The issuance of a permit to ExxonMobil for its Liza Phase 2 project has hit another snag as the US$2 billion+ coverage they have secured from a United Kingdom insurance firm does not meet local insurance requirements, according to sources close to the process.
“They had submitted insurance but then, on analysis, it was not in keeping with the country’s insurance laws,” a source told Sunday Stabroek, while stressing that it is important to distinguish that relates to general insurance regulations and not specific oil spill insurance coverage, for which there is no local legislation.
ExxonMobil, this newspaper was told, would have to seek a local certified insurance company or broker through a reinsurance process.
“As is our law, anyone that wants to insure in Guyana has to use a local insurance provider,” Commissioner of Insurance Dr. Gobind Ganga, who is also the Bank of Guyana Governor, explained to this newspaper when contacted.
Ganga would not discuss the ExxonMobil case or the BoG’s role in the company getting clearance but said that since last year the central Bank, which is responsible for insurance oversight here, had put out several advertisements explaining that insurance coverage had to be local or done through reinsurance. Reinsurance is insurance for insurance companies.
Last week, this newspaper reported that ExxonMobil was expected to receive its permit from the EPA for its Liza Phase 2 operations, after assuring the agency that it could cover the liability in the event of an oil spill.
After reviewing the company’s application for a permit, the EPA had previously expressed concern that ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), which with partners CNOOC and NEXXEN are in a production sharing agreement with the Government of Guyana, did not show evidence that it was financially capable of absorbing the liabilities from an offshore spill.
ExxonMobil submitted proof of insurance coverage of up to US$2 billion through a United Kingdom company but would have to seek out a local insurance company who can issue the reinsurance policy.
“In Guyana, local insurance premiums are for a maximum of five hundred million. There is no insurance company, or I should say that all of the insurance companies here in Guyana combined, cannot even pay half of that US$2 billion, so it is why reinsurance would be needed,” one source explained.
When contacted, EPA Executive Director Dr. Vincent Adams would only say, “We are working with the company to ensure that there is legal compliance in all areas and the agency is also consulting with the Department of Energy and the Bank of Guyana.”
Pressed on if the insurance legality was raised by the Department of Energy (DoE), Adams repeated in full his initial response.
ExxonMobil had been asked to document that it would cover the liabilities of EEPGL in an oil spill and to specify the maximum amount, which should be guided by global industry standards.
“The one thing I have been asking is: ‘What is the international standard? And if that standard would be used here?’ We are not asking out of the ordinarily. All we want to have is what are they required to do for the developed countries and we should not expect or will accept anything less. In the application for the permit, there wasn’t evidence presented to satisfy the requirements for insurance and the key was in the clause for liabilities where it said EEPGL will cover. EEPGL is a limited liability company, they do not have the assets to cover. They are a subsidiary of ExxonMobil as everyone knows. Verbally, I was given the assurance that ExxonMobil picks up and they have insurance and all of that. But you have to understand that in business getting documentation is key. Yes, putting it in black and white. I wanted specificity as to how it would be covered by insurance. You say, ‘Oh, it will,’ then fair enough, show me in writing exactly how and state by insurance. I wanted documented assurance by seeing insurance,” Adams previously told this newspaper.
Attorney Melinda Jankie has expressed concern that the liability coverage submitted by ExxonMobil is not enough as she pointed to the US$65 billion and climbing price tag of British Petroleum’s (BP) 2010 Deepwater Horizon spill.
Jankie pointed to EEPGL’s financial statements for 2015, saying that the monies that the company had was not enough for insurance. As at December 31st, 2015, EEPGL’s total assets stood at $11,311,566,872.
Adams had pointed out that on careful analysis, persons would understand that it was for the same reason that the EPA asked ExxonMobil to provide coverage for its subsidiary and it did. However, a binding clause of a maximum amount and how that would be paid was not stated.
The EPA Head said that it is known that no insurance company would provide US$65 billion in coverage and it was why general industry standards were asked for. Coverage is first met by insurers in the event of a spill or other accident, and the company takes on the remainder.
At the time of that interview, Adams explained that Rod Henson, Country Manager of the local ExxonMobil subsidiary Esso Exploration and Production Guyana Limited, has assured that the company will meet industry standards and has been cooperating with the EPA to submit documents to support its pledge.
“He and his team have been very cooperative. There were other questions also and they fixed those… They have been working with the EPA to get this done and I must highlight that. I don’t want people to think that they were resistant because they were not,” he said.
According to the company, Liza Phase 2 may see approximately 35 to 40 wells being drilled at two subsea drill centres, which will consist of a combination of producers and injectors to support production of oil, injection of water, and reinjection of associated gas. The development plan involves a floating, production, storage and offloading vessel (FPSO), which will have an estimated production capacity of approximately 190,000 to 220,000 barrels of oil per day, the company has explained.
