is that the assignee replaces the assignor "in all pending relations that are not of a highly personal nature"; that is, according to the aforementioned author, "nothing can be demanded from the assignor, and nothing is obliged to comply with."
According to Article 18 of the Hydrocarbons Law, one of the essential requirements for the assignment to be authorized is that the assignee “expressly assumes all contractual obligations and responsibilities”.
In the same sense, Article 30 paragraph "b" of the Regulations requires "Authentic manifestation of the assignee's interest in the acquisition of the contractual rights, and that it will assume all the obligations and responsibilities inherent to the oil operations contract".
Following this line of exposition, the following real examples that have occurred in Guatemala are presented:
i. The total assignment of the rights of the oil exploitation operations contract number 1-91, celebrated in the year 1996 between PAM PETROLEUM INC, as assignor, and COMPAÑÍA GENERAL DE COMBUSTIBLES, S.A. as assignee, where it was stipulated that "(...) the assignee company assumes all the obligations, rights and responsibilities inherent to the contract (...) in the understanding that the assignee will also pay for these concepts the payments pending to date, as well as other obligations that may be imputed to the entity Pam Petroleum, Inc.".
ii. The partial assignment of the rights of the hydrocarbon exploration and exploitation contract number 1- 2006, celebrated in 2010 between US OIL GUATEMALA, SOCIEDAD ANÓNIMA, as assignor, and CITY PETÉN, S. de R.L., as assignee, where it was stipulated that the assignee "assumes all the obligations, rights and responsibilities inherent to the Contract pending compliance by the assignor, in the understanding that the assignee will also pay for these same concepts, the payments pending to date, as well as other obligations that may be imputed to the entity US Oil Guatemala Sociedad Anónima, according to the Hydrocarbons Law and its General Regulations". It should be noted that in this case, even though the assignment was partial, the assignee assumed all the obligations pending compliance by the assignor.
Therefore, it is commonly understood that the assignee must assume all obligations arising from the contract, including debts prior to the assignment.
However, there are certain circumstances and studies that may justify a contrary position; that is to say, there are reasons that make it possible to justify an assignment without the assignee assuming total or partial liability for the prior debts contracted by the assignor.
Recall that, according to Article 18 of the Hydrocarbons Law, the assignment may be partial; therefore, it is feasible to analyze whether the acquisition of obligations may be partial, that is, based on the percentage assigned or other similar parameter.
In that order of ideas, it is worth mentioning the following real example that took place in Guatemala: in 1997 the entity COMPAÑÍAGENERAL DE COMBUSTIBLES, S.A., as assignor, partially transferred (30 percent) the rights of an oil operations contract to the entity BASIC RESOURCES INTERNATIONAL (BAHAMAS) LIMITED. In such assignment it was agreed that "(...) the assignee company assumes all the obligations, rights and responsibilities inherent to the assignment of thirty percent (30%) of the rights and obligations derived from the contract (...)".
That is to say, in the aforementioned case, through the figure of partial assignment, the assignee did not assume the responsibility for the totality of the debts derived from the contract. In fact, the Ministry of Energy and Mines authorized such stipulation through resolution number "1175" dated July 8, 1997, where it considered that "the assignee assumes thirty percent (30%) of the obligations, rights and responsibilities inherent to contract number 1-91 pending compliance by Compañía General De Combustibles, Sociedad Anónima, (...) as others that may be imputed to Compañía General De Combustibles, Sociedad Anónima (...)".
Therefore, if the assignment of the contract is partial, there are logical grounds, and even precedents, that allow the assignee's liability for prior debts to be reduced by a percentage.
Likewise, although it is true that most of the bibliography dealing with the subject seems to be inclined to the position that the assignee must assume all the obligations arising from the assigned contract (including the debts prior to the assignment), it is very relevant to bring up the contrary opinion of the Argentine Doctor Mario Carrer.
Dr. Mario Carrer is a recognized Latin American intellectual authority on the subject of assignment of rights. On the subject of the assignment of contractual position, said author states the following: "with the subject of the release of the assignor, but applicable to almost all the effects produced by the substitution of the contractual position, it should be noted that these effects are not generally retroactive. The assignor's release occurs ex nunc and not ex tunc. In the case of a contract of continuous or periodic performance, which had already been partially performed, the assignor continues to be bound to perform the obligations corresponding to the period prior to the assignment and, correlatively, may demand from the assigned contracting party the satisfaction of those obligations corresponding to the period prior to the assignment. (...) Of course, in this respect the parties may agree otherwise, for example, that the totality of the rights or obligations pending performance, even if corresponding to the period prior to the assignment, shall pass to the assignee" .
As we can see, Dr. Carrer departs from the general analysis assumed by most of the authors dealing with the subject, and basically considers that - in the assignment of a contract - the assignee does not retroactively assume liability for the contractual obligations, unless otherwise agreed.
In this sense, the wording of articles 18 of the Hydrocarbons Law and 30 (literal "b") of the Regulations of the aforementioned law, imply that the obligations to be assumed by the assignee include those contracted prior to the assignment; however, they do not expressly require it.
In fact, paragraph "d" of Article 31 of the aforementioned Regulation, as already analyzed, requests the Ministry to determine, by means of reports, whether the contractor (i.e. the assignor) is solvent with the State, which allows interpreting that the issue was regulated under the understanding that the assignment is made without transferring outstanding debts to the assignee (because the solvency of the assignor is assumed).
Therefore, under these doctrinal and legal premises, it could be accepted the viability of the contract to agree that the assignee will only be responsible for a percentage of the debts (as it is a partial assignment), or that it will only assume the obligations subsequent to the assignment (as it has ex nunc effects).
If the Ministry of Energy and Mines expressly authorizes the contract under the terms indicated in the preceding paragraph, the State would have to abide by it, and in case the contract is determined to be detrimental to its interests, it should request its annulment, but it could not demand from a private law person something that is not expressly found in the law or in a contract.
The following is a summary of the legal framework for the assignment of an oil operation contract in some countries of the region.
In Colombia, the regulation on the assignment of an oil operations contract has been influenced by the "informal assignments" -as the authors Moreno and Estupiñán call them- which consist of mercantile operations -sale of shares, mergers or spin-offs- to obtain the effects of an assignment of rights, without complying with the administrative procedure of a formal assignment. Therefore, such regulation is mainly focused on providing for the effects of mercantile operations that intend to have the effects of an assignment of the contract.
The supervisory administrative authority in this country, the National Hydrocarbons Agency (ANH), has issued several regulations on the assignment of oil contracts entered into with the ANH. Regarding the obligations assumed by the assignee, Agreement 1 of 2020 of the ANH establishes that when the assignment is approved, an amendment to the original contract must be made, which must contemplate, among other points, the guarantees with respect to the new obligations. This regulation, although not expressly, allows us to understand that the assignee will only be liable for the new obligations of the contract.
On the other hand, in Costa Rica there is a specific regulation on the assignment of rights and obligations of oil contracts contained in Decree number 28148-MINAE of the Presidency of the Republic and the Ministry of Environment and Energy. This regulation establishes that when the assignment is less than 50% of the obligations and rights of the contract, the assignor and the assignee will be jointly and severally liable, in the respective quotas of their participation. Therefore, in this case, a partial assignment could be chosen so that the assignee is not liable for all of the contractor's obligations.
Similar to the case of Costa Rica, in Ecuador, the specific regulation on the assignment of rights and obligations of oil contracts contained in Decree number 1442 of the Presidency of the Republic, contemplates that, if the assignment of the contract is partial, the assignee does not have to respond for the totality of the obligations and rights of the contract. However, what is important to highlight in this regulation is that it mentions that the Ministry of the branch may exonerate the obligations assumed by the assignee when authorizing the assignment.
Finally, in Peru, the Organic Hydrocarbons Law is quite clear regarding the figure of the assignment of an oil contract. This law establishes that the assignment implies the substitution of the contractual position and even contemplates the alternative that the contractor does not necessarily enter into an assignment, but rather an association with third parties. In addition, it is determined that the assignments will entail the maintenance of the same responsibilities regarding the guarantees and obligations granted and assumed in the contract by the contractor; however, it is not clearly indicated whether the assignee assumes the previous obligations contracted by the assignor-contractor.
Based on the foregoing, it is considered that it is possible for the Ministry of Energy and Mines of Guatemala to authorize an assignment despite the fact that the contractor (assignor) has debts with the State.
Furthermore, it is concluded that the assignee may avoid absorbing the debts prior to the assignment, because although it is true that it is generally understood that the assignee assumes all the obligations of the contract, the law does not expressly require that it must respond for the debts incurred prior to the assignment; in turn, there is serious international literature (Mario Carrer) according to which the effects of the assignment of the contract are ex nunc.
Finally, through partial assignment, the assignee's liabilities may be mitigated in proportion to the percentage of the contract assigned in its favor.
