Protecting the Environment… Laws needed to remove wiggle room for oil operators –Industry Analyst

Oct 24, 2019 News

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By Kiana Wilburg

Guyana’s government, like many others, is bound by the Constitution to protect the environment. In light of being vested with this duty by the supreme law, international agencies like the Open Society have said that governments have an obligation to ensure that air-tight laws and regulations are in place to hold oil companies accountable for any infractions.

The Open Society Institute which promotes good governance and media independence, explicitly states that governments should do as much as possible to remove wiggle room for operators to avoid adherence to environmental standards.
Expounding on this viewpoint, the Institute noted that Production Sharing Agreements (PSA) contain provisions that speak to how the operator is expected to go about exploration, development and production in an environmentally friendly way. But the organization stressed that this is not enough since adherence to contractual provisions boils down to the interpretations of the government and the contractor. It emphasized that vague or ambiguous provisions could allow for the operator to effectively exercise a veto.
To underscore its point, the Institute noted that a PSA for Azerbaijan’s major oil development project allows for the companies to discharge emissions “in accordance with generally acceptable international petroleum industry standards and practices.” The only problem with such a provision, is that there are no such standards, the Institute said. It therefore points out that the ambiguity of the said provision as well as the fact that no such standards exist, allows the contractor wiggle room to exercise a veto.
With this understanding in mind, the Open Society stressed that a combination of clear, robust contractual provisions as well as legislation are fundamental to the protection of the sector.
Furthermore, the Open Society warned that oil companies have a tendency to take advantage of lax or lenient environmental laws and standards in their countries of operation. In fact, the body said that oil companies prefer to pay a relatively low penalty for noncompliance with a nation’s lax environmental standards rather than invest in costly pollution monitoring and controlling systems. As such, it stressed that fines need to be high enough to act as a deterrent.
LOOPHOLE
Even if the operations of ExxonMobil result environmental damage, a loophole in its PSA with Guyana allows it to recover costs it is made to pay in this regard.
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.
The PSA goes on to state that even the insurance that is meant to cover environmental expenses, the operator will be allowed to recover it. 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 is well documented 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.” (See link for full EIA: file:///C:/Users/k.wilburg/Downloads/Liza%20Phase%20I%20EIA%20all%204%20volumes.pdf)

 

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