US$2B oil spill guarantee need to be revised to cater for more projects approved and new oil finds

Oct 08, 2024 News

---

“US$2B oil spill guarantee need to be revised to cater for more projects approved and new oil finds because it does not cover the additional projects and exploration activities”

 

 

Kaieteur News- The US$2B oil spill guarantee that was provided to Guyana by ExxonMobil, Hess and CNOOC on June 9, 2023 does not cover the additional projects and exploration activities approved subsequent to the issuance of the coverage.

Guyana’s oil reserve also expanded by 600 million barrels since the contract was signed for the limited oil spill protection.

Section 2.2 of the agreement set out conditions for change in the operations or estimate of liability. It explains that if changes are made relating to additional petroleum development activities, including exploratory activities within the Stabroek Block and any other change in environmental risks or circumstances that would reasonably impact the estimated liability, either party can request a renegotiation of the agreed maximum amount.

According to the contract: “If with respect to activities under the Petroleum Agreement there are either: i) additional petroleum development activities, including exploratory activities within the Stabroek Block, or ii) any material change in the estimate required to be made under the aforesaid Environmental Permit No. 20160705-BEDPF issued on the 27th day of October 2022, or iii) any material change in any estimate of liability similarly required under another relevant Environmental Permit pertaining to petroleum development activities, including exploratory activities within the Stabroek Block, iv) or any other change in environmental risks or circumstances that would reasonably impact the estimated liability; then, if requested by either party, the Guarantor, the Beneficiary and the Operator shall promptly re-negotiate the Maximum Amount herein defined, and such further terms, as may be necessary to fairly and equitably reflect the changes.”

Notably, the agreement makes it clear that the sum will not decrease as the US$2B is will remain floor amount.

Concerns have been constantly raised about the adequacy of the limited oil spill guarantee submitted by the Stabroek Block partners. With another project approved by the EPA for oil production since the guarantee was signed and the changes to the Stabroek Block reserves, this will justify the need for stronger financial protection from a spill that can occur offshore.

At the sixth development- Whiptail- sanctioned on April 10, 2024, ExxonMobil to plans to produce as much as 250,000 barrels of oil per day. The project poses an increased risk of an oil spill, as outlined in the Environmental Impact Assessment

(EIA).

Notably, the Executive Director of the EPA, Kemraj Parsram while appearing as a guest on the Energy Perspectives Podcast earlier this year said the US$2B sum was not “pulled from a hat” but was determined as the “reasonable credible cost” using guidelines from the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) of Australia.

“We looked at what our Act says about financial assurance and strengthened those requirements (by) looking at what exists in other jurisdictions … we looked at NOPSEMA in Australia, we looked at UK, we looked at other (parts such as the) US and Canada and we put in key measures because our act says financial assurance has to be at an amount,” Parsram explained.

He continued, “How do I come up with that amount? I can’t just pull it out of a hat, so I looked at NOPSEMA guidelines and they have to require an estimate of the reasonable credible cost of an oil spill and then that will be able to give you some guidance of what it will cost and so we have done that and we have an initial value and we have put in place an agreement- it’s all in the public domain.”

Appeal Court Judge, Justice Rishi Persaud had ordered ExxonMobil Guyana to lodge a US$2B parent and/or affiliate company guarantee as a condition to a stay of execution granted on a lower court’s order. That order, originally issued by High Court Judge, Justice Sandil Kissoon called for an unlimited parent company guarantee to be provided to the EPA by June 10 or the Liza Phase One Project Permit would be suspended.

Each Co-Venturer has contributed to the US$2B guarantee, relative to its participating interest in the Stabroek Block.  ExxonMobil, the operator of the Stabroek Block, holds a 45% interest, while Hess Guyana Exploration Ltd. holds 30% interest and CNOOC Petroleum Guyana Limited holds 25% interest. Jamestown Insurance Company Limited is the Guarantor for Hess; while CNOOC Limited, a company organized in Hong Kong and Exxon Equity Holding Company is the Guarantor for CNOOC and Exxon, respectively.

(US$2B oil spill guarantee need to be revised to cater for more projects approved and new oil finds)

---

• guarantee, oil, Projects, reserve, revision, spill

---