Jun 05, 2020 News
By Kiana Wilburg
In environmental law, it is standard practice that the oil company pays the country for any harm it causes to the environment. But when it comes to ExxonMobil, it appears a different benchmark has been set. According to the provisions in the Production Sharing Agreement (PSA) signed by Natural Resources Minister, Raphael Trotman, in 2016, ExxonMobil can recover all costs associated with the cleanup of an oil spill or any other disaster. By allowing the company to recoup those costs, Guyana is ultimately footing the bill.
Annex C of the PSA outlines all costs ExxonMobil is allowed to recover without the need for the approval of the Minister. One of those costs is insurance which is listed on Page 11 of Annex C.
It states, “Insurance premium and cost incurred for insurance pursuant to Article 20 provided that if such insurance is wholly or partly placed with an Affiliated Company of the parties comprising the contractor, such premium and costs shall be recoverable only to the extent generally charged by competitive insurance companies other than an Affiliated Company of a party comprising the contractor. Costs, losses, and damages incurred to the extent not made good by insurance, are recoverable, including costs, losses or damages resulting from the indemnities in Article 2 of the agreement unless such costs, losses or damages have resulted solely from an act of willful misconduct or gross negligence of the contractor.”
For Guyana to prevent the company from recovering money spent to clean up an oil spill or to address any other environmental damage, it would have to prove beyond reasonable doubt that the act resulted from not just mere negligence, but “gross negligence.” If the matter is taken before the courts for interpretation on what accounts for “gross negligence” or “willful misconduct”, the lopsided deal holds provisions which allow for all of ExxonMobil’s legal costs to be covered by Guyana.
Last year October, there was much celebration when Head of the Environmental Protection Agency (EPA), Dr. Vincent Adams, disclosed that he was able to get ExxonMobil to cover costs its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), is unable to cover with its US$2B insurance policy.
With ExxonMobil agreeing to same, Dr. Adams had said this results in Guyana having unlimited insurance coverage for the operations in the Stabroek Block. It appears however that Dr. Adams might not have been aware that there is a critical loophole in the Stabroek Block PSA which allows the company to recover every penny.
DECADE OR MORE
If an oil spill occurs at the Liza Phase One Project, it could take a decade or more for the country to “fully recover.” This gloomy possibility was well documented in the operator’s Environmental Impact Assessment (EIA), which examines how Exxon’s operations would affect the environs. The document was prepared by Environmental Resources Management (ERM). In the EIA, the international company states, “Although the probability of an oil spill reaching the Guyana coast is very small, a spill at a Liza well would likely impact marine resources found near the well, such as sea turtles and certain marine mammals that may transit or inhabit the area impacted by a spill. Air quality, water quality, seabirds, and marine fish could also be impacted…”
The document also states that a spill could potentially impact Guyanese fishermen. It said that the magnitude of this impact would depend on the volume and duration of the release of oil as well as the time of year, the release was to occur (e.g., whether a spill would coincide with the time of year when some species are more common).
The EIA goes on to state that although a large oil spill is considered unlikely, other resources that could be potentially impacted by a spill include Shell Beach Protected Area, marine mammals, critically endangered sea turtles, and coastal Guyanese and Amerindian communities reliant on ecosystem services for sustenance and their livelihood.
Given the aforementioned, Environmental Resources Management said it is critical that ExxonMobil commits to regular oil spill response training exercises, document the availability of appropriate response equipment on board the Floating Production Storage and Offloading (FPSO) Unit, and demonstrate that offsite equipment could be mobilised for a timely response.
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