Latest update April 24th, 2024 12:59 AM
May 08, 2023 News
…says potential consequences for country “catastrophic”
Kaieteur News – The Institute for Energy Economics and Financial Analysis (IEEFA) in a recent statement commented on the historic judgment handed down against ExxonMobil Guyana and the Environmental Protection Agency (EPA), citing the danger it spells for Guyana.
Two citizens, President of the Transparency Institute of Guyana Inc. (TIGI) Frederick Collins and Godfrey Whyte, through their lawyers, Mr. Seenath Jairam, SC, and Ms. Melinda Janki, had approached the court to get the EPA to enforce a critical clause, Condition 14 in the Liza Phase 1 Environmental Permit (Renewed) issued on May 31, 2022 to EEPGL. That provision says ExxonMobil Corporation, the parent company for EEPGL, must cover costs for all environmental loss and damage that might result from a well blowout, oil spill or other failure in the Liza Phase One Development Project in Guyana’s Stabroek Block.
The IEEFA pointed out that the May 3 ruling by Guyana’s High Court Judge Justice Sandil Kissoon, has found that ExxonMobil Guyana has failed to provide adequate insurance for the costs of recovering from a potentially catastrophic oil spill from a massive drilling project off the coast of Guyana.
The agency added that the court found too that ExxonMobil “engaged in a disingenuous attempt” to dodge full responsibility for any damage that might be caused at its Liza One field, part of an offshore project that produces 380,000 barrels of oil daily.”
“Since the judge found that ExxonMobil hasn’t provided sufficient insurance, Guyana taxpayers are currently exposed. The potential consequences for Guyana are catastrophic,” said Tom Sanzillo, director of financial analysis for the IEEFA. He continued: “The judge found that the unlimited parent guarantee was clear and well known to the company and Guyana EPA. The parties had time—since before December 2019, when production started—to settle the final terms of the insurance.”
The court’s decision means ExxonMobil has 30 days to provide adequate insurance for the project.
Importantly, Sanzillo explained that the unlimited guarantee has specific meaning in light of past oil spills. BP has reported that it provided $69 billion in payments to meet its obligations due to the 2010 Deepwater Horizon spill in the Gulf of Mexico, including response, cleanup, economic claims, government payments, settlements and restoration. He noted that the Environmental Impact Assessment (EIA) for the Guyana project identified 12 islands with a gross state product of US$147 billion that could be affected by an oil spill.
Tom Sanzillo has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.
Additionally, Sanzillo highlighted that the ruling marks the second time that the deal with ExxonMobil has been found to violate local rules. He highlighted that a separate lawsuit resulted in a 2020 ruling that cut the length of the consortium’s production permits in Guyana from 23 years to five years. Litigation is also pending over flaring from the project. Although a 2016 agreement between the consortium and Guyana prohibits flaring, more than 15.1 billion cubic feet of gas had been flared by July 2021. The oil giant, which recorded US$56 billion in profits last year, paid an $8.4 million penalty to the Guyana Environmental Protection Agency in 2022.
The judge’s decision and order comes shortly before ExxonMobil’s May 31 annual shareholder meeting, where two resolutions are on the docket that would improve reporting on oil spills and the company’s risks due to environmental litigation.
EPA IN BREACH
“The Environmental Protection Agency (EPA) has relegated itself to a state of laxity of enforcement and condonation compounded by a lack of vigilance thereby putting this nation and its people in grave potential danger of calamitous disaster,” those were the words of High Court Judge, Justice Sandil Kissoon, when he handed down his ruling.
Justice Kissoon pointed out that the antecedent circumstances that were raised in the proceedings have exposed the existence of an egregious state of affairs that has engulfed the EPA, “in a quagmire of its own making.”
The judge added that the EPA has abandoned its exclusive statutory responsibilities entrusted to it by the National Assembly to ensure due compliance by ExxonMobil Guyana with Condition 14 in the renewed environmental permit.
Further, it was highlighted that the EPA refused to disclose any information during the court proceedings as to the status of compliance by EEPGL with its financial obligations in accordance with Condition 14 of the renewed permit and whether or not the oil company has complied with the critical clause. On the two substantive issues, the judge said that the agency sought refuge in silence, avoidance, concealment and secrecy, and also turned a blind eye, notwithstanding the grave potential danger and consequences to the country and citizens if an event occurred at the Liza Phase 1 project – especially that the oil company has been ramping up production there.
On the issue of whether the EPA has acted in breach of its statutory duty, unreasonably, and also allowing EEPGL to carry out petroleum operations in the absence of the compliance with Condition 14, Justice Kissoon underscored that at every juncture from the day the renewed permit was issued to EEPGL to date, the EPA engaged in a course of action to undermine and erode the terms and conditions of its own environmental permit.
It was highlighted in the court document that the agency carrying out public law functions, notwithstanding that EEPGL’s activities are of significant impact, failed several aspects of its duties.
The EPA failed and omitted to mandate compliance by EPPGL with its financial assurance obligations of environmental liability insurance together with an unlimited parent company guarantee; the EPA also failed to take any meaningful step or any step whatsoever to assess what was provided to it by the oil company purportedly as the environmental liability insurance when it was not in fact in keeping with Condition 14 of the renewed permit.
Importantly, it was also stated that despite failing to do the aforementioned, the EPA also failed to suspend/ cancel EEPGL’s renewed environmental permit even though the oil company made public pronouncements, communicating its intention to increase production levels.
To this, Justice Kissoon said, “The Agency has, in the circumstances, by its decision and omission, committed an illegality, acted unlawfully, ultra vires, unreasonably in the Wednesbury context of unreasonableness, in defiance of logic, irrationally and without any jurisdiction.”
The judge granted a declaration that the EPA is in breach of its statutory duty by its failure/ omissions to enforce compliance by the oil company with its financial assurance obligations as stipulated by clause 14, to provide an unlimited parent company agreement and/ or affiliate company guarantee agreement to indemnify and keep indemnified the agency and the government against all environmental obligations of the EEPGL and its partners in the Stabroek Block.
Another declaration was granted that EPA is in breach of its statutory duty by its failure/ omission to enforce compliance by EEPGL to provide environmental liability insurance of a type and nature stipulated as stipulated by the renewed environmental permit and to have an independent insurance consultant retained by the Agency to review and examine the insurance package to ensure its conformity with said permit.
Notably, the Government of Guyana has signalled their intention to appeal the court’s ruling, adding that they do not agree with the court’s judgement.
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