EPA consulted multiple established jurisdictions to determine guarantee from Exxon

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Guyana’s Environmental Protection Agency (EPA) has come out in defense of its decision to appeal a Supreme Court ruling related to the provision of financial assurance from ExxonMobil in the unlikely event of an oil spill due to Stabroek Block operations. 

The regulator opposes the order by Justice Sandil Kissoon for Exxon to provide an unlimited guarantee to cover Guyana if a disaster occurs. But the EPA and the government disagreed with the judgment, arguing that such a guarantee is unfounded. The agency said the work it has done was not arbitrary, but informed by consultations with practice in multiple established oil and gas jurisdictions. 

In this regard, it said the decision to appeal stems from the belief that the Court failed to acknowledge its careful consideration of international practices and the establishment of a fair and reasonable financial assurance requirement.

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The EPA said it conducted a thorough review of the Insurance Policy provided since 2019 by ExxonMobil, comparing it against typical insurance coverage across various jurisdictions, the EPA found that the coverage related to oil spill liabilities amounted to US$600 million, which was equivalent to or even exceeded the coverage offered in some jurisdictions.

With respect to the guarantee, the agency said it consulted practices in multiple jurisdictions, institutions, and regulators. 

“The EPA wanted to ensure that any amount agreed upon, was not arbitrary, and could be renegotiated based on increased risks and any circumstances that resulted in the amounts specified being exceeded,” it said. “To achieve this, the EPA consulted practice in several jurisdictions, institutions, and regulators such as OGUK [Oil & Gas UK], NOPSEMA [National Offshore Petroleum Safety and Environmental Management Authority], and oil spill liability regimes in the US, UK, China, Brazil etc and found that despite the fact that there was full liability for oil spill on the part of operators, no jurisdiction had unlimited/uncapped  Financial Assurance. Even the US under its Oil Pollution Act (OPA) had capped Financial  Assurance requirements.”

Guidance from OGUK and NOPSEMA Australia indicated that operators in those jurisdictions were required to provide an estimate of the reasonably credible cost of responding to and cleaning up a worst-case spill. This estimate was then used to determine the financial assurance amount, including a declaration of financial capability or rating, the EPA said.

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It then instructed the Permit Holder to provide an estimate and declaration to inform the terms, conditions, and amount of financial assurance in the guarantee. At the time of the hearing, the EPA had received an estimate ranging from US$1.5 billion to US$2 billion and had engaged in several discussions to ensure its accuracy and relevance.

Negotiations between the EPA and the Permit Holder concluded on April 27, 2023, resulting in an agreed-upon amount guaranteed, along with terms and conditions for renegotiation in the event of increased risks or unfulfilled obligations exceeding the guaranteed amount.

The regulator stressed that it makes informed decisions based on available information and research. 

“Contrary to the ruling, the EPA firmly believes that the Permit Holder is strictly and fully liable under the EP Act and the Permit for any pollution or damage to the environment. The agency has consistently maintained that the Permit Holder bears the responsibility to clean up, restore, remediate, and compensate for any harm caused by pollution, whether intentional or accidental,” the EPA said.

The first hearing of the appeal by the Court of Appeal, originally slated for May 11, was refixed to Monday, May 15.

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