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A strong balance sheet is the best insurance

Mar 27, 2022 Letters

Dear Editor,

Former EPA head Dr. Vincent Adams is committed to a public pressure campaign for Exxon to make public its insurance coverage and policy documents so that in his mind Guyana can be assuaged in the event of an incident. But the company has been clear that it will cover any and all costs arising from a spill as it has done in other countries under compliance with local laws.
I share Dr. Adams’ concerns about coverage if the worst happens, but I must ask what he wants from the company that a blank cheque like this does not provide. He has called for $2.5 billion in insurance. But that would be nothing to cover a large spill.
In recent history, the 2010 BP oil spill in the Gulf of Mexico generated some US$61.6 billion and $71 billion in direct and indirect costs for BP and partners including a civil settlement of over US$20 billion. No insurance policy in the world is large enough to cover that, which is why BP drew on its vast cash reserves and borrowed using its global assets as collateral to finance the cleanup. Prior to the spill, BP self-insured its operation in the lease-block for $700 million, a drop in the bucket compared to the ultimate costs the company had to bear.
This is the standard practice across the industry—companies cover their own disasters with their assets. There is simply no magic number for insurance that would guarantee damages were covered and no company would actually issue such a massive and open-ended policy.
In the end, it is assets that matter, not insurance. I will note that in the case of EEPGL, Exxon’s local subsidiary, there is a balance sheet of US$5 billion in assets that can be leveraged to get financing to respond to any event such as a spill.

Sincerely,
Romel Khan

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