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Loophole gives Exxon recovery costs for any environmental disaster
By Kiana Wilburg
How will the costs of environmental damage offshore Guyana be treated?
Will it be a deductible expense for the operators under all circumstances?
Based on a perusal of the Stabroek Block contract Guyana signed onto with ExxonMobil and its partners, the company will be able to deduct all these expenses via cost recovery.
For Exxon to be blocked from recovering these costs, Guyana will have to prove that the damage was due to “willful misconduct” or “gross negligence.”
According to Annex C of the Production Sharing Agreement (PSA), the contractor can recover without the need for approval from the Minister, all fees and other assessments that may be levied by the government in connection with the petroleum operations.
Just a small part of the environmental damage that was caused by the infamous ExxonMobil Valdez oil spill (CNN photo).
For the insurance that is meant to cover environmental expenses, the operator will be allowed to recover the insurance premium as well as the cost for the insurance. Further, all costs, losses and damages incurred to the extent not made good by insurance, will be recovered by Exxon and its partners.
If the operators can recover the foregoing costs, it therefore means that it is Guyana that is really standing these expenses and not the operator.
What is also significant is that there is nothing in the Stabroek Block PSA which ties Exxon and its partners to handling all restoration costs following the clean up exercise. In the USA and other territories, Exxon has to adhere to much more stringent provisions of this nature.
DECADE OR MORE
If an oil spill occurs due to ExxonMobil’s operations, it could take a decade or more for the country to “fully recover.” This gloomy possibility was well document in the operator’s Environmental Impact Assessment (EIA), which examines how Exxon’s operations would affect the environs. The document was prepared by Environmental Resources Management (ERM).
In the EIA, the international company uses phrases like “highly unlikely” and “very low” throughout lengthy paragraphs to convince readers that the chances of an oil spill occurring are quite slim.
But when ERM had done its assessment to determine the implications of Exxon’s operations offshore Guyana, it was taking into consideration that the country would be producing 100, 000 barrels of oil per day. Those projections have changed significantly. Today, Guyana is estimated to produce about 750,000 barrels of oil per day by 2025.
But even at 100,000 barrels of oil per day, ERM advised that an oil spill is possible.
In the EIA, the international company states, “Although the probability of an oil spill reaching the Guyana coast is very small, a spill at a Liza well would likely impact marine resources found near the well, such as sea turtles and certain marine mammals that may transit or inhabit the area impacted by a spill. Air quality, water quality, seabirds, and marine fish could also be impacted…”
The document also states that a spill could potentially impact Guyanese fishermen. It said that the magnitude of this impact would depend on the volume and duration of the release of oil as well as the time of year, the release were to occur (e.g., whether a spill would coincide with the time of year when some species are more common).
The EIA goes on to state that although a large oil spill is considered unlikely, other resources that could be potentially impacted by a spill include Shell Beach Protected Area, marine mammals, critically endangered sea turtles, and coastal Guyanese and Amerindian communities reliant on ecosystem services for sustenance and their livelihood.
As it relates to irreversible damage, the EIA states, “Even in the unlikely event of an oil spill, little irreversible damage would be expected, although it could take a decade or more for all resources to fully recover, depending on the volume and duration of the release as well as the time of year the release were to occur.”
Given the aforementioned, Environmental Resources Management said it is critical that ExxonMobil commits to regular oil spill response training exercises, document the availability of appropriate response equipment on board the Floating Production Storage and Offloading (FPSO) Unit, and demonstrate that offsite equipment could be mobilised for a timely response.
(See link for full EIA: file:///C:/Users/k.wilburg/Downloads/Liza%20Phase%20I%20EIA%20all%204%20volumes.pdf)
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