Independent insurance company must provide oil spill coverage for Guyana, not ExxonMobil owned firm - Gaskin

Independent insurance company must provide oil spill coverage for Guyana, not ExxonMobil owned firm – Gaskin

Aug 29, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – With a sixth application pending approval at the Environmental Protection Agency (EPA), Guyana is increasing its chances of an oil spill in the resource-rich Stabroek Block.

Civil Society Activist, Ramon Gaskin

While the country awaits the Court’s decision regarding full liability coverage from the parent company in the Stabroek Block to cover costs associated with a spill, Guyana is heavily reliant on the limited US$600 million insurance being provided by an ExxonMobil-owned company, Ancon Insurance. Exxon is also the majority stakeholder in the resource rich Stabroek Block, currently producing about 400,000 barrels of oil per day, above nameplate capacity.

This, according to civil society activist Ramon Gaskin, is a move that can endanger Guyanese and put the country at severe economic risk. During a recent interview with this publication, Gaskin raised concerns about the company providing oil spill insurance for the Stabroek Block projects.

He said, “One of the problems with this insurance, as you know is the so-called insurance company that is owned by ExxonMobil so anytime you try to make a claim against them, you won’t get through because they are the same company that would have a claim against you.”

Consequently, Gaskin urged, “What we need really is an independent insurance company to deal with these matters. As long as an ExxonMobil insurance company is providing this service, we wouldn’t get any place with that.”

In April this year, a leaked audit report produced by IHS Markit of the United Kingdom revealed that ExxonMobil fully owns the company that is providing 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.

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 percent 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.

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.

GRA noted, “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.”

Two citizens have since taken the Environmental Protection Agency (EPA) to Court for failing to enforce the Liza One Permit provisions requiring a parent company guarantee to cover costs above the insurance policy. High Court Judge, Justice Sandil Kissoon in May this year ordered Exxon to provide the document or face a suspension on the Permit. Both the EPA and the oil company have appealed the Court’s decision, joined by the Government of Guyana. The matter is still pending before the Appeal Court.