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PSA should clearly say Stabroek Block partners should bear cost beyond insurance – PNC
Kaieteur News – The opposition is of the opinion that the Production Sharing Agreement (PSA) for the Stabroek Block should clearly say that its operators should bear all costs associated with a spill or other incident even if it goes beyond the insurance and this should not be recoverable.
Economist and advisor on oil and gas to the PNC Elson Low.
Economist and Advisor to the PNC on oil and gas Elson Low weighed in on the issues and told this publication in an invited comment, “That the Operator can recover all monies spent in the event that they exceed insurance payments for damages underscores the need for clarity and specificity in any parent company guarantee, as well as the need for one in general. While the PSA indicates that costs beyond insurance can only be recovered if this is not due to negligence or other inappropriate conduct by the operator there may be space for claims to be made if a contractor like the FPSO builders is blamed for an oil spill.”
He went on to say that, “it needs to be clear that the Stabroek Block partners will bear liability for any amounts needed, in the event of an oil spill, that go beyond insurance. We remain concerned that, in the chaos of an oil spill emergency, fighting over who is to blame can delay or otherwise disrupt the cleanup and mitigation effort at a critical time. As a result we see a parent company guarantee that makes it clear that the Stabroek Block partners parent companies should field any additional costs as vital.”
Low lamented that it would be unacceptable for the oil companies to dodge culpability by accepting to cost recover monies that exceed the insured amount and “This practice would potentially cause Guyana’s share of profit oil to remain depressed for years, depending on the severity of the spill. Of course, we also believe there must be adequate insurance in place for the Stabroek block operations. As it stands, the government’s reluctance to lay these terms out clearly in a parent company guarantee means that Guyanese must cross their fingers and hope there is no oil spill under the PPP.”
The current stipulation in the contract is that oil spill costs that are not covered by the operator ExxonMobil, will be funded by Guyana. Annex ‘C’ Section 3 of the PSA, which addresses costs recoverable without the approval of the Minister, makes it explicit at 3.1(g) that insurance and losses can be recovered.
It states: “Insurance premium and cost incurred for insurance pursuant to Article 20 provided that if such insurance is wholly or partly placed with an Affiliated Company of the Parties comprising the Contractor, such premium and costs shall be recoverable only to the extent generally charged by competitive insurance companies other than an Affiliated Company of a Party comprising the Contractor.”
The contract goes on to say that, “Costs, losses and damages incurred to the extent not made good by insurance, are recoverable, including costs, losses or damages resulting from the indemnities in Article 2 of the Agreement, unless such costs, losses or damages have resulted solely from an act of willful misconduct or gross negligence of the Contractor.”
This therefore means that unless Guyana can prove that a spill was caused due to willful misconduct or gross negligence by Exxon the company will not bear the costs.
Cognizant of the damage that can be done by an oil spill, two Guyanese went to Court demanding an unlimited parent company guarantee, which is a signed document that legally binds Exxon to cover costs above the limited insurance. Exxon presently has a US$600 million insurance coverage per oil spill event.
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