ExxonMobil offers Guyana US$2B to cover oil spill costs not satisfied by subsidiary

Apr 10, 2022 News

– EPA refuses to sign off until justification provided

By Kiana Wilburg

Kaieteur News – American oil giant, ExxonMobil Corporation has presented the Environmental Protection Agency (EPA) with a proposal for a US$2B guarantee which would cover any oil spill costs not satisfied by its subsidiary and Operator of the Stabroek Block, Esso Exploration and Production Guyana Limited (EEPGL).

EPA Head, Kemraj Parsram

But the EPA has chosen not to accept this offer as yet until ExxonMobil can justify how it arrived at the US$2B guarantee for a worst case scenario offshore Guyana. This was revealed by EPA Head, Kemraj Parsram during his recent appearance on Kaieteur Radio programme, Guyana’s Oil and You. He was accompanied by Head of the EPA’s Oil and Gas Department, Joel Gravesande and the EPA’s Legal Officer, Frances Carryl.During the discussion which focused on key provisions in the Environmental Permit for the US$10B project, the insurance arrangements in place for an unmitigated oil spill in the Stabroek Block were examined. Also given due attention were other mechanics in place to ensure Guyana is well protected in the event of pollution by EEPGL.
In terms of the liability for environmental damage as a consequence of the activities that are ongoing offshore, Carryl said the Environmental Protection Act has the benefit of being general enough to ensure liabilities are covered. The Legal Officer explained that one key provision in this regard can be found in Section 13 of the Act which makes it clear that permit holders have a responsibility to restore and rehabilitate the environment; in other words, regardless of what occurs, EEPGL would be held responsible for the restoration and rehabilitation of the environment.

EPA’s Legal Officer, Frances Carryl

EPA Head, Mr. Parsram was also keen to note that there is a strict liability principle to which EEPGL is bound; that means, “We don’t have to go to court to prove anything, we can start to take action against you.”
Expounding further, the Legal Officer said, “Section Four of the Act lists a number of principles which the EPA must utilise in fulfilling its obligations and one of those is the Strict Liability Principle which speaks to the fact that the requirement to prove fault is eradicated so it does not really matter whose fault it is; there is no blame game, the person at whose instance it occurs, being EEPGL in this example, would be held strictly liable. It would be quite difficult for the company to escape liability given the provisions of the permit and the Act.”
In addition to what the law provides, the EPA Head said one must bear in mind that the Permit itself demands that certain safety mechanisms are in place to prevent the incident of an unmitigated oil spill. He said these mechanisms include the blowout preventer and the capping stack, which is a new requirement.

Head of EPA’s Oil and Gas Department, Joel Gravesande

A blowout preventer, or BOP, is a large specialised unit weighing up to 400 tonnes that is used to prevent an oil spill from occurring. It works like a valve to close an oil well, similar to a plumber closing a valve in a pipe, and are proven to be highly effective in ensuring well safety. The BOP can shut in the well in minutes. If activated, the blowout preventer will automatically close hydraulic rams and activate specialised seals against the drill string to seal the bore. If this does not work properly, there are other rams, which can completely cut through the drill string to seal the hole. In all, the BOP has six independent shut-in mechanisms.
As for a capping stack, this is a large well closure device that connects to the top of the blowout preventer and is capable of sealing off a well. It is only used in the highly unlikely situation where a loss of well control includes both a surface blowout and failure of the blowout preventer.
Carryl was keen to note that the inclusion of the capping stack provision is actually one of the superior clauses of the Yellowtail Permit. She said too that EEPGL has to procure and maintain that equipment in Guyana while adding that it, therefore, fortifies the emergency response that would be needed in the event of an uncontrolled well event. She said too that EEPGL also has to maintain a subscription service with a provider for another capping stack so that they would have easy access to another.
Now, if both of these shut in mechanisms fail, and an unmitigated oil spill occurs, Head of the EPA, Mr. Kemraj Parsram has assured that there is a robust provision in place for financial assurance.
Parsram explained that the permit provides for a declaration from EEPGL to give Guyana what is termed self insurance.
He said, “In a recent media release, the company noted that its 2020 financial standing was US$5B to US$7B in assets and its co-venture partners, Hess Corporation and CNOOC would have similar standing too. Another layer to this is the actual insurance. Let me say this, for every exploration activity EEPGL has to provide an insurance policy and this totals US$600M. So each project such as those 12 wells being pursued for Kaieteur and Canje, each programme is covered by a US$600M insurance policy.”
Parsram continued, “In the case of Yellowtail, they have provided to us, a policy that I think is a maximum of an aggregate totalling US$4B. Let me explain what means, in the construction phase there is something called, Construction All Risks Insurance (CAR) and a Per Occurrence valued at US$750M. So anytime there is an incident and there is loss or damage to equipment they can claim this.”
The EPA Head added, “…Then there is a key thing in insurance that deals with the oil spill aspect and this is referred to as third party liability and operator extra expenses. Third party liability is at US$100M and this covers compensation for any affected parties, any legal fees and what not. Operator extra expenses come into play with having well control and that is at the tune of US$500M. So it is a total of US$600M and this is what is in the Yellowtail Permit and it is similar to Liza One, and Liza Two.”
If for any reason EEPGL or its co-venturers default or are unable to satisfy the full pollution cost, the EPA wants Exxon to step up and provide coverage hence it is seeking a guarantee from the parent company ExxonMobil, that fully indemnifies the Government of Guyana.
Kaieteur News was told that the parent company has proposed US$2B to cover what cannot be handled by EEPGL in the event of an oil spill. But the EPA is questioning if this is enough. Parsram said Exxon has been asked to explain how it arrived at the proposed sum.
“We are asking them for the reasonably credible cost of a worst case scenario spill in terms of clean up, remediation and monitoring and that will inform us on what is really a reasonable figure on what is to be accepted as a guarantee. So we want them to do that and then get back to us,” the EPA boss stated.
He added, “So we have a draft document on this from them. We, as the regulator, are working on them and questioning what makes sense and what doesn’t and laying out what we expect. So to address rumours or speculations that they are in breach of their permit, no they are not, they have provided it but we have to sign off accepting it. But we are holding off until we are comfortable and have certain measures in place…I am not saying the US$2B would not be accepted but you cannot come up with a figure out of the air, you have to show me how you arrived at that figure…”
In conclusion on this matter, EPA’s Legal Officer said unlike the other permits, Yellowtail requires full indemnification. “So irrespective of what occurs, EEPGL must meet the environmental obligations and Guyana would not be left with the bills in its hands.”