‘All costs for damage above oil spill insurance can be recovered by ExxonMobil’ – contract

Sep 03, 2024 News

Map depicting the predicted transport after 45 days from an unmitigated 177,157 barrels per day spill at the Haimara wellhead in the Stabroek Block (Source Exxon CIA)

In absence of unlimited parent company guarantee…

Kaieteur News – ExxonMobil, the operator of Guyana’s oil-rich Stabroek Block has repeatedly committed to covering all costs associated with an oil spill that occurs during offshore production activities. However, such costs will be recovered from Guyana’s oil.

This is according to the 2016 Production Sharing Agreement (PSA) Guyana signed with ExxonMobil and its partners.  ExxonMobil affiliate ExxonMobil Guyana Limited is operator and holds 45% interest in the Stabroek block. Hess Guyana Exploration Ltd. holds 30% interest, and CNOOC Petroleum Guyana Limited holds 25% interest.

The agreement stipulates that oil spill costs not covered by the insurance provided by ExxonMobil will be funded by Guyana.  Annex ‘C’ Section 3 of the PSA, which addresses costs recoverable without the approval of the Minister, makes it explicit at 3.1(g) that insurance and losses can be recovered.

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.”

The contract continues, “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.”

This means that Guyana will have to prove that an oil spill was caused by gross negligence or willful misconduct by Exxon for those costs to be borne by the company.  Cognizant of the damage that can be done by an oil spill, two Guyanese went to Court demanding an unlimited parent company guarantee, which is a signed document that legally binds Exxon to cover costs above the limited insurance. Exxon presently has a US$600 million insurance coverage per oil spill event.

High Court Judge, Justice Sandil Kissoon on May 3, 2023 ordered the Environmental Protection Agency, (EPA) to issue an Enforcement Notice to Exxon Mobil to ensure it provides an unlimited oil spill coverage to safeguard Guyana, but the ruling was subsequently appealed by both Exxon and the EPA. The government was later added as a party to the case, fighting against the provision of this guarantee.

While the Court of Appeal deliberates on the matter, Exxon, Hess and CNOOC have lodged a US$2B oil spill guarantee to cover damages above the insurance.  Citizens have however continued to call for full protection against an oil spill, especially since such a disaster could not only affect Guyana, but Caribbean nations as well.

Notably, the modelling results showed that an unmitigated oil spill can reach Trinidad and Tobago, Aruba, Bonaire, and Curaçao, Grenada, St. Vincent and the Grenadines, St. Lucia, Martinique, and Barbados as well as Dominican Republic, Haiti, and Jamaica.

Exxon’s commitment

President of EMGL, Alistair Routledge during a May 19, 2023 press conference explained that Guyana was safe from liabilities associated with a spill. The company had called the media shortly after the High Court ordered an unlimited parent company guarantee to protect this country from the financial burdens of a spill. At that time, he pointed to the company’s insurance policy, a US$600M coverage per event, and the US$2B guarantee which was being discussed. He said, “We have an absolute obligation as the operator and the investor in the Stabroek Block to prevent incidents from happening, do everything we can and to mitigate those and if we have to, then we bear the cost of cleanup and any liabilities that go with that…but our absolute commitment is to first prevent these from happening.”

• oil, PSA, recover, spill, Unlimited Parent Company Guarantee