Govt. mislead Guyana on insurance for Liza field

Dec 18, 2022 News

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…promised US$2.5B but policy only covers US$600M

Kaieteur News – The Guyana government, along with US oil major ExxonMobil have blatantly misled Guyanese regarding the US$2.5B insurance that was said to be available to cover the sector during its start-up stage.

The oil company’s President, Alistair Routledge has told Guyanese repeatedly that Exxon’s former Country Manager Rod Henson never promised the sum for oil insurance and dismissed those claims made by former Environmental Protection Agency (EPA) head, Dr. Vincent Adams.

The Guyana government also discredited Adams saying that he was making up stories as there is no documentation or other evidence in the government’s possession to prove same.

However, an exclusive report by Stabroek News back in July 2019 has shown that both the government and Exxon lied about the insurance. In the report titled: ‘Exxon secures local insurance’ and published on July 22, 2019, Henson not only confirmed the availability of the US$2.5B coverage, but he also informed that it was being held in country by a local company.

Henson, who headed ExxonMobil’s local subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), had told the Stabroek News reporter that the company has the “required industry insurance…”and that Diamond Fire and General Insurance (DFGI) Inc, a subsidiary of Demerara Distillers Limited issued the policy.

He told the reporter that in addition to the US$2.5B, ExxonMobil and partners Hess and CNOOC Nexen were working with the Bank of Guyana, the Department of Energy and the Environmental Protection Agency (EPA) regarding their plans to cover “above and beyond” insurance sum, which is met by the parent companies.

The meeting of these state agencies and the oil operator was also denied by the government when Natural Resources Minister Vickram Bharrat told this newspaper and repeated in a Parliamentary debate on environmental protection that nothing was done to protect the country since the announcement of commercial oil.

But when Henson was asked about the progress of the meetings with the State agencies as they occurred in 2019, he had told Stabroek that, “We are in the middle of that process. We are working with the Bank of Guyana and the EPA and right now, we have done everything we can do…we are all working.” He said that the company, “…absolutely intend to comply with the requirements. We are not dragging our feet at all…we will ensure the EPA is satisfied.”

Komal Samaroo, the Chairman of DFGI, had also told Stabroek that the Exxon placement was a welcomed local content move.  “We obviously are delighted…” he told the newspaper, “Any new business that comes our way as a new company, we are elated and welcome it.”

Samaroo supported more local companies being able to provide services to the up-and-coming oil sector, explaining that, “The more companies can do, it is better for the overall economy.”

The resurfaced article has now caused a number of questions to be asked. Dr. Adams during an Alliance For Change (AFC) press conference on Friday, called on the government to come clean on the insurance arrangement it now has with Exxon.

Adams submitted that the article proves the availability of the US$2.5B during the early stage of the Liza fields and the move to secure parent coverage above and beyond what the subsidiary could afford.

Dr. Adams said that the million-dollar question now, is how did the policy move from US$2.5B to US$600M and where is the parent guarantee?

Adams said that Henson in 2019 had personally delivered to him the policy after purchasing it for Liza 2 and was supposed to have the parent company guarantee done by the end of that year.

Adams continued that the company failed to deliver the guarantee by yearend and so in 2020 when the Payara field permit came up for approval, he did not sign off on it. Adams said he was later removed as CEO of EPA and a month later, the Payara permit was signed without the parent company guarantee.

The insurance available to Guyana for an oil spill in 2022 is US$600M per project with no parent company guarantee.  Adams said the parent company guarantee has no immediate cost. It is a letter that says the parent company will provide unlimited coverage for all costs the subsidiary cannot cover. However, the current negotiation on this is for a “paltry” US$2B parent company cover and a promise to do more if the money is inadequate.

Adams reminded that insurance is necessary, but it is the parent company guarantee that is most important to cover what EEPGL cannot. He said inadequate protection for the oil sector could mean financial doom for Guyana and other Caribbean countries, particularly those with economies that depend on the environment.

To date, no local company holds oil sector insurance in country. There is an advertisement out for insurance services for the Yellowtail project and Gas to Energy project, but the operator is seeking a local company ‘front’, meaning they get a fee to pretend to own Exxon’s oil insurance while the overseas holder makes hundreds of thousands of US dollars in premiums, ceding commission and other fees.

Local operators have complained bitterly as they believe oil sector regulators are being slothful in ensuring that the oil companies follow the law.

Dr. Adams said the government must hold Exxon to the law and give them no special treatment, especially since the same courtesy is not extended to its local businesses.

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