ExxonMobil says it is reviewing Wednesday’s court ruling by Justice Sandil Kissoon, which found the company in breach of its insurance obligations for its first oil project Liza 1, a decision that can have major ramifications.
“We are reviewing the court’s decision and evaluating potential next steps. However, it is disappointing that the court failed to appreciate and acknowledge the financial capabilities of ExxonMobil Guyana and its co-venturers to meet their obligations, the insurance we already have in place, and the progress towards agreeing to a guarantee that exceeds industry benchmarks,” ExxonMobil said in a statement in response to a request from Stabroek News for a comment on the ruling.
“ExxonMobil Guyana and our Stabroek block co-venturers have adequate and appropriate insurance and proposed guarantees in an amount that exceeds industry precedents and an estimate of potential liability,” the statement added.
Justice Kissoon, in a ruling on Wednesday in the action brought against the Environmental Protection Agency (EPA) to enforce the liability clause in the permits issued to ExxonMobil Guyana for its offshore oil operations, described the EPA as “submissive”. He said it had abdicated its responsibilities “…thereby putting this nation and its people in grave potential danger of calamitous disaster.”
The judge bluntly said that the circumstances giving rise to the action disclosed the existence of an “egregious state of affairs that has engulfed the Environmental Protection Agency in a quagmire of its own making.
“It has abdicated the exclusive statutory responsibilities entrusted to it by Parliament under the Environmental Protection Act 1996 and the Environmental Protection Regulations 2000 to ensure due compliance by Esso Exploration and Production Guyana Limited [EEPGL].”
President of the Transparency Institute of Guyana Inc (TIGI) Frederick Collins and another Guyanese citizen, Godfrey Whyte, had moved to the court last year to get the EPA to enforce the liability clause in the permits issued to ExxonMobil Guyana for its offshore oil operations.
The litigants had said that the resort to the court was to make sure that the company took full financial responsibility in case of harm, loss and damage to the environment. ExxonMobil’s local affiliate, EEPGL, has agreed in the permit to provide insurance and an unlimited parent company indemnity to cover all environmental loss and damage that might result from a well blowout, oil spill or other failures in the Liza 1 Development Project in Guyana’s Stabroek Block.
The duo, through their battery of attorneys led by Senior Counsel Seenath Jairam, had told the court that “…the agency, through its human minds, including its officers has failed or omitted to carry out or to show that it has carried out its legal duties and or obligations thereby amounting to misfeasance in public office by them and by failing or omitting to act, has acted unreasonably, irregularly or improperly and or has abused its power.”
Last month, Vice President Bharrat Jagdeo told a press conference that all partners in the Stabroek Block have contributed their respective shares to the US$600 million per project insurance and currently possess the necessary lawful certification, even as they begin wrapping up an agreement with the EPA for a parent guarantee agreement.
“They said that they are in the final stages of concluding the parent guarantee. So they are working on it and I anticipate it would be a matter of weeks before they conclude… They said they are a matter of weeks from getting the parent guarantee,” Jagdeo had said.
The IHS Markit audit report of oil expenditures by ExxonMobil’s subsidiary Esso Exploration and Production Guyana Limited (EEPGL) and its partners, covering the period 1999 to 2017, had stated that the oil companies were operating in breach of the insurance requirement of the Production Sharing Agreement (PSA). According to the report, none of the three – EEPGL, Hess Corp and China National Offshore Oil Corporation (CNOOC) – provided insurance certificates to show liability coverage. Questionable insurance coverage in the event of an oil spill or other disasters was debated for years and neither EEPGL nor the government could assuage public concerns.
According to the IHS audit report released in March 2021, “Insurance is required by the PSA, 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 oilfield practice appropriate for Petroleum Operations. EEPGL stated that each partner, EEPGL, Hess and CNOOC carry insurance cover for their respective interests in the PSA. Copies of insurance certificates have not been provided by any partner, contrary to the PSA requirement.”
Jagdeo said that US$600 million per occurrence was worked out last year and that the insurance certificate had been issued. But, he said, the companies had to agree among themselves on the ratio of contribution to the US$600 million sum, and with that being established, they are now working on the parent guarantee aspect in which they and the EPA have to come to an agreement.
With regard to the insurance breach, ExxonMobil explained to the auditors that its two partners – CNOOC and Hess – were to have taken up their respective share of the insurance costs, as per their percentage interest in the block, but there were no records from the two companies indicating that they had even started the process. “Insurance certificates have not been provided to ensure that full coverage has been maintained throughout the audit period. Each partner procures coverage for its share of the block interest, only EEPGL has provided details and invoices. It has not been able to confirm that Hess and CNOOC are meeting their responsibilities in this regard,” the audit report said. It highlighted that EEPGL had submitted some invoices for insurance premiums it bought from a United Kingdom insurance company and that EEPGL was working with another to set the premium rates for work here.
According to the report, ExxonMobil maintained its 45% 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, Ancon Insurance acts as a separate company at sufficient arm’s length from ExxonMobil. EEPGL provided evidence of Ancon Insurance consulting with an external insurance consultant, Jardine Lloyd Thompson, to set premium rates for Guyana,” the report pointed out. Of the premiums for insurance coverage and invoices submitted and reviewed by the auditors, the report said, the total amounts paid by EEPGL fell within expected industry norms. A lump sum was added to the company’s cost recovery statement in 2017.
The IHS report stated that ExxonMobil included insurance premiums paid by Hess, but did not provide information on what timeframes those payments covered. The report further stated: “It is not clear that Hess and CNOOC have maintained insurance coverage… or no premiums have been identified.” Without any record of insurance by the co-venture partners, the report asserted that the Government of Guyana was left exposed and ran a risk should recovery of those sums ever be needed. “The lump sum added to the Cost Recovery Statement in 2017 included insurance premium payments by Hess and CNOOC in 2015 but no information has been provided as to which time frames these amounts covered. The General Ledger does not include any premiums paid by either party for 2016 or 2017. No evidence has been provided that either Hess or CNOOC are maintaining insurance cover and are therefore contravening the PSA requirements…,” the report stated.
The issuance of the permit had hit a snag in 2019, as not only did the US$2 billion+ coverage ExxonMobil had secured from a United Kingdom insurance firm not meet local insurance requirements, but the language used in the company’s application did not satisfy the EPA that this country would be covered above that amount by EEPGL’s parent company. Having documentation to support insurance coverage had been underscored by the former head of the EPA Dr Vincent Adams in February 2019 when he reported that EEPGL had submitted proof of insurance coverage of up to US$2 billion through a United Kingdom company, but that the agency had instead asked for parent company coverage.
Liability coverage that meets global standards and language for coverage were areas that had caused some difficulty in the negotiations between the company and the EPA.
“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 ordinary. 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 would pick up the cost over and beyond the insurance coverage. 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 and the parent company. ‘Oh, it will,’ then fair enough, show me in writing how,” Adams had explained.
Attorney Melinda Janki had expressed concern that the liability coverage submitted by ExxonMobil was not enough as she pointed to the US$65 billion and climbing price tag of British Petroleum’s (BP) 2010 Deepwater Horizon spill. Janki had pointed to EEPGL’s financial statements for 2015, saying that the money that the company had was not enough for insurance. As at December 31st, 2015, EEPGL’s total assets stood at $11,311,566,872.
She had said that the US$2 billion amount is not enough coverage and the issue needed to be addressed lest this country was left hapless in the event of an oil spill or other big accident.
Adams had pointed out that on careful analysis, people 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.
Adams had at the time also pointed out there were “intense discussions and negotiations about language” when ExxonMobil met with his agency’s officials and the Department of Energy.
