Parent Company Guarantee being negotiated with operators in Stabroek Block – VP Jagdeo

– says tough insurance provisions to be included in Yellowtail permit

The parent guarantee that the Guyana Government is currently negotiating with the co-venturers of the Stabroek Block is just one of the several changes the People’s Progressive Party/Civic (PPP/C) Administration is pursuing to strengthen the regulation of oil exploration activities offshore.

A Parent company guarantee states that if the subsidiary company enters into a commercial contract with a third party, that third party may want to ensure the performance of the contract and may look to other companies within the same group to provide a financial or performance guarantee in respect of the subsidiary’s obligations.
In such circumstances, parent companies are often requested to provide security in the form of parent company guarantees (“PCG”), to bolster the financial credibility of their subsidiary companies.
Under a PCG arrangement, in the event that a subsidiary fails to perform its contractual obligations, its parent company will effectively step in to complete the work and/or cover all losses and expenses which the third party incurs, or will incur, as a result of the subsidiary’s breach.
However, in a recent broadcast interview, Vice President (VP) Bharrat Jagdeo responded to concerns regarding insurance coverage in the Stabroek Block while pointing out the myriad of ways the Government has, in fact, ensured increased protection for Guyanese in the block.
He compared this with what was done under the former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government. This includes parent guarantees, which he said are currently being negotiated with the oil companies.
“On the insurance side, let me assure [AFC General Secretary David] Patterson that the provision surrounding insurance, in the Yellowtail permit, will be stronger than any they have issued,” Jagdeo said.
“Separately, separately, not part of the permitting process for Yellowtail, we’re working with the companies to secure a parent guarantee that will cover the entire Stabroek Block. Not Liza 1, Liza 2, Payara or Yellowtail, but the entire Stabroek Block. But that is a separate issue.”
The Vice President also assured that strong insurance provisions would be included in the Yellowtail permit. Jagdeo went on to list some improvements that were made to the permits for the Liza 1 and 2 developments.
“Some of the key elements we got Exxon to commit to, was a cradle to grave ownership and management of their waste, that was not in the two other permits. So, any waste generated by this company, they couldn’t give to their subcontractors and say, you deal with that. They have responsibility for that. That’s a massive change,” he said.
“We then dealt with treated water, how the water that Exxon used, that gets pumped up, the level of treatment it has to undergo before it is released, we enhanced that. Thirdly, there was no tax for flaring. They (APNU/AFC) said no flaring, but Exxon was flaring. We put in place a tax that has two components.
He explained that the Government established a tax with a carbon component, one of the first in the world whereby an oil company is taxed for flaring, as well as a loss of use fine in the same permit. VP Jagdeo further pointed out that Exxon is already required to pay for every tonne of emission they put out through flaring.
The oil rich Stabroek Block is 6.6 million acres (26,800 square kilometres). Exxon, through subsidiary Esso Exploration and Production Guyana Limited (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.
Exxon has previously revealed that it is working with the Environmental Protection Agency (EPA) and its co-venturers to put in place a combined US$2 billion in affiliate company guarantees. According to Exxon, this is a value that exceeds equivalent guarantees required by regulators in Canada, the United States and the United Kingdom.
The company has also pointed out previously that EEPGL, the operator of the Stabroek Block, was established back in 1998, and had, as of year-end 2020, almost US$5 billion in assets. These assets are considered a primary form of financial assurance and are separate from the assets of the other Stabroek Block co-venturers. In fact, Exxon noted that these other co-venturers also have substantial assets and share any liability for response activities.
The Yellowtail development, which will be oil giant ExxonMobil’s fourth development in Guyana’s waters, will turn out to be the single largest development so far in terms of barrels per day (bpd) of oil, with a mammoth 250,000 bpd targeted.