Home Top Stories Oil spill insurance coverage: Production at Liza 1 in jeopardy if court...
– as parent companies yet to decide on unlimited guarantee
President of ExxonMobil Guyana, Alistair Routledge has disclosed that oil production operations at the Liza Phase One Development offshore are at risk of being shut down if the Appeal Court does not grant its stay application on the recent High Court order for the Stabroek Block co-venturers to have unlimited insurance coverage.
Earlier this month, High Court Judge, Justice Sandil Kissoon ordered the Environmental Protection Agency to issue an Enforcement Notice to ExxonMobil’s local affiliate, Esso Exploration and Production (Guyana) Limited (EEPGL), 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.
ExxonMobil Guyana has since appealed the decision and requested a stay on the court order but according to the company’s President, Alistair Routledge, if this stay is not granted then the entire Liza Phase One operation would be in jeopardy.
“We filed an application for that order to be stayed because we believe if we’re unable to secure, as ordered, those unlimited guarantees then obviously the permit is suspended per that order. And then, we will have to stop production on the Liza Phase One facility, which then has significant financial implications for all of the investors but also for, obviously, the country in the sense of revenues that will be lost,” Routledge told reporters at a media engagement on Friday.
He explained that with the Liza Phase One project, using the Liza Destiny floating production, storage and offloading (FPSO) vessel, currently producing over 155,000 barrels of oil per day, the company stands to lose approximately US$350 million per month if this operation is shut down.
“There are usually some costs associated with shutting down a facility. More chemicals are needed because you won’t have the fluids flowing in the flow lines on the seabed and so we need to preserve those. So, there will be other particular costs associated with going into a shutdown, which could be for an extended period of time while the appeal progresses or until such time if it were possible to secure the necessary assurances,” the ExxonMobil Guyana President said.
Securing unlimited guarantee
On this note, Routledge indicated that the Stabroek Block co-venturers – Exxon, Hess Corporation, and CNOOC – have all reached out to their respective parent companies about providing an unlimited guarantee but there is no assurance that this will be given. Moreso, within the 30-day timeline set out in the court order.
“What we are working on is seeing whether we can secure such a guarantee from our affiliated companies or parent companies, and Hess and CNOOC are also asking those questions of their parent companies and affiliated companies. We don’t know whether we will be able to secure those. That is the question. But that is something that we’re pursuing just now in case that order is maintained,” he stated.
According to the Exxon official, there are limited situations whereby his company had issued unlimited guarantees but those were usually contained to exploration activities and not the production phase, where there is already a lot of assets and revenues injected such as in the Stabroek Block, where the United States oil major is on track to commence its third development project – Yellowtail – later this year.
The court challenge, which was filed by President of the Transparency Institute of Guyana Inc (TIGI) Fredericks Collins and Guyanese citizen Godfrey Whyte in September 2022, only sought to have the EPA implement the liability clause in the Liza Phase One permit. Hence, the Liza Phase Two Project currently in operations offshore, and other potential developments, will not be affected by these proceedings.
However, Routledge explained that the outcome of this matter could potentially impact those other projects.
The Exxon Guyana President further noted that his company’s appeal to the High Court decision is premised on the fact that it believes that the ruling is incorrect and in contradiction of the provisions in the permit. He contended that the Environmental Permit issued by the EPA clearly outlines what their obligations are including that an estimate should be used.
The permit states: “The forms of financial assurance shall be guided by an estimate of the sum of reasonably credible costs, expenses, and liabilities.”
Additionally, Routledge noted that there is also an obligation to ensure that the affiliates have sufficient financial strength for the amount of the potential liability.
“So, it’s very clear that there should be a value estimated that is credible,” he posited.
Safeguards for oil spills
Nevertheless, the ExxonMobil Guyana President further clarified that the company is not pushing back against any safeguards for the country. In fact, he pointed out that there is a ‘long line of defences’ that have been put in place to, in the first place, prevent such events. These include applying new technologies to the design of the wells, training personnel, and strict safety practices.
Additionally, the company now has access to a capping stack – a piece of equipment that is placed over the blown-out well to stop oil from spilling. These can be accessed within five days but as of next year, Exxon is required to have this equipment in the country as part of the Yellowtail Permit.
“So, we’ve put everything into preventing an incident from happening in the first place… We are absolutely committed to doing the right thing,” he noted.
Meanwhile, in the event of an oil spill, it was explained that Exxon already has about $20 billion in financial resources set aside to respond to such a “highly unlikely” incident.
Business Service Manager for ExxonMobil Guyana, Phillip Rietema, who was also at the media engagement, added that the company has billions of dollars in investments in Guyana, and more to come. Because of this, he explained, the oil major would not want to jeopardise its investments by not upholding its commitment or conforming to requirements.
“So, we’re committed to Guyana for decades to come, which means we have all the incentive in the world to prevent a spill. And if something happened, we have all the incentive to clean it up as quickly and efficiently as possible. And so, put aside the financial assurances, the economic incentives are 100 per cent aligned to handle anything that happens so that we can keep operating and keep generating revenues for Guyana and our shareholders,” he stated.
This, according to Routledge, is evident in the company’s recent negotiations with the EPA on a US$2 billion assurance in keeping with provisions of the permit. That agreement is yet to be signed.
“In April, we closed on the wording of financial guarantees to be provided by affiliates of the local companies, that sum of those guarantees from the three companies is US$2 billion… We did a lot of work with [the EPA] and with international experts to come up with that whole valuation. And so, we agreed to the wording [but] can we agree to the value and that is the basis on which we’re securing those assurances currently. So, we’re working towards [that],” the ExxonMobil Guyana President stated. (Vahnu Manickchand)
