Loopholes in new draft oil contracts could expose Guyana to financial risk in case of oil spill

Mar 25, 2023 News

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Kaieteur News – Fears over the lack of full protection in the form of adequate insurance, should there be an oil spill in Guyana’s Exclusive Economic Zone (EEZ) is being raised again, since in the proposed draft Production Sharing Agreement (PSA) governing the new oil blocks, it exposes Guyana to significant financial risks.

The issue was raised recently by Jamil Changlee, Chairman of the Cooperative Republicans of Guyana, who observed that under the provisions for “Costs Recoverable Without Further Approval of the Minister,” in the proposed drafts, Guyana is left exposed to financial risks.

Elucidating this position, it was pointed out that in the new draft PSAs, it dictates that Insurance and Losses, “Costs, losses and damages incurred to the extent not made good by insurance, are recoverable.”

Meaning, any monies to be used in case of an oil spill, beyond what is covered through self-insurance, will have to come out of cost oil or oil produced from the Stabroek Block that has been earmarked to cover expenses.

According to Changlee, “if this section is allowed to remain as is while inadequate insurance coverage is in place, the country will be exposed to significant financial loss in the event of a major oil spill.

To this end, it was posited that the PSAs must ensure very stringent and extensive insurance coverage, “to prevent the financial downside that this section allows.”

The provisions which Changlee has flagged as dangerous, are proposed in the new PSAs even though Vice President Bharrat Jagdeo, only this past month publicly lamented the state of affairs in relation to insurance with Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—and their partners.

To this end, he had announced that Guyana’s Environmental Protection Agency (EPA) had been directed by the Administration to get ExxonMobil, along with Hess Corporation—both based in the United States of America (USA)—and China’s National Offshore Oil Company (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.

Changlee noted that the new draft PSAs do not make these provisions.

Jagdeo during a press conference held at the Arthur Chung Convention Centre (ACCC), after persistent questioning, finally conceded that no such arrangement is in place as yet for the Stabroek Block, a situation that is a cause of concern for him also, and not just the critics.

The state of affairs obtains, since Guyana has a 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.

The other partners with which the State inked its deal, were 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.

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, “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 EPA in a subsequent response dismissed pursuit of a parent company guarantee, saying that it was not standard international practice, as is the case with self-insurance that is catered for in the existing PSAs, and those proposed.

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• Chairman, expose, Insurance, Jamil Changlee, loopholes

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