Govt. sweating over revenue shortfall if Exxon licence is suspended for failing to provide parent company guarantee for oil spills

Jun 02, 2023 News

Kaieteur News – In its application to join the Environmental Protection Agency (EPA) and the Esso Exploration and Production Guyana Limited (EEPGL) in an appeal against a High Court ruling which stipulates that the oil company provides a parent company guarantee in the event of oil spill, the government outlined the grave losses it will suffer if the company’s permit is suspended.

Attorney General, Anil Nandlall SC

The EPA had filed a Notice of Appeal against the High Court ruling that is in favour of Guyana receiving parent company guarantee from EEPGL and its parent company, Exxon Mobil in the event of an oil spill.

High Court Justice Sandil Kissoon had ordered the EPA to issue an Enforcement Notice to EEPGL and its parent company, Exxon Mobil to ensure it provides unlimited parent company guarantee to safeguard Guyana against the devastating effects of an oil spill by June 10.

In its application to join the case as an interested party, attorney-at-law Laurel Dundas attached to the Attorney General Chambers explained that the State stands to lose an immeasurable amount of revenue. The application noted “if production ceases by the decision of the court, the Government of Guyana will be faced with huge revenue shortfalls, which would have disastrous consequences for the economy, the county’s developmental agenda, and private sector investments cumulating in immeasurable damage to the public good and the national interest”

The Government expressed concerns at what it said would be the crippling and far-reaching effects if the ruling which was handed down by Justice Kissoon is allowed to stand. “From the affidavit of Alistair Routledge, it is uncertain whether EEPGL will, in any event, be able to obtain an unlimited liability Parent Company or Affiliate Company Guarantees, particularly within the 30 days mandated by the Order of the Learned Hearing Judge.

In the event that the Guarantee is not obtained, the Environmental Permit stands suspended, as per Order of the Court. I am advised by my Attorneys-at-Law and verily believe that suspension of the permit will have severe and crippling consequences, not merely for the obligations of the Government of Guyana in relation to the Production Licence issued on the 15^th June 2017 for every other governmental approval relating to petroleum operations flowing there from,” the lawyer attached to the AG’s chambers said in the document.

The attorney noted that the agreement between EEPGL and the Government of Guyana is a Production Sharing Agreement (PSA) under which the Government of Guyana earns 50% of profit-oil and 2% royalty.

The lawyer reasoned that Guyana is one of the largest growing economies in the world as a direct result of oil and gas operations in Guyana. “In fact, that Guyana will lead the list of top 5 countries worldwide with the fastest growing economies up to at least 2026; that oil production rose from virtually zero in 2019 to over 151,000 barrels per day in 2023; and, that the World Bank projects output is expected to rise well beyond 400,000 barrels per day by 2024 as new projects come on stream.

“…As of the 30th day of April 2023, Guyana received Payments for four lifts of profit-oil. The opening balance of the NRF stood at GY $305,363,388,000. The royalties of Guyana’s second quarterly receipt (or 2023 amounted to GY$11,104,059,000. The two payments of profit-oil amounted to approximately GY$30,914,550,000” the State attorney added.

According to the lawyer, the call for the provision of the parent guarantee can affect the country’s Gross Domestic Product (GDP) which jumped from 5.4% in 2019 to the 62.5% growth rate of the economy as at 2022 following the commencement of oil production.

Additionally, the attorney said that the Local Content Act, some USD $700,000,000 in Guyana’s economy annually. The attorney noted that the offshore operations have benefited Guyana in terms of budgetary support as well as a huge avenue for private sector investment.

In short, she noted that the functionality of this industry is inextricably bound to the fiscal, economic, social and infrastructural well-being of the State of Guyana and its people. “Additionally, the Government and EEPGL are engaged in the design, construction and building of a Gas-to-Shore Project intending to convert natural to provide inter alia, low-cost electricity to the Guyanese public. The supply the onshore operations will come from EEPGL’s offshore operations.” “This Project, whose investment value is in the vicinity of USD $1,700,000,000 will be placed in severe jeopardy if the offshore operations are suspended,” the lawyer added. As a result of the reason given, the lawyer said the State has been able to establish a strong case to qualify as interested parties who have a direct, vested interest and will be severely affected by, the outcome of the proceedings.