Without proper parent company guarantee, Guyana risks economic wipeout - Financial Analyst

Without proper parent company guarantee, Guyana risks economic wipeout – Financial Analyst

May 27, 2023 News

Kaieteur News – International Financial Analyst, Tom Sanzillo believes a recent court judgment ordering ExxonMobil Corporation to provide Guyana with unlimited parent and/or affiliate guarantees for oil spill cleanup by June 10, 2023, is of grave economic significance.

The importance of this ruling he proffered becomes particularly pronounced when considered against the catastrophic risks/impacts facing ExxonMobil’s investors, the people, and businesses of Guyana, and the Caribbean.

Without a proper parent company guarantee, Sanzillo opined that Guyana risks economic decimation as it would be left to pick up the bill for an oil spill from Exxon’s operations.

Expounding the basis of his conclusion, he highlighted key aspects of the ruling issued by Justice Sandil Kissoon on May 3, 2023 in the case of Collins, Whyte v. Environmental Protection Agency and Esso Exploration and Production Guyana Limited (EEPGL). Justice Kissoon ruled that EEPGL and partners are not meeting the Liza Phase One permit’s requirements for unlimited parent and/or affiliate guarantees. The effect, Sanzillo said, is that ExxonMobil’s subsidiary is drilling in violation of its permit, and Guyana environmental regulators are not enforcing the insurance terms.

Sanzillo also noted that Justice Kissoon was critical of the ExxonMobil-led consortium and the government of Guyana on the breach of the permit. In fact, it was Justice Kissoon who pointed out that if an oil spill or other catastrophic event occurred without a full and unlimited guarantee by the parent company—in this case, ExxonMobil—then “the State is liable for all that occurs.” Sanzillo said that the stark reality is that ExxonMobil has the resources to clean up a spill. Guyana does not.

Justice Kissoon’s court also recalled the US$70 billion in damages caused by BP’s catastrophic 2010 Deepwater Horizon spill in the Gulf of Mexico, which clearly highlights that if such were to occur in Guyana, then US$2B would be hopelessly inadequate.

The foregoing case has no doubt caught the attention of ExxonMobil’s shareholders. Two worried shareholder groups have already filed resolutions demanding greater transparency on the liabilities Exxon and its investors would have to face if there is a worst-case oil spill scenario offshore Guyana. The shareholders are hoping that come May 31, 2023, at their Annual General Meeting, other investors will vote to force Exxon to conduct a study on the financial risks they are likely to face.

In ExxonMobil’s recent response to two shareholder resolutions asking for better reporting on environmental litigation and oil spill plans, the oil giant called the Guyana lawsuit meritless.

Sanzillo was keen to note however that these are hardly meritless claims. “They highlight the Guyanese government’s aggressive corner-cutting to provide incentives to ExxonMobil.” He opined as well that the Guyanese regulators’ enforcement of the matter has been lax, as highlighted by Justice Kissoon’s ruling.

Sanzillo said too that it should not be lost on all stakeholders that one of the more significant problems the lawsuit unearthed is the record of poor transparency that has plagued the Liza Phase One project from its inception. He recalled that the judge’s ruling called out EEPGL and the EPA for their seeming unwillingness to fully and completely disclose the details of the insurance/ parent guarantee arrangement.

Justice Kissoon’s judgment said, “The Agency sought refuge in silence, avoidance, concealment, and secrecy notwithstanding the grave potential danger and consequences to the State and citizens if an event occurred at the Liza Phase 1 Petroleum Production facilities in the Stabroek Offshore Guyana in absence of such financial assurances mandated by the Environmental Permit …”

In the wake of the judge’s decision, Sanzillo said the eyes of the world are now focused on Guyana and the next steps it will take on this matter.

He also finds it troubling that Exxon, a company worth over US$430B is pushing Guyana to accept a mere US$2B parent guarantee.

Appeals filed by EEPGL and the EPA are expected to be ruled upon on May 29, 2023.