Oil spill insurance…Exxon must comply with Liza 2 provisions to prove it is serious about 4th project – Former EPA boss

Apr 06, 2022 News

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By Zena Henry

Kaieteur News – The first step to rehabilitation is recognising one’s fault and moving to correct it.
This should be the posture of the Environmental Protection Agency (EPA), according to former head of the state body, Dr. Vincent Adams, especially since the matter of financial assurance, for subsidiary oil companies operating in Guyana, has been deemed critical to ensuring the country’s environmental integrity is protected.
In fact, Dr. Adams told Kaieteur News that given the provisions of the Liza Phase Two permit, the EPA must now seek in writing the commitment of ExxonMobil to cover possible oil spill expenses beyond what its subsidiary, Esso Exploration and Production Guyana Limited’s (EEPGL), is proposing to prove that they are serious about the regulations stated in the recently approved Yellowtail permit.

Dr. Adams is adamant that while the Yellowtail permit covers the matter of insurance and parental assurance, the government must go back to the Liza 2 well and immediately get Exxon to comply with the insurance requirements therein.
The former EPA boss told the newspaper that the provisions within the Yellowtail permit is just an admission that full coverage does exist in the form of insurance and parent guarantee. However, this same language, he said, exists within the Liza 2 permit but it is not being adhered to despite operations ongoing at the offshore site.
The recently approved Yellowtail permit requires that a Parent Company/Affiliate Guarantee Agreement which covers and keeps indemnified the EPA and the Government of Guyana in the event EEPGL and its Co-Venturers fail to meet their environmental obligations under the Permit. It says that, “The Permit Holder shall provide and/or declare within reasonable time upon signing this permit a combination of the following forms of financial assurance to cover all its legitimate liabilities under this permit. These shall include: (a) Insurance in accordance with Condition 14.5 and shall cover well control and/or clean up and third party liability on terms that are market standard for the type of coverage; (b) A Parent Company/Affiliate (of Operator and Co-Venturers (CoVs) undertaking that provides indemnification for Liabilities under this Permit.” The liabilities, the permit stated, include costs associated with responding to an incident, clean-up and remediation and monitoring.
Among other things, Condition 14.5 speaks to the Permit Holder having effective environmental liability insurance customary in the international petroleum industry that will cover, “environmental damage caused in the course of the EEPGL will be, jointly and severally held responsible;…”
The Liza 2 permit under environmental coverage also speaks to insurance with international standards regarding petroleum and the support of parent company to step in, in the case of a spill that the minor company cannot handle beyond its insurance. It says, among other things, that the “Permit Holder shall have insurance of such type and in such amount as is customary in the international petroleum industry in accordance with good oil field practices for Petroleum Operations in progress offshore Guyana in respect of ii. Pollution caused in the course of the Project for which EEPGL will be jointly and severally, held responsible.”
In terms of parent company obligations, the permit said that, “the permit holder must, as soon as reasonable practical, provide from the parent company or Affiliate Companies or Permit Holder and its Co-Venturers one or more legally binding agreements to the EPA undertaking to provide adequate financial resources for permit holder and its co-venturers to pay or satisfy the repective environmental obligations regarding the Stabroek Block if EEPGL or its co-venturers fail to do so…”
Adams, in comparing the two permits, said that there is basically nothing new in the Yellowtail permit as the two documents utilise identical language regarding insurance and the parental assurance.
“They must now follow the law,” the former EPA head posited. He said it is one thing to put something in place, “but they are not complying with it; they are ignoring the law.” “So this is how you prove to the Guyanese people that you really mean what you are putting into the Yellowtail permit or else it’s just, again, telling us to trust you and you have not proven yourself to be trustworthy so far.”
The Liza 1 environmental permit only speaks to the Permit Holder being responsible for environmental damage and other negative occurrences. It does not cater for the parent company to step in if the minor is unable to fulfill its environmental obligations. As mentioned by Adams, Liza 2’s environmental permit captures that obligation of the parent company and what has to happen in respect of a spill.
The Payara permit, as well as the recent Yellowtail permit, also captures the language that indemnifies Guyana through the parent and the minor in the event of a spill.
However, the sums of insurance for the mentioned wells are unknown. There is a US$2B insurance sum that is pegged for the Yellowtail development but neither the government nor the EPA has made public the information relating to the other wells.
Current EPA boss, Kemraj Parsram said, just a day after the Yellowtail approval announcement, that the agency was still pressing ExxonMobil to provide parent guarantee for the entire Stabroek Block. The Chief said that self-insurance, insurance policy and parent guarantee are three areas the agency wants to cover.

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