ExxonMobil’s annual general meeting on May 31st will see at least two demands from shareholders on the ramifications of the landmark decision by Justice Sandil Kissoon requiring it to provide an unlimited parent or affiliate company guarantee to indemnify and keep indemnified the EPA and the Government of Guyana.
The demands will underline the growing fallout for ExxonMobil from the decision which it has not yet attempted to appeal but which is already being challenged by the Environmental Protection Agency (EPA).
The Guyana Government and the EPA have been castigated for the move to appeal Justice Kissoon’s decision given the protection it would confer on the country in the face of any spill and the fact that it was catered for in the language governing the environmental permit for the Liza-1 operations which began here in December 2019.
The judge ordered the EPA to issue an Enforcement Notice pursuant to Section 26 (1) and (2) of the Environmental Protection Act, no later than May 9th, directing EEPGL to perform its obligations under the permit and to provide, within 30 days thereafter, the unlimited liability Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee to indemnify and keep indemnified the Government of Guyana and the agency against all such environmental obligations of Esso and its co-venturers within the Stabroek block, together with environmental liability insurance as is customary in the international petroleum industry in accordance with the Conditions 14 from an insurance company standing and repute that equates to Grade A Plus as envisaged by Condition 14. Failure to comply with the order, the judge said, will result in the permit being suspended.
The EPA has since approached the Court of Appeal over the decision and a hearing has been set to make a determination on whether there will be a likelihood of the appeal succeeding.
In the meanwhile, ExxonMobil shareholders have begun showing jitters over the possible impact on them of an unlimited parent company guarantee should there be a major disaster.
Mercy Investment Services has tendered an appeal to shareholders to vote for Ballot Item No 10 seeking a report on the costs and impact of a worst-case oil spill from Exxon’s operations in Guyana’s Atlantic waters.
Based on a document filed with US Securities and Exchange Commission (SEC), Mary Minette on behalf of Mercy Investment Services has written to shareholders seeking support for the ballot measure.
She said: “Ballot Item Number 10 seeks disclosures that would allow investors to better evaluate the scope of potential liability associated with a worst-case spill.
“Asset managers and other fiduciaries that seek to exercise due diligence in managing portfolio risks would be well advised to vote in favor of this proposal, bringing into clearer transparency the potential costs and risks associated with a worst-case spill scenario in Guyana”.
Minette adverted to Justice Kissoon’s decision.
“The judgment came from the Honorable Justice Sandil Kissoon of the Supreme Court of Judicature of Guyana in Collins v. EPA. Justice Kissoon determined that ExxonMobil has failed to comply with the Financial Assurance obligation stipulated in its environmental permit, and that within the next 30 days, ExxonMobil as the parent company of the Guyana subsidiary must provide unlimited insurance coverage to safeguard Guyana against the “grave potential danger and consequences to the State and citizens” of an oil spill occurring in the absence of such financial assurances. Failure to comply with the court order would result in the suspension of the Company’s environmental permit.
“The court also asserted manipulation by the company, and “found on evidence before it that ESSO Exploration and Production Guyana Limited [the ExxonMobil subsidiary] was engaged in a disingenuous attempt which was calculated to deceive when it sought to dilute its liabilities and settled obligations stipulated and expressed in clear unambiguous terms” of the environmental permit.
“The decision affirms that the parent Company’s obligations under the environmental permit require it to assume unlimited liability for all costs of `clean up, restoration and compensation for any damages caused by a discharge or any contaminant.’ The Court noted the existing guarantee to the extent of $2 billion `does not fulfill the obligation’ of the permit or even what is `considered environmental liability insurance as is customary in the international petroleum industry.’
“The Supreme Court of Guyana also criticized the lack of enforcement of these terms by Guyana’s EPA that placed Guyana `and its people in grave potential danger of calamitous disaster.’
“For the Company to provide an unlimited Parent Company Guarantee Agreement to Guyana clarifies the scope of material liabilities that could fall upon ExxonMobil from these operations. For comparison, estimates suggest the BP Macondo oil spill has cost BP and its drilling partners at least (US) $71 billion to mitigate the disaster’s effects. Even this figure may continue to increase over time, as the company’s settlement with individuals who filed medical claims immediately after the accident could cost BP well into the future, with more recent lawsuits filed by hundreds of individuals with late-occurring health effects still pending”, she told shareholders.
Actuarial
Anna Marie Lyles, Ph.D, has also reached out to shareholders based on documents filed with the SEC. She wants support for item 14 on the agenda of the Annual General Meeting “which requests an actuarial assessment of the potential cumulative litigation risk from current environment-related litigation, at ExxonMobil’s … annual meeting of shareholders on May 31, 2023”
She asserted that the Company faces a variety of types of litigation risk throughout the United States and in other countries, including Guyana “where it has one of its most important new strategic production sites”.
Lyles views the Company’s specific disclosure of these risks to investors as inadequate because it does not enable shareholders to assess the level of risk to their investment;
She also said loss of trust in the Company, arising from operational and reputational issues connected to the litigation and Esso’s operations in Guyana, may compound these litigation risks.
She added that shareholders need an outside, professional evaluation of the cumulative litigation risks facing the Company in order to have confidence that the board and management are exercising proper oversight of these “rapidly evolving legal challenges”.
Lyles argued that the Company faces various types of litigation, including environmental permitting and climate damages litigation, the risks of which are financial, operational, and reputational, at least.
“However, the most recent Annual Report, in line with historic practice, makes very limited and inadequate reference to pending litigation, and provides inadequate
details to allow assessment of the Company’s assertion that it foresees no material adverse effect from pending litigation on its operations, financial condition, or financial statements, taken as a whole.
“Litigation in Guyana is an example of one particularly acute set of risks to the Company’s future profitability, given the emphasis the Company has put in its communications to investors on Guyana as a new source for its production of oil, and which is emphasized especially in the 2022 Annual Report”.
She raised concerns about the shut-down of operations entirely, if the litigation currently challenging Esso’s offshore oil production on Guyanese constitutional grounds were to be successful and which could potentially cost the Company hundreds of billions in lost revenues.
Further, she cited enforcement action that could potentially reduce production, due to allegations of unsafe operations, reportedly exceeding safety limits.
She also referenced the order for unlimited parent company indemnities from the Company for any potential losses caused by its local subsidiary because of any future well blowout, oil spill, or other failure. She pointed out that whilst potential liabilities are open-ended, by way of comparison, BP and its affiliates faced in the region in excess of US$65 billion in clean-up costs
and legal fees as a result of the Macondo well blow-out, which took almost three months to cap.
“A similar event in Guyana could have severe consequences for numerous coastal Caribbean economies. Further, as a developing country, Guyana may lack the resources and expertise of the United States to respond rapidly to any such disaster”, she said.
Yesterday’s UK Guardian which addressed the court order said that former US Department of Interior engineer Elmer Danenberger who consulted for the National Commission on the BP Deepwater Horizon oil spill, also weighed in on the negative impacts the ruling can have saying, “Unlimited liability is a rather daunting and open-ended obligation that would trouble permittees in any industry.”
But while some look at the case in a dismal way, the article said that environmental lawyers are looking to the case for inspiration. “Lawyers from around the world who are fighting oil and gas, off the coasts of southern Africa, off the coast of Mozambique, and in other places in the Caribbean are going to be looking at this decision and, and paying close attention to whether the financial guarantees being provided in other oil and gas exploration and development permits are at an equivalent level,” Carroll Muffett, the CEO and president of the Center for International Environmental Law said, according to the UK Guardian.
