Introduction
The two previous parts on this subject carried on Tuesday (21st.) and Wednesday (22nd) dealt with the first of two documents published in the Official Gazette a week earlier. These were the Guarantee and Indemnity Agreements by the oil companies with the Guyana Government as the beneficiary, and an Insurance Policy taken out by the oil companies for the year 2024 – 2025. Since these are not documents required under any circumstances to be published in the Official Gazette, it is unclear why they appear in a medium reserved for official publications which describes itself as “Published by the Authority of the Government.” In fact, every one of the pages of Exxon’s Insurance Policy carries the heading Official Gazette! No stopping Exxon and the overwhelming influence of American Power.
Let me state one caveat: Insurance is a very specialised branch of law and is well known for its complexity and its “fine print” which challenges even the most meticulous reader. One characteristic of insurance policies is that the exceptions and exemptions are usually so many that they narrow the scope of coverage significantly, of which the Policy contains ample evidence. Maybe we can take comfort that the Ministry of Natural Resources, in exercising its oversight role, will regard the Policy as an area of interest to which particular interest needs to be paid.
Contract of Insurance
Today’s column deals with the second document – a 159-page Contract of Insurance issued by insurance giant AON UK Limited, considered among the top three insurance brokerage firms in the world, its reputation expertise covering all stages in the oil and gas sector. Exxon boasts of its contribution to the local economy but not a penny, not a dime, not a nod to local content. The premium on the Policy is not cheap – about US$5 Mn. Had the oil companies not been given blanket exemptions from all taxes – for forty years no less – this payment would have been subject to a withholding tax under the Income Tax Act. So, we lose on local content and local tax.
The choice of law and the jurisdiction for the Policy are the Courts of England and Wales. Although the cover page of the Policy gives prominence to ExxonMobil Guyana Limited as the Insured, the details show that its partners Hess and CNOOC, all covered to the extent of their respective interests in the Guyana operations. The Policy runs from 1st. February 2024 – 19th. February 2025 but there is strong evidence that this may be an extension of a previously existing policy.
The Policy extends limited coverage beyond the three companies, to a broader group of related entities and individuals, subject to specific policy provisions and more narrowly defined limitations. The individuals include employees, consultants or contractors. These collective entities and individuals are covered under the policy for various risks, including environmental liabilities, physical damage, and third-party legal liabilities.
The Policy contains a mix of coverages and exclusions that directly address certain environmental liabilities, especially seepage and pollution from wells and other insured property, while limiting or excluding pollution coverage in other respects.
Some arcane details
The Policy appears to offer sufficient coverage for moderate incidents, but clearly not for any major events. Interestingly, coverage under the Policy is substantially below asset values as shown in the financial statements of the three companies, perhaps betting that no single accident or occurrence would reach anywhere close to US$2.5 Bn. However, the real costly occurrence would be in respect of any spill arising from any accident at any of the wells.
Concerns about oil spills in the Stabroek Block are eminently justified, both as regards the operations, supervision, and oversight: the Block has an elevated level of petroleum activities in a fairly concentrated area; an ever-present potential for accidents, mishaps, human error, equipment failure and stress; and the complexity of the operations.
To put things in perspective, the Gulf of Mexico covers an area of 617,000 square miles while the Stabroek Block covers just over 10,000 square miles – one-tenth. Yet, on an area comparison by barrels of oil per day, Guyana can soon outperform the Gulf of Mexico. But that will come at a cost. Unlike the USA, The Gulf operators have had decades of experience operating in those waters and the sector is effectively managed, overseen by experts and strict laws, professionally and independently enforced.
Guyana’s totally contrasting circumstances contribute in no small measure to increasing overall fears and risks. We have seen numerous examples of poor oversight of the sector, preference for loyalty over competence, and the Government’s inability to recognise that the country needs to see more than just money from the sector.
Conclusion
It is time that President Irfaan Ali realise that Vice President Bharrat Jagdeo does not have the time, inclination or expertise for the challenge at hand. That incredibly, the regulation of the sector is on autopilot, if not self-regulated. The President must realise that there is no substitute for a properly constituted Petroleum Commission with a range of skills and experience. And that on the environment, it is naïve and reckless to believe that as currently staffed, the EPA can exercise any form of control over the oil companies. The President should see this both as a historic opportunity and an imperative that he needs to act before it is too late.
The US$2 Bn. guarantee might have been expected to silence the din. But it is no substitute for unlimited Parent Companies guarantees.
