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ExxonMobil owns company providing limited insurance coverage for Guyana – Audit Report reveals
…subsidiaries have to approve payments for any disaster – Exxon Contract says
Kaieteur News – An audit report produced by IHS Markit of the United Kingdom has revealed that ExxonMobil Corporation’s subsidiary, Esso Exploration and Production Guyana Limited [EEPGL] was allowed to start up the Liza Phase One Project with limited insurance coverage in place. Of equal significance is the fact that ExxonMobil fully owns the company that provided the insurance for the operations.
In the report seen by Kaieteur News, it notes that Article 20.2 of the 2016 Stabroek Block Production Sharing Agreement [PSA] states that the contractor which consists of EEPGL, Hess Corporation CNOOC Petroleum Guyana Limited, shall effect at all times during the term of the Agreement, insurance as required by applicable laws, rules, and regulations and of such type and in such amount as is customary in the international petroleum industry in accordance with good oil field practice appropriate for Petroleum Operations.
Map showing the Stabroek block offshore Guyana
It goes on to state that such insurance should provide coverage for third Party Liability loss/damage exposure from operations, coverage for drilling activities and operators extra expense including exposure associated with controlling the well, re-drilling, pollution and clean-up.
It further notes that the partners in the block are expected to carry insurance cover for their respective interest. Though this is supposed to be obtained, IHS said copies of insurance certificates were not provided by any partner, contrary to the PSA requirement.
The report said, “No evidence has been provided that either Hess or CNOOC are maintaining insurance cover and are therefore contravening the PSA requirements. Not having this insurance could leave GoG exposed to risks and costs that should be covered by the Co-Venture partners.”
The document states that EEPGL has maintained its 45% share of Control of Wells (CoW), Operators Extra Expense (OEE) and Third Party Liability (TPL) insurance coverage through a wholly owned subsidiary of ExxonMobil, Ancon Insurance. Although wholly owned, IHS said it is satisfied that Ancon Insurance acts as a separate company at “sufficient” arm’s length from ExxonMobil.
IHS also said that EEPGL provided evidence of Ancon Insurance consulting with an external insurance consultant, Jardine Lloyd Thompson, to set premium rates for Guyana.
While the amount of the insurance was not provided in the report, IHS said the total amounts paid by EEPGL falls within the expected industry norms.
It should be noted that initially, IHS did not place the insurance coverage under a microscope. It was the Guyana Revenue Authority [GRA] that instructed it to do so, in an effort to ensure there were no financial irregularities taking place between related parties.
The aforementioned deficiency was as follows: “It is important to note that during discussions with the operator [Exxon] on Wednesday April 1, 2020 at 10 a.m. concerning this expense; it was revealed that insurance payments were made to a related party of EEPGL, called ANCON. Therefore, there are possible transfer pricing implications and verifications that would be absolutely necessary to ensure transactions were done at arm’s length; surprisingly, no mention was made by IHSM in their report of this issue.”
Since assuming office, the People’s Progressive Party Civic (PPP/C) Government has been successful in securing a US$600M insurance coverage from the ExxonMobil-led consortium. Specifically, the Environmental Protection Agency [EPA] is on record stating that the said sum is what the country would access per oil spill event.
Additionally, discussions had started last year for “full indemnification” for the Stabroek Block. Central to this agreement are negotiations for an insurance policy in the vicinity of US$2B. That matter is still ongoing.
In the meantime, calls have remained at heightened levels for the country to have every possible measure in place to ensure the State is not exposed to any financial risk from a mishap.
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