Oil Spill Readiness… Insurance policy a must for operators

Feb 12, 2019 News

By Kiana Wilburg
The Energy Department has initiated discussions with Central Bank to ensure oil companies comply with the nation’s laws on having a recognized insurance policy.
Making this declaration yesterday during a press conference at the Ministry of the Presidency was Energy Department Head, Dr. Mark Bynoe.
He said that there will be no approval from the Department of Energy for companies to self insure.
Currently, the ExxonMobil-Guyana contract allows the oil giant to self-insure. This means that the company has given the nation some level of assurance that it will handle the liabilities that come with any possible oil spill.
On that premise, Kaieteur News asked Dr. Bynoe about the application of his Department’s decision will on Exxon’s PSA Production Sharing Agreement (PSA).
To this, Dr. Bynoe said, “The contract speaks to the fact that the minister can have a waiver and allow a company to self insure, That is at the discretion of the minister but we are taking a position which says that we will not be allowing self insurance because it would go against Guyana’s laws.”
Head of the Environmental Protection Agency (EPA), Dr. Vincent Adams, has expressed on several occasions that self-insurance by oil companies may not be ideal for Guyana. Also in agreement with his position is Founding Director of Mexico’s Agency for Security, Energy and the Environment (ASEA), Carlos De Regules.
During an interview with Kaieteur News, Regules insisted that 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…”

Energy Dept. Head, Dr. Mark Bynoe

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 also 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 rigorous 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.

COMPREHENSIVE INSURANCE
International donor agencies such as the World Bank have also called for Guyana to demand insurance policies from operators which are comprehensive.
In this regard, the organization warned that operators have often sought insurance which only covers certain activities. These may include third party legal liability and control of wells, re-drill, and cleanup of sudden and accidental pollution from a well out of control.
It cautioned that industry regulators must ensure that an operator’s insurance covers every possible eventuality since “for some operators, their insurance excludes blowout or subsurface pollution or below-wellhead risk.”
The World Bank highlighted that there is insurance that covers a blowout from an oil project. It is referred to as Operators’ Extra Expense (OEE) insurance.
The World Bank said that emerging oil producers such as Guyana would want to ensure that this is in place especially when one considers how other nations suffered in the absence of this.
In this regard, the financial institution cited the case of the major oil spill which occurred in 2010 in the Gulf of Mexico. The spill led to a loss of 53,000 barrels of oil a day for many weeks. It covered 6,500 square kilometers and involved five million barrels of oil.
The source, the Deepwater Horizon field, was operated by BP under a joint operating agreement with Anadarko Petroleum and Mitsui Oil Corporation.
The financial consequence of the spill was more than US$8 billion since the insurance of the operator did not cover pollution following a blowout.