Make insurance policy mandatory for oil sector–Mexican Energy Advisor

Oct 07, 2018 News

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By Kiana Wilburg
Oil producing nations often ensure that operators provide an internationally recognized insurance policy before granting a petroleum permit. This policy ensures compensation for any impact an oil spill might have.
Mexico, for example, does not permit companies to operate within its territory unless a policy is provided, thoroughly checked and then approved.
In Guyana’s case, ExxonMobil, the main operator of the Stabroek Block, has not provided such a policy. Instead, the American conglomerate is allowed to be “self-insured.”
This means that Guyana has to lodge any claims of an oil spill with the oil operator instead of an internationally recognized insurance company. But according to Mexico’s oil and gas regulator, the Agency for Security, Energy and the Environment (ASEA), that would not be accepted from any of its operators.
During an exclusive interview with Kaieteur News last week, founding Director of ASEA, Carlos De Regules, said it would be in Guyana’s interest to make insurance policies mandatory for the oil and gas sector.
Regules said, “With self insurance companies show their own balance sheet as a guarantee and that we (Mexico) will not accept as a valid guarantee. We always insist on having an insurance policy. Self insurance is not good enough. You must show a policy that is in line with international standards…”
Stressing the importance of insurance policies, the ASEA Director noted that there is an international law or understanding that you cannot claim abroad what you do not claim domestically.
He said, “If a country expects to demand compensation for an oil spill or accident, it needs to have a domestic framework to show if that happened domestically, they would be claiming response and remediation and that is very important to bear in mind.”
Further to this, the ASEA Director said that setting the appropriate obligations to ensure oil and gas operators are capable of responding in a timely manner to oil spills is hinged on two things: insurance policies and making it mandatory for the operators to have sufficient technical capacity to respond to emergencies.
He said that this means the country must have trained personnel, materials and equipment to be deployed within the first hours of an emergency.
Regules said, “This is very important and it is a lesson that can be learned from any of the major oil spills that occurred around the world. You can contain a crisis more efficiently when you are prepared. So making those two things, insurance policies and technical capacity, mandatory are the two ingredients for preparing for an emergency in this industry.”
In sharing a bit of the Mexican experience, the Oil and Gas regulator said that it would also be important for Guyana to have a robust system in place to review insurance policies.
He said, “In Mexico, you must have an insurance policy before a permit is granted. In fact, companies have to comply with our insurance regulations and our SEMS which stands for Safety Environmental Management Systems Regulations.”
The ASEA Director said that the oil operators also have to go through a rigourous Environmental Impact Assessment (EIA) and provide an appropriate design for their project. He said that once they comply with all those things, and a thorough review is done, then it is a go.
VAGUE TERMS
In the Production Sharing Agreement (PSA) signed between the Government of Guyana and USA oil giant, ExxonMobil, there is no provision regarding any adverse impact on fishing grounds and coastal communities or on neighbouring countries.
This alarming observation was first pointed out by Chartered Accountant, Chris Ram and political Commentator, Ramon Gaskin. The two have been extremely critical of the vague terms in the contract especially as it relates to environmental protection.
Ram in his recent writings noted that Article 20.2 of Guyana’s 2016 Oil Agreement deals with Insurance in respect of, but not limited to, assets, pollution, third parties and employees. The Attorney-at-Law pointed out that the Agreement does not require any loss of production insurance as will apply in the case of any major disruption of production or environmental accidents.
He said that while this provision is absent from the 2016 Agreement, the 1999 Agreement which was signed by the Jagan administration, allowed for insurance to be taken out by Esso Exploration and Production Guyana Limited’s affiliate insurance company. Esso is a subsidiary of ExxonMobil.
Ram stated, “That requirement has been changed and now allows the Contractor to have the right to self-insure against the risks identified. This is a major concession by (Natural Resources Minister, Raphael) Trotman on an issue that only specialist lawyers know about.
“What it means in practice is that anyone seeking to make an insurance claim will have to lodge that claim against Esso, CNOOC/Nexen or Hess, all of which are external companies. Those potential claimants must thank Raphael Trotman for making their chances even more difficult to succeed.”

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