Exxon at risk of massive financial loss if permit is suspended

May 28, 2023 News

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– Oil operator says in appeal over parent company guarantee

Kaieteur News – ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) has filed an appeal against the High Court ruling, in an attempt to have the court set aside an order which stipulates that the company provides insurance and unlimited parent company guarantee to cover all environmental loss and damage that might result from a well blowout, oil spill during its drilling activity in the Stabroek Block.

Earlier this month, High Court Judge, Sandil Kissoon ruled that the EPA had breached the Environmental Protection Act by failing to enforce the liability clause in the permit issued to the Exxon subsidiary.

The judge noted that failure to provide this document puts this nation and its people in grave disaster in the event of an oil spill. The judge had ordered Exxon’s subsidiary to provide the parent company guarantee by June 10, 2023 or have its permit to operate in the Stabroek block suspended.

While the appeal is being heard, EEPGL is hoping to be granted a stay of Justice Kissoon’s suspension order. In the appeal which was drafted by Senior Counsel, Edward Luckhoo and Andrew Pollard the company, much like Guyana’s EPA argues, that the order is among other things, “coercive.”

In its attempt to have the decision overturned and the suspension stayed, EEPGL’s country manager Alistair Routledge in a document to support the appeal, carefully chronicled the grave financial loss in which the company will suffer as a result of having the permit suspended

According to the document, EEPGL is set to “suffer substantial loss and damage.”

It noted that the company has produced 151,000 barrels of crude petroleum per day for the year 2023 on average, through March 2023.

It explained that “This is approximately 4.5Mn barrels per month…the most recent month’s average selling price for the Liza 1 petroleum was more than $US75 per barrel.”

“This means the monthly revenue loss for the Appellant Esso, the Co-venturers, and the State’s projected to be US$337.5m. This would amount to $US337.5m. per month or $USUS4b. per annum that would be forfeit for each year while the appeal is pending,” the company stated.

Further, EEPGL said that the Liza Petroleum Production Licence is for a limited term of time and [the] Appellant may be unable to recover lost production implicated by a suspension of the permit.

As a result, EEPGL is therefore petitioning the Guyana Court of Appeal to reverse and/or set aside the whole of Justice Kissoon’s decision and to dismiss the case brought by litigants, Frederick Collins and Godfrey Whyte.

The company argues that Justice Kissoon, inter alia, erred in law when he determined that Esso was required by the permit to provide an unlimited parent company guarantee and indemnity agreement.

According to the oil company, the judge erred when he failed to appreciate that Condition 14:03 of the permit specifically stated that the forms of financial assurance were to be guided by an estimate of the sum of the reasonably credible costs, expenses and liabilities that may include cost associated with an incident, clean up, remediation and monitoring.

EEPGL said the trial judge also erred when he failed to consider Section 31 of the Act which created a discretion on the part of the EPA to require financial assurance; and in particular subsection (2) which contemplates a specific amount of financial assurances which it argues reaffirms the policy that the assurances were never intended to be unlimited.

The company is of the view that the judge “confused and conflated,” liability of the permit holder under the permit, with the requirements of the form of financial assurance.

Further in the appeal document, EEPGL advanced that the judge erred when he found that the guarantees of US$2 billion was an unlawful attempt to dilute the conditions of the permit, and instead ruled that it required unlimited guarantees.

EEPGL also said the judge erred when it found that the insurance provided was not independent and that the company had the financial strength, resources or capacity to cover its liabilities or equate to a Grade A + guarantee in keeping with international standards.

According to the company, the judge also erred when he found that if they were no uncapped parent company guarantee. the state would be liable for all that occurs without finding that it is the permit holder who is responsible. The company said it believes that its appeal has a good prospect of success.

In his decision, Justice Kissoon had ordered the Environmental Protection Agency, (EPA) to issue an Enforcement Notice to Esso Exploration and Production Guyana Limited (EEPGL) and its parent company, Exxon Mobil to ensure it provides parent company guarantee to safeguard Guyana against the devastating disaster within 30 days.

The ruling stipulated that failure to comply with the court order will result in the suspension of the environmental permit.

Justice Kissoon had also outlined a number of ways in which the EPA had shelved its statutory responsibilities in exchange of a derelict and submissive deposition, leaving “Guyana and its people in grave potential danger of calamitous disaster.”

According to the judge, the circumstances of the case exposed the existence of an egregious state of affairs that engulfed the EPA in a quagmire of its own making. Justice Kissoon emphasised that while the EPA was given the exclusive statutory responsibilities entrusted to it by Parliament under the Environmental Protection Act 1996 and the Environmental Protection Regulations 2000, to ensure due compliance by EEPGL with Condition 14 of the renewed environmental permit issued on the 31/05/22, it has relegated itself “to a state of laxity of enforcement and condonation compounded by a lack of vigilance,” leaving the nation at the mercy of a potential oil spill disaster.

As a result, the judge held that in the course of these proceedings, the Court found EEPGL engaged in a course of action “made permissible only by the omissions of a derelict, pliant and submissive Environmental Protection Agency.”

Additionally, Justice Kissoon noted that the EPA made attempts to cover for the oil subsidiary in that before and subsequent to the filing of the proceedings, it refused to disclose any information as to the status of compliance by ESSO with its financial assurance obligations for pollution damage set out at Condition 14 of the renewed permit.

“The Agency sought refuge in silence, avoidance, concealment and secrecy…” he said.

 

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• EEPGL said that the Liza Petroleum Production Licence, Esso Exploration and Production Guyana Limited, ExxonMobil’s subsidiary, High Court Judge, Sandil Kissoon

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