May 25, 2023 News
Kaieteur News – Financial Analyst, Tom Sanzillo finds it quite troubling that American oil giant, ExxonMobil Corporation, is pushing for Guyana to accept a meager US$2B parent guarantee for oil spill coverage when the company itself is worth a jaw-dropping US$429B.
His comment is in wake of a ruling issued on May 3, 2023 by Justice Sandil Kissoon. The High Court Judge ordered the Environmental Protection Agency (EPA) to secure an unlimited parent company guarantee agreement from Exxon. Such a document would ensure that Exxon covers all costs for an oil spill caused by its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) which operates in the Stabroek Block.
Importantly, the EPA and EEPGL have up to June 10, 2023 to provide this unlimited parent company guarantee from Exxon or face the suspension of the Liza Phase One Permit where over 150,000 barrels of oil are being produced daily.
Following his review of the judgment, Sanzillo said it is “unclear why ExxonMobil, the world’s leading private oil company with a market capitalization of US$429 billion, would have hesitated to provide full insurance against any potential catastrophe.”
He said too that it remains unclear “why the Guyanese government is not enforcing the environmental permit to obtain the guarantee, especially given that it is signed by the consortium’s president in return for permission to operate. It is part of the terms of the permit, an acknowledged cost of doing business and cannot be viewed as a new, unforeseen cost to ExxonMobil.”
Head of ExxonMobil Guyana, Alistair Routledge recently reasoned that the US$2B parent guarantee is an adequate sum that was produced by an independent consultant paid for by EEPGL. Routledge said the sum was arrived at considering “credible scenarios” as well as Australia’s standards on parent guarantees. He said a study is imminent on the matter using the UK standards. If that study suggests the need for an increase then the US$2B allotment would be reconsidered. In the meantime, Routledge and his company want Guyana to accept US$2B as a sufficient parent guarantee.
Routledge had also noted that the US$2B parent guarantee only caters for oil spill liabilities in Guyana and not the potential damage to 12 other Caribbean nations, as warned in the Environmental Impact Assessment for the Liza Phase One Project.
The EPA has since agreed to accept the US$2B parent guarantee and is poised to receive supporting documents on this front soon. That is expected to complement EEPGL’s US$600M insurance package. Routledge also argued that EEPGL’s financial assets are as high as US$19B, all of which could be accessed to cover oil spill costs.
Significantly, Justice Kissoon had ruled that even the US$2B parent guarantee still leaves EEPGL and its partners in breach of the permit which requires an unlimited protection. This part of his judgment was elucidated after unsigned documents pertaining to the guarantee were placed before him for consideration.
Justice Kissoon said such documents are irrelevant since the amount of US$2B does not bring EEPGL into compliance with the requirements of the permit.
Justice Kissoon categorically stated that the Liza Phase One Permit carries a confluence of measures at Condition 14 which stipulate and impose full, complete and unlimited liability upon the Permit Holder for any discharge of any contaminant into the environment and for all costs of clean up, restoration and any damages all of which constitute legitimate liabilities under the Permit. The Judge said the norm or standard in relation to activities of this nature has been and continues to be that the Permit Holder is exclusively and solely responsible for all such liabilities arising from its operations without limitation or exception.
Internationally, the ruling has had a significant impact on Exxon’s stock price. It had plunged by 12 percent in recent weeks to US$105. Yesterday, it barely moved to US$107.
ExxonMobil shareholders have also taken note of the ruling and are poised to challenge the oil giant to come clean about the potential risks and liabilities of its operations which could affect not only Guyana but 12 other Caribbean nations. That challenge is expected to manifest by way of two proposals come May 31 at Exxon’s Annual Shareholders Meeting.
EEPGL and the EPA have since appealed Justice Kissoon’s ruling in an effort to stay the consequences of his order. That case will be heard on May 29.
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