Oil spill insurance coverage: Judge to rule on merits of EPA’s appeal today

Justice of Appeal Rishi Persaud

A ruling is expected today on whether the Environmental Protection Agency’s appeal against High Court Judge Sandil Kissoon’s order for ExxonMobil (Guyana) to provide unlimited parent-company guarantee insurance coverage for offshore oil operations it is engaged in with its co-venturers in the Stabroek Block, has merit. That decision will be delivered by Justice of Appeal Rishi Persaud at 11:00h.
On May 3, Justice Kissoon issued an order directing the EPA to issue ExxonMobil’s local affiliate, Esso Exploration and Production (Guyana) Limited (EEPGL), with an Enforcement Notice on or before May 9, for the company to provide, within 30 days, unlimited Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee, together with environmental liability insurance, as is customary in the international petroleum industry.

High Court Judge
Sandil Kissoon

EPA’s Executive Director, Kemraj Parsram has since confirmed that the Agency has issued EEPGL with the Enforcement Notice and the oil company has until today to comply with same.
Non-compliance will result in the suspension of Exxon’s Environmental Permit.
The order has its origin in a case filed in September 2022, by the President of the Transparency Institute of Guyana Inc (TIGI), Frederick Collins and Guyanese citizen Godfrey Whyte who had moved to the court to get the EPA to enforce the liability clause in the permit.
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.
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.
He, inter alia, found that Esso was engaged in a “disingenuous attempt” which was calculated to deceive when it sought to dilute its liabilities and settled obligations stipulated and expressed in Condition 14 of the permit, while simultaneously optimising production in the Stabroek Block.
“The insurance obtained by the EEPGL from its Affiliate Company AON UK Ltd, both for the Liza Phase 1 and Phase 2 Projects, does not satisfy the stipulation and obligation set out at Condition 14:5 of the Environmental Permit, or even what is considered environmental liability insurance according to international standards of the petroleum industry,” the Judge held.
In the end, the EPA and Esso were ordered to pay Whyte and Collins $1.5 million in court costs.
Several days after the High Court ruling, the EPA filed a Notice of Appeal in which it advanced several grounds on which it is seeking to set aside the ruling, among them being that the lower court’s reasoning was flawed and that the Environmental Permit was in keeping with the law.
“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 Agency outlined as one of its grounds of appeal.
Another ground was that “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.”
Another contention of the EPA is that the court wrongly ascribed meaning to the Environmental Protection Act that was contrary to specific provisions in that very Act.
It is also contended that the court “in effect substituted its own discretion as the decision of the appellant [EPA] when the appellant, at all material times, had exercised its discretion and acted well within its statutory and regulatory powers.”
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, including severe disruption to the national economy if the order is allowed to stand.
The 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 Liza 2 fields be cancelled, it would have catastrophic consequences on the economy.
“Guyana as a nation now earns billions of dollars annually from the petroleum activities conducted on the Liza 1 and Liza 2 fields, both of which are subject to the permit. The suspension or cancellation will have a catastrophic effect on national funds for development, and also the Private Sector, which supports the activities on the said Liza 1 and Liza 2 fields,” the EPA averred.
The Agency has maintained that its appeal has a reasonable prospect of success.
Attorney General and Legal Affairs Minister Anil Nandlall, SC, had pointed out after the ruling that the Environmental Permit imposes no obligation on the permit holder to provide an unlimited Parent-Company Guarantee Agreement and/or Affiliate Company Guarantee Agreement.
The Senior Counsel also pointed out that this ruling could have profound ramifications and grave economic as well as other impacts on the public interest and national development. He noted that the EPA and EEPGL had spent almost a year negotiating a Parent Guarantee and Indemnity Agreement to the tune of US$2 billion in liability coverage, in compliance with the EEPGL’s financial assurance obligations under the Environmental Permit and the Environmental Protection Act.
“These negotiations only concluded [recently]. These negotiations and their material details were placed before the court for its consideration, but unfortunately to no avail,” a statement from the Attorney General’s Chambers had disclosed. (G1)