EPA reviewing draft Parent Company Guarantee Agreement from Exxon

…optimistic of including clause allowing flexibility on US$2B guarantee

By Jarryl Bryan

The Environmental Protection Agency (EPA) is presently reviewing a draft Parent Company Guarantee agreement from oil giant ExxonMobil, with the aim of not only ensuring there is a US$2 billion assurance in place but also making sure this amount can be increased in the event of an oil spill on a scale that exceeds that amount.

EPA Executive Director Kemraj Parsaram

This was revealed by EPA Executive Director Kemraj Parsaram, who explained that while the draft agreement is with EPA, the environmental regulator is insistent on the inclusion of various clauses that will ensure maximum protection for the entire Stabroek Block offshore Guyana.
“This is for the entire Stabroek Block, it’s not limited to a project or anything. They presented this draft to us, with their conditions. And we reviewed it and we are looking at two major clauses, to make sure we’re fully covered,” Parsaram explained.
This includes a renegotiation clause to ensure the US$2 billion assurance can be revised upwards if the cost of an oil spill exceeds that and also a clause to ensure full indemnification to cover the cost of whatever the default is on the part of the affiliate company. Exxon’s affiliate is Esso Exploration and Production Guyana Limited (EEPGL).
“Our Acts are clear about that. There is strict liability in case of pollution. There are no ifs or buts. If there is pollution, you are fully liable. In this case, it’s just a matter of the parent company of EEPGL, giving us a guarantee that they will cover in case of subsidiary default,” he explained.
He also referenced the inclusion in the permits, requiring an estimate be done of the reasonable credible costs for responding to an oil spill. According to Parsaram, that estimate will inform whether US$2 billion is adequate for activities ranging from monitoring to mitigating against the oil spill, or whether more would be required.
According to the regulator, he is focused on making sure that the terms in the agreement are ironclad and acceptable to the EPA, before any agreement is accepted. According to him, Exxon has been cooperative with the EPA team and progress is being made. He was optimistic that the terms will be accepted.
“The ball is in our court. We’re working on it. And when we’re ready to accept and agree on it, then it’ll be finalised. But until I’m comfortable, because it is my signature that goes there, and the EPA, we must be comfortable that this is adequate. Of course, informed by this estimate of the reasonable credible cost.”
“They’ve (Exxon) been cooperative. They’ve been working with us. They’re not antagonistic. This is how we approach. When I came on, I said, we’re coming to the table as partners on a premise of trust and working together to solve issues. I’m not coming with a big stick. But, if necessary, I’ll come with a big stick,” Parsaram also said.
EEPGL has previously said that with US$5 billion in assets and a further US$2 billion in affiliate company guarantees they were negotiating with EPA, Guyana could rest assured of its ability to cover any legitimate expenses in the event of a spill.
According to EEPGL’s Vice President and Business Services Manager, Phillip Rietema, during a previous engagement with the media, the company would act immediately in the event of an oil spill, using the primary resources of both it and its co-venturers to mitigate whatever environmental damage is caused and settle legitimate claims.
“We have insurance that is for our benefit. If we do not address all of the environmental obligations, then we have affiliate company guarantees, that’s $2 billion, that would be for the benefit of Guyana,” Rietema had said.
The Stabroek Block is 6.6 million acres (26,800 square kilometres). Exxon, through subsidiary EEPGL, is the operator and holds 45 per cent interest in the block. Hess Guyana Exploration Ltd holds 30 per cent interest and CNOOC Petroleum Guyana Limited, a wholly-owned subsidiary of CNOOC Limited, holds the remaining 25 per cent interest.