By Kiana Wilburg
ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), along with its other two partners on the Stabroek Block, Hess and CNOOC, received an Environmental Permit
yesterday from the Environmental Protection Agency (EPA) to drill its planned Yellowtail-1 well.
It is approximately six miles (10 kilometers) west of Exxon’s Tilapia-1 in the Turbot area.
Speaking with Kaieteur News last night, EPA Head, Dr. Vincent Adams said that the permit was granted on the condition that the issue of acquiring insurance through a local broker will be addressed steadfastly.
Dr. Adams said, “They got a permit on the condition that they are going to get the insurance policy through a local person. They have to go through a process and they are showing good faith in meeting all the requirements.
“If we wait until that is fixed before granting the permit it would hold up everything. It is not realistic and it is not something you would want to do; that is, to delay exploration.”
The EPA Head added, “Now that we have established a language where this matter is concerned, we can use it for the Liza Two Permit that both sides have been working on. Exxon has been forthcoming and cooperative and the established language will be used as part of the model for all future permits.”
Asked to say if there is a timeframe by which the oil operator is expected to address the insurance policy, Dr. Adams answered in the negative.
He said, “They don’t have any control over the process and neither do I…Bank of Guyana is providing, giving guidance on how to proceed on this front. Central Bank Governor, Dr. Gobind Ganga and Exxon have been in communication too. And the oil company has shown a willingness to satisfy all the EPA requirements.”
Dr. Adams added that ExxonMobil has committed to providing insurance over and beyond the US$2.4B that was initially acquired for EEPGL.
Since taking over the reins of the EPA last year, Dr. Adams has maintained a firm on ensuring that there is adequate coverage in place to cover any type of liability that would result from the offshore petroleum operations.
Also in agreement with his position is Former Director of Mexico’s Agency for Security, Energy and the Environment (ASEA), Carlos De Regules.
De Regules who is now a Consultant for the EPA said, that it would be in Guyana’s interest to make insurance policies mandatory for the oil and gas sector.
De Regules said, “With self-insurance, companies showing their own balance sheet as a guarantee, and that we (Mexico) will not accept as a valid guarantee. We always insist on having an insurance policy. Self-insurance is not good enough. You must show a policy that is in line with international standards…”
Stressing the importance of insurance policies, the former ASEA Director noted that there is an international law or understanding that you cannot claim abroad what you do not claim domestically.
He said, “If a country expects to demand compensation for an oil spill or accident, it needs to have a domestic framework to show if that happened domestically, they would be claiming response and remediation and that is very important to bear in mind.”
The former ASEA Director said that setting the appropriate obligations to ensure oil and gas operators are capable of responding in a timely manner to oil spills is hinged on two things: insurance policies and making it mandatory for the operators to have sufficient technical capacity to respond to emergencies. He said that this means the country must have trained personnel, materials and equipment to be deployed within the first hours of an emergency.
De Regules said, “This is very important and it is a lesson that can be learned from any of the major oil spills that occurred around the world. You can contain a crisis more efficiently when you are prepared. So making those two things, insurance policies and technical capacity, mandatory are the two ingredients for preparing for an emergency in this industry…”
In sharing a bit of the Mexican experience, the former Oil and Gas regulator also said that it would also be important for Guyana to have a robust system in place to review insurance policies.
He said, “In Mexico, you must have an insurance policy before a permit is granted. In fact, companies have to comply with our insurance regulations and our SEMS which stands for Safety Environmental Management Systems Regulations.”
The former ASEA Director said that the oil operators also have to go through a rigorous Environmental Impact Assessment (EIA) and provide an appropriate design for their project. He said that once they comply with all those things, and a thorough review is done, then it is a go.
International donor agencies such as the World Bank have also called for Guyana to demand insurance policies from operators which are comprehensive.
In this regard, the organization warned that operators have often sought insurance which only covers certain activities. These may include third party legal liability and control of wells, re-drill, and cleanup of sudden and accidental pollution from a well out of control.
It cautioned that industry regulators must ensure that an operator’s insurance covers every possible eventuality since “for some operators, their insurance excludes blowout or subsurface pollution or below-wellhead risk.”
The World Bank highlighted that there is insurance that covers a blowout from an oil project. It is referred to as Operators’ Extra Expense (OEE) insurance.
The World Bank said that emerging oil producers such as Guyana would want to ensure that this is in place especially when one considers how other nations suffered in the absence of this.
In this regard, the financial institution cited the case of the major oil spill which occurred in 2010 in the Gulf of Mexico. The spill led to a loss of 53,000 barrels of oil a day for many weeks. It covered 6,500 square kilometers and involved five million barrels of oil.
The source, the Deepwater Horizon field, was operated by BP under a joint operating agreement with Anadarko Petroleum and Mitsui Oil Corporation.
The financial consequence of the spill was more than US$8 billion since the insurance of the operator did not cover pollution following a blowout.
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