ExxonMobil appeals High Court ruling on oil spill insurance coverage

– reiterates court failed to recognise financial obligations of co-venturers

United States-based oil giant, ExxonMobil Guyana, has disclosed that it has appealed the recent High Court ruling that is forcing the company to provide unlimited insurance for the offshore oil operations it is engaged in with its co-venturers in the Stabroek Block.
In a ruling earlier this month, High Court judge, Justice Sandil Kissoon, found that the Environmental Protection Agency (EPA) has abdicated its exclusive statutory responsibilities and ordered that it issue Exxon’s local affiliate, Esso Exploration and Production (Guyana) Limited (EEPGL), with an Enforcement Notice to provide an unlimited Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee within 30 days. Failure to comply would result in the suspension of the permit dated May 31, 2022, the Judge has declared.
The EPA has since appealed the decision, arguing that the High Court judge’s reasoning was flawed and that the permit is in keeping with the law.
On Thursday, Exxon sought to clarify its position on the recent events, declaring its support for the legal recourse taken by the EPA, while also adding that it has also filed its “own appeal last week.”
According to the US oil major, “The court failed to recognize the ability of the Stabroek block co-venturers to meet our financial obligations, which are supplemented by the insurance that we already have in place and the agreement we reached with the EPA for financial guarantees that exceed industry benchmarks.”
Exxon had previously contended, after the court ruling, that the Stabroek Block co-venturers – which include Hess Corporation and CNOOC Limited – have adequate and appropriate insurance as well as proposed guarantees in an amount that exceeds industry precedents and an estimate of potential liability.”
Only recently, it was disclosed that after almost one year of negotiations, EPA and EEPGL have completed a Parent Guarantee and Indemnity Agreement to the tune of US$2 billion in liability coverage in compliance with EEPGL’s financial assurance obligations under the Environmental Permit and the Environmental Protection Act.
In addition to its appeal, the EPA had also asked the court for a stay in the execution of the High Court judgement. But this request was rejected by Appeal Court judge, Justice Rishi Persaud.
Nevertheless, Justice Persaud fixed May 29 at 10:00h to hear arguments on whether the appeal has a reasonable prospect of success.
In September 2022, the President of the Transparency Institute of Guyana Inc (TIGI), Fredericks Collins, and Guyanese citizen Godfrey Whyte had moved to the High Court to get the EPA to implement the liability clause in the permit issued to ExxonMobil for its operations. They wanted the court to ensure EEPGL takes full financial accountability in the case of harm, loss, and damage to the environment from a well blowout, oil spill, or other failures in the Stabroek Block.
On the issue of whether the EPA acted in breach of its statutory duty and unreasonably permitted Esso to carry out petroleum production operations in the absence of compliance with the terms of the permit, Justice Kissoon ruled that the EPA has committed an illegality, acted unlawfully, ultra vires, unreasonably, in defiance of logic, irrationally, and without any jurisdiction.
However, in its appeal filed by Attorney-at-Law Sanjeev Datadin, the EPA is seeking to set aside the ruling, insiting that the lower court’s reasoning was flawed.
“The trial court erred in law in its interpretation, consideration, and application of the combined effect of Clause 14 of the Environmental Permit…and erroneously concluded that the financial assurance to be provided by the third respondent herein, EEPGL, in relation to the said permit was unlimited… The trial court erred in law and misconstrued the Environmental Protection Act and its regulations to determine that the appellant [EPA], a statutory body, had specific statutory powers which in fact it did not have,” the agency stated in its grounds for appeal.
According to the EPA’s legal documents, the orders granted by Justice Kissoon are coercive and entirely remove the EPA’s discretion, which would have severe consequences. According to the agency, there would be severe disruption to the national economy if the order is allowed to stand.
EPA has been keen to point out that the very permit at the heart of the case is critically important to Guyana’s economic growth. It argued that should the permit which pertains to the Liza 1 and 2 fields be cancelled, this would have catastrophic consequences on the economy.
Maintaining Guyana’s investment climate
In fact, similar sentiments were echoed by Vice President Dr Bharrat Jagdeo, during a press conference on Thursday.
He pointed out that while the government will not tolerate the disparaging of any judge, such decisions coming out of the local judiciary will have global resonance and international consequences. This, he noted, is already evident in international reports, which are saying that potential investors are being cautious when it comes to Guyana.
According to Jagdeo, “…investors are spooked easily …As policy-makers we have to take seriously any issue that could affect our country’s standing in the world and our ability to attract investments and to keep the momentum that we have developed here going to transform Guyana… [Such court decisions] can have a major impact on the investment climate in Guyana… and therefore, on investments and jobs and welfare in this country.”
The Vice President further outlined too that while the government wants Exxon to fully meet its obligations so that the country is prepared for any eventuality, there is an agenda being pushed by certain players to shut down the blooming oil and gas industry in Guyana – something which he insisted will not be tolerated.
“Exxon has to meet all of its obligations but we will not be a willing participant in a process that will destroy the investment climate in Guyana and therefore, affect our people and their ability to prosper. We will not do that… We have to maintain an investment climate here that would allow investments to flow. When the investments flow here, the hotels are built and our people get jobs. When they’re fabricating things for Exxon, they get more jobs. The 500 drivers or so who are driving for the oil and gas industry will maintain their jobs… This could affect the bid round [for the oil blocks as well],” the Vice President posited.