Jan 06, 2023 News
Kaieteur News – Despite agreeing to have oil companies recoup insurance sums associated with the development of the local oil and gas sector, Guyana is still unaware of the real value it is paying ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL), to insure its multi-billion dollar assets being used in the production of the country’s crude.
This is the current situation as Local Insurers continue to lament the overseas placement of insurance policies by the Stabroek Block Operator. Kaieteur News has reported on various contracts that Exxon would have entered into with international companies for the supply of equipment, materials and even services. Many of these contracts are multi-million and multi-billion US dollar agreements for the supply of for instance, (FPSO) floating production, storage and offloading vessels; each of which has cost the country so far, US$1billion or more. Subsea equipment, massive pipes, chemicals are also used in oil development. In some cases, these materials have to be transported and even valuable shipments, in particular must be insured. But industry operators say there is no policy in-country and Guyana remains unaware of the true value of assets Exxon has and is insuring for the Stabroek Block.
It is also unaware of the amount of money the overseas affiliate is making in premiums, ceding fees among others from covering the policy. Insurers say however that once the local industry is involved there is much information that can be gathered which will be useful to the Government. “Firstly, because the purpose of insurance is to replace assets that are destroyed by a peril named in the policy, correct replacement values of assets are an integral part of declarations on the policy and form the basis of the sum to be insured so that a cumulative overview forms in reality and a comprehensive schedule of the value of O&G assets sitting on the ground in Guyana,” one top local Insurer told this newspaper.
“More importantly, most material damage losses particularly with respect to machinery/equipment in a production chain, leads to business interruption or consequential loss of profits arising from the loss,” the insurer added. That consequential loss of profits is also insured, the newspaper was told.
In order to establish the potential loss of profits, “the Insurer must necessarily have an accurate calculation of the O&G company’s profits which then forms a part of the insurance contract as it becomes the sum to be insured for the loss of profits policy. Therefore, insurance policies by their nature, if the insured is to be fully compensated for losses, require accurate values for insured assets and accurate values for profits.”
Kaieteur News was told that oil operators here may have realised that this is extremely valuable information it may not want Guyana accessing. “This may well be considered by the oil major to be a source of information that it would prefer not to disclose and indeed may well be a factor contributing to the oil major’s inexplicable resistance to local industry involvement despite the Government’s support of placement to the local industry expressed in its mandating a 100 percent placement to the local industry via the local content act.”
For Exxon to now advertise for a local participation by way of a fronting Insurer for its environmental insurance policy, is an indication of the company’s intent to continue to circumvent the Insurance Act and the Local Content Act, the Insurance Agent asserted. “And we now know that the publicly released news of their having been a local front was merely a facade as none of those policies have actually been placed. So yes, the potential for information held by the local industry, were we in the picture, to be used to crosscheck information given to say Auditors, is apparent. Technically however, neither Insurers nor Brokers in Guyana release confidential information to any third party, but copies of documentation may well be accessible by the Government.”
The Insurer opined that while he believes Exxon may not want certain information out in the open, “I think the more fundamental issue is that the oil major simply wishes to retain for itself, the brokerage commissions, ceding reinsurance commissions and underwriting profits of its own captive Insurers at the expense of the industry.” It was noted that as long as the Office of the Commissioner of insurance continues to allow illegal placements and circumvention of the Insurance Act and the Local Content Legislation, this behaviour will continue.”
It was noted that failure by the Regulator to address the oil and gas insurance inadequacies “undermines and frustrates” the efforts of the Government to mandate by the Local Content Act, placement to the local industry. “It deprives the Government of a secondary tier of imperative information which should be at the fingertips of the subject Minister at all times, that is, schedules of insurances of the oil sector in Guyana – insured assets, insured profits, liability policies, risk management reports, estimated maximum losses, incident and loss reports etc.” None of this is currently available to the government, and the regulatory body would have permitted for over five years, a complete bypass of the local industry, the insurance operator said.
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