Govt. must insulate Guyana from oil and gas risks

Aug 25, 2022 News

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…even as ExxonMobil takes steps to protect itself

Kaieteur News – United States oil major, Exxon Mobil is adamant that the company and its partners are taking all the risks associated with the development of Guyana’s lucrative oil and gas sector since it does all the investment and production of the nation’s oil resource.

The company has insisted on this explanation as one of the main reasons for its massive take in the problematic 2016 Production Sharing Agreement (PSA). The flipside of this coin however, is that the Exxon Mobil-led consortium is in fact legally insulated from any risk and liability associated with the development of the oil and gas sector by virtue of it owning a limited liability company- Esso Exploration and Production Guyana Limited (EEPGL)-which is legally responsible to Guyana for oil and gas development in the offshore Stabroek Block. EEPGL is a limited liability company registered in the Bahamas, a friendly tax haven to offshore companies, that are also attracted by the country’s secrecy posture.

“By definition, a limited liability company is separate from its owners meaning that the limited liability company is responsible for all debts, liabilities and responsibilities. It is held accountable for its operations and again, it is separate from its owners.”

“In this particular case, EEPGL is separate, legally, from Exxon. So, whatever EEPGL does, it insulates Exxon legally.” This was the reasoning of Petroleum Engineer and former Environmental Protection Agency (EPA) head, Dr. Vincent Adams, when he explained the manner in which ExxonMobil has sought to protect itself from all forms of liability regarding the sector. As parent company/ owner, Exxon collects all profits made by EEPGL from the local oil and gas sector here.

Adams pointed out however, that all agreements and permits signed with Guyana, are in EEPGL’s name and “signed by the EEPGL people.” He said therefore, that Exxon does not have its signature on any of these documents, but is the owner of EEPGL, which is the main distinction that must be recognized.

“Now, there is nothing illegal about Exxon or any company forming a limited liability company,” Adams told the newspaper. In fact, it is one of the biggest advances for companies to insulate themselves from liability and as such is called a limited liability company. He said, “It’s a normal strategy and it’s a legal one. They are not doing anything illegal except it is to their advantage, but it’s to our disadvantage.” Adams insisted, therefore, that he has no problem with Exxon having a separate company conducting its oil business here as it is a sensible strategy on the business’s behalf. The problem presents itself however, when the Guyana Government does nothing to counteract that strategy as an important part of the country protecting itself.

It is for this reason, that Adams said he continues to fight for a parent company guarantee for all oil spill related liabilities being handled by EEPGL. He said in his oil and gas experiences in the United States, he has always had to deal with limited liability companies, so the authorities used their own strategies to counteract the disadvantages that come with such a company being used on behalf of another.

Adams expounded that when he recognized that EEPGL was the one handling all risk for Exxon, he refused to sign off on the Liza 2 permit until Exxon had given assurance to cover what EEPGL was unable to. He said he even saw in the petroleum agreement that EEPGL could self insure against oil spills but once he recognized that EEPGL did not have the assets, he continued to refuse his signature for Liza 2 until there was that assurance of full liability coverage. He said too that for EEPGL alone signing off on the documents meant that “anything that happens (within the sector) EEPGL will be responsible for all liabilities.”

Adams said that the issue for him is not insurance but rather full liability coverage that involves the parent company guarantee. He said even if the oil spill insurance was one dollar, it would not matter since the important thing is the parent company guarantee to cover what its junior agency cannot afford. And all Exxon has to do is put this guarantee in writing, especially since this guarantee will not cost the company any money.

Adams said Exxon continues to verbally assure that as parent, it will not walk away from its responsibility even as a mere US$2B guarantee is what it is offering. Adams indicated that if Exxon is genuine about honouring all liabilities pass that US$2B, then they must put it in writing. He claimed however, that “…when you do a limited liability company, the reason why you are doing that is because you don’t want to sign that document.” He reminded that limited liability companies are perfectly legal, but noted, “We (US regulators) never just accepted it like this because we protected ourselves with our strategy which is what is expected from our government.”

 

 

 

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