EPA plays down calls for Exxon’s guarantee on oil spill insurance

Mar 14, 2023 News

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…says enough protection already in place

Kaieteur News – Several million barrels of crude oil is produced and transported daily across the world and with it, inherently brings the risk of an oil spill.

Such occurrences have over the years not only damaged eco-systems but their containment, clean up and restoration of the environment has also cost parties billions upon billions of US Dollars.

One of the most expensive oil spills in the world occurred in the USA and involved quantities of oil and gas similar that being produced and stored presently in the Stabroek block.

Back in April 2010, a well blowout in the Gulf of Mexico led to just over 3 million barrels of oil and gas being leaked into the ocean up to the Deepwater Horizon Exploration Rig which caused that too to explode and subsequently sank killing 11 members of the crew. That incident saw the hydrocarbons being leaked for almost three months—87 days to be precise—and has to date, cost that operator some US$70B to clean up.

British Petroleum was the oil company responsible. These, among other reasons have led to a growing call by Guyanese and international experts for the country to get in place adequate full coverage insurance, guaranteed by the parent companies of the oil companies operating in the Stabroek Block.

With this in mind, the Environmental Protection Agency (EPA), over the weekend in response to the calls, essentially dismissed securing such a commitment from the parent companies for the oil companies working in Guyana to provide such form of insurance, calling such an arrangement unheard of. The EPA in a public missive conceded that the first Development in the Stabroek Block at the Liza I Field was in fact granted permission with the criteria of relying on self-insurance.

That Permit by the EPA paved the way for first oil in December 2019 by the Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—and their partners, Hess Guyana Exploration Corporation, a subsidiary of the US based company, incorporated in the Cayman Islands and holds a 30 percent stake, along with CNOOC Petroleum Guyana Limited, incorporated in Barbados and holds the remaining 25 percent interest.

EEPGL is the operator with 45 percent holdings in the operation. Responding directly to the calls for insurance in case of an oil spill, the EPA in its missive said what was approved under the Liza I project, “it was understood that this form of Financial Assurance was customarily used in the international petroleum industry, and indeed it is.” In fact, the EPA claims that a precursory search of “financial assurance for oil spills” will show that this is a commonly accepted form of assurance. It was adamant “it is unheard of to this day, to reasonably require unlimited coverage insurance.”

The state environmental regulator said insurers are in fact disinclined and have never provided this level of coverage. Additionally, “clarification sought from local insurers would confirm that there is nothing like unlimited or full cover insurance where liability is concerned because one cannot put an exact number to future/potential claims.”

In fact, the EPA issued a challenge in that “if there is any insurer that provides or there are examples of unlimited Insurance or a Guarantee already given, the EPA is open to receiving this information towards informing its current negotiations.”

Compounding the situation further, the EPA now claims that protection against an oil spill, outside of adequate insurance coverage, does exist and said “beyond Permit conditions, and the Environmental Protection Act which address the liability of Permit Holders and ensure that environmental damage will not go unpunished or unremedied, through the vicarious liability principle, a Parent Company can be held liable for unfulfilled obligations (default) of its Subsidiary.”

Additionally, the EPA sought to also assure the public that it has not and will not shy away from examining and identifying appropriate and other effective forms of Financial Assurance for oil spill and other environmental liabilities.”

To this end, the EPA reiterated that this “work is ongoing and when completed, the public will be duly updated.”

Only recently when the matter of full coverage insurance was raised by the media with Vice President Bharrat Jagdeo with regards the ExxonMobil Guyana led operations in the Stabroek Block he deferred responsibility to the EPA. He told members of the media that the EPA had been directed by the administration to get ExxonMobil Guyana, along with Hess Corporation—both based in the United States of America (USA)—and CNOOC, to provide a written guarantee for ‘Full Coverage Insurance’ for its operations locally.

This, in the event of an oil spill in the Stabroek Block, would see the US and Chinese based parent companies for the local subsidiaries, picking up the tab, should they be unable to cover the expenses for containment and clean-up of an oil spill in Guyana. The state of affairs obtains, since Guyana has a Production Sharing Agreement (PSA), commonly referred to as the ‘Oil Contract,’ not with the US or Chinese based parent companies but with subsidiaries owned by them and incorporated in Barbados, the Bahamas and the Cayman Islands.

In 2016, the Government of Guyana inked that arrangement with Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—which is a subsidiary of the US based Company but is incorporated in the Bahamas and holds a 45 percent stake in the Stabroek Block. As such, Guyana as a new oil producer in the world, in just a few years has moved from discovery to producing in excess of 350,000 barrels of oil daily but the ExxonMobil led consortium operating in the Stabroek Block of the country’s Exclusive Economic Zone, is doing so without a full and comprehensive insurance package, guaranteed by the parent company of those subsidiaries.

The call, has in recent years become even more pronounced, given the quantum of liquid assets held by the subsidiaries, which many analysts have rejected as insufficient to meet the expenses associated with clean-up of an oil spill.

According to Jagdeo at his most recent press engagement, that being the case “I told the EPA to get, they have to get the parent company guarantee.” He was at the time responding directly to a question that has been repeatedly posed to him by Kaieteur News Publisher and social commentator, Glenn Lall, who sought again, to enquire into the insurance that is to be provided by the parent companies for the oil companies in the Stabroek Block.

The Vice President, having brushed aside the question on previous occasions, finally conceded, “I have expressed concerns myself if you think you’re just concerned.” To this end, he went on to speak on capacity building but reiterated, “some of the concerns are also our concerns; the parent guarantee should have been done already; it has to be done soon, we told the EPA give this Exxon a deadline, give them a deadline for doing this, it should have been done, that one you [Glenn Lall] are right on.”

The matter has over the years been raised as a cause of concern among many given the cost of not only containing and stopping but cleaning up after an oil spill could in fact cripple the Guyana economy.

In the Stabroek Block, there are at present scores of deepwater wells spud by ExxonMobil Guyana and their partners along with two Floating Production Storage and Offloading (FPSO) vessels with a combined storage capacity of three million barrels of oil. The cargo for each FPSO is offloaded into oil tankers intermittently. This in addition to six drill ships in operation at any point in time cumulatively poses a threat of an oil spill.

ExxonMobil Guyana has in its plans, six more developments in the Stabroek Block, in addition to the four developments already approved. These are the Liza I & II oil fields, currently producing and utilizing the Liza Destiny and Liza Unity FPSOs. A third FPSO is currently enroute to Guyana while the fourth the development of the fourth field is underway. The company is at present seeking permission for its fifth and sixth oil field developments in the Stabroek Block.

The fact is, wherever there are oil operations—exploration, production, storage, transporting or refining—there exists the risk of an oil spill, whether through human fault or mechanical issues. At the end of the day, the hydrocarbons would have to be cleaned up from the ecosystem with someone or entity footing the Bill. In Guyana’s case with it a storage capacity of some three million barrels, increasing production and transport out of the country, the potential for an oil spill, is clear and present danger.

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• Bharrat Jagdeo, EPA Head, Exxon, Khemraj Parsram, Vice President

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