May 22, 2023 News
Kaieteur News – Esso Exploration and Production Guyana Limited-ExxonMobil Guyana- have claimed adherence to ‘industry standards’ as it regards the provision of insurance services from a business it wholly owns. The company however had a difficult time pinpointing which industry standards tolerate such a condition in the petroleum sector.
During a press conference on Friday, EEPGL President, Alistair Routledge said, “We then have the insurance, US$600 million of insurance, which is as required under the Permit. We have had that in place for years since that original obligation was required, in line with industry standards.”
He was at the time attempting to cushion the legitimate fear of the company not being able to financially satisfy its responsibility to clean up the environment after an oil spill, and compensate stakeholders for losses.
While fielding questions from the press however, this publication asked Routledge to identify the standard which allows the company to provide its own insurance. In response, he sought to explain that it is normal for companies such as Exxon to do this, while failing to name the specific standard it has been adhering to in this regard.
He said, “On the insurance standards, there are some companies, like our self, which have what is called captive insurance. So we will take some of that insurance exposure within our corporation and we have a captive insurer. It is a separate entity within our corporate structure, when we do that, we have been through a process where we have gone to the open market to establish what is the market price for that insurance and what are the market terms.”
Routledge continued, “In situations where we award that insurance to our captive it is on those market rates and terms, we don’t change the terms, so it is like if you go to the market.”
Research by this newspaper has revealed that a ‘captive insurer’ is defined as an insurance company that is wholly owned by a business or person seeking coverage- in this case, ExxonMobil Corporation. Notably, the primary purpose of this type of insurance is to insure the risks of its owners. Importantly, this arrangement allows Exxon to benefit from the profits of the insurance policy.
Kaieteur News reported on April 9 that an audit report produced by IHS Markit of the United Kingdom found that ExxonMobil fully owns the company that provided the insurance for its offshore operations in Guyana.
The report seen by this publication notes that Article 20.2 of the 2016 Stabroek Block Production Sharing Agreement [PSA] states that the contractor which consists of EEPGL, Hess Corporation CNOOC Petroleum Guyana Limited, shall effect at all times during the term of the Agreement, insurance as required by applicable laws, rules, and regulations and of such type and in such amount as is customary in the international petroleum industry in accordance with good oil field practice appropriate for Petroleum Operations.
It goes on to state that such insurance should provide coverage for third Party Liability loss/damage exposure from operations, coverage for drilling activities and operators extra expense including exposure associated with controlling the well, re-drilling, pollution and clean-up.
It further notes that the partners in the block are expected to carry insurance coverage for their respective interest. Though this is supposed to be obtained, IHS said copies of insurance certificates were not provided by any partner, contrary to the PSA requirement.
The report said, “No evidence has been provided that either Hess or CNOOC are maintaining insurance cover and are therefore contravening the PSA requirements. Not having this insurance could leave GoG exposed to risks and costs that should be covered by the Co-Venture partners.”
The document states that EEPGL has maintained its 45% share of Control of Wells (CoW), Operators Extra Expense (OEE) and Third Party Liability (TPL) insurance coverage through a wholly owned subsidiary of ExxonMobil, Ancon Insurance. Although wholly owned, IHS said it is satisfied that Ancon Insurance acts as a separate company at “sufficient” arm’s length from ExxonMobil.
IHS also said that EEPGL provided evidence of Ancon Insurance consulting with an external insurance consultant, Jardine Lloyd Thompson, to set premium rates for Guyana.
While the amount of the insurance was not provided in the report, IHS said the total amounts paid by EEPGL falls within the expected industry norms.
It should be noted that initially, IHS did not place the insurance coverage under a microscope. It was the Guyana Revenue Authority (GRA) that instructed it to do so, in an effort to ensure there were no financial irregularities taking place between related parties.
The aforementioned deficiency was as follows: “It is important to note that during discussions with the operator (Exxon) on Wednesday April 1, 2020 at 10 a.m. concerning this expense; it was revealed that insurance payments were made to a related party of EEPGL, called ANCON. Therefore, there are possible transfer pricing implications and verifications that would be absolutely necessary to ensure transactions were done at arm’s length; surprisingly, no mention was made by IHSM in their report of this issue.”
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