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Ram questions capacity of guarantors to provide US$2B oil spill guarantee
…as agreement fails to mention credit rating of companies
Kaieteur News – The capacity of the guarantors utilized by ExxonMobil, Hess and CNOOC to provide the US$2B oil spill coverage in the event of a major disaster in the Stabroek Block is being questioned by Attorney-at-Law and Chartered Accountant, Christopher Ram.
Attorney-at-Law, Christopher Ram
In his recent column ‘Every Man, Woman and Child in Guyana Must Become Oil-Minded’ published by Stabroek News on Tuesday, the Lawyer delved into the provisions of 39-page Guarantee and Indemnity Agreement (GIA) accepted by Executive Director of the Environmental Protection Agency (EPA) Kemraj Parsram.
Ram observed, “The three GIAs assure that the Guarantor is rated by an internationally recognised credit rating agency (however) it seems that the EPA forgot to ask the name of the credit rating agency, and the actual rating.”
Consequently, the Attorney posited, “The lawyer representing the EPA should feel extremely uncomfortable about this omission.”
The Liza One, Liza Two and Payara Permits issued by the EPA for the three projects currently producing oil in the Stabroek Block requires the Operator, ExxonMobil Guyana prove the guarantor is authorized to provide the guarantee in the jurisdiction.
For instance, the Liza One Renewed Modified Permit, dated October 27, 2022 states at Section 14.10, “The Permit Holder must, as soon as reasonably practicable, provide from the Parent Company or Affiliate Companies of Permit Holder and its Co-Venturers (“Affiliates” one or more legally binding agreements to the Agency, in which the Parent Company or Affiliate Companies of Permit Holder and its Co-Venturers undertake to provide adequate financial resources for Permit Holder and its Co-Venturers to pay or satisfy their respective environmental obligations regarding the Stabroek Block, if Permit Holder and/or its Co-Venturers fail to do so, and to so indemnify and keep indemnified the Agency and the Government of Guyana, against all such environmental obligations regarding the Stabroek Block.”
It goes on to state that evidence must be provided to prove: (a) that the Affiliate(s) are authorised to provide that guarantee or agreement in this jurisdiction; (b) that the Affiliate(s) have sufficient financial strength for the amount of the potential liability and (c) that the Affiliate(s) have the corporate legal capacity to enter into the agreement.
Ram believes that the US$2B affiliate company guarantee, lodged by the Stabroek Block Co-Venturers, ExxonMobil, Hess and CNOOC is woefully inadequate and could lead to Guyana’s entire Natural Resource Fund (NRF) being cleaned out after just one disaster.
In his column, the Lawyer said, “The maximum total sum payable under the three GIA is US$2B, less than bird feed in relation to the average US$15B cost of the last five international environmental disasters.”
To further explain the danger faced by Guyana, Ram pointed out that the numerous wells are producing simultaneously in relatively close proximity to each other in the Stabroek Block which exponentially increases the risk of things going wrong.
Consequently, the Attorney noted, “If the GIAs are all the country can insist on in relation to environmental insurance, then Guyana is dangerously exposed. Any spill can spell disaster, wiping out the Natural Resource Fund in one stroke.”
ExxonMobil is the operator of the Stabroek Block with a 45% interest, while Hess Guyana Exploration Ltd. holds 30% interest and CNOOC Petroleum Guyana Limited holds 25% interest. Each partner has a share in the US$2B Guarantee relative to its participating interest in the Petroleum Agreement.
Jamestown Insurance Company Limited is the Guarantor for Hess; while CNOOC Limited, a company organized in Hong Kong and Exxon Equity Holding Company is the Guarantor for CNOOC and Exxon, respectively.
Appeal Court Judge, Justice Rishi Persaud had ordered ExxonMobil Guyana to lodge a US$2B parent and/or affiliate company guarantee as a condition to a stay of execution granted on a lower court’s order. That order, originally issued by High Court Judge, Justice Sandil Kissoon called for an unlimited parent company guarantee to be provided to the EPA by June 10 or the Liza Phase One Project Permit would be suspended.
Consequently, the Guarantee and Indemnity Agreement was entered into on June 9, 2023.
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