Guyana gov’t disagrees with Court on Exxon’s insurance obligations for offshore operations

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The Guyana government and the Environmental Protection Agency (EPA) are set to appeal a recent Guyana Supreme Court ruling that determined that the EPA and ExxonMobil affiliate, Esso Exploration and Production Guyana Limited (EEPGL), breached the terms of the Liza 1 environmental permit. The permit was revised and granted to EEPGL last year for operations in the Stabroek Block, offshore Guyana.

Justice Sandil Kissoon granted several declarations, including that the EPA failed to enforce compliance by EEPGL of its Financial Assurance obligations to provide an unlimited Parent Company Guarantee Agreement and/or Affiliate Company Guarantee Agreement to indemnify and keep indemnified the EPA and the Government of Guyana against all environmental obligations of the Permit Holder (EEPGL) and Co-Venturers (Hess and CNOOC) within the Stabroek Block.

While acknowledging the court’s ruling, the Government of Guyana, as a major stakeholder, maintained in a statement 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 government believes that Justice Kissoon erred in his findings and that the ruling could have significant economic and other impacts on the public interest and national development.

Government said orders will be sought to stay the effect of the ruling until the hearing and determination of the appeal.

Justice Kissoon ruled on May 3 that EEPGL is in breach of its insurance obligations as stipulated in its environmental permit granted May 2022 for the Liza Phase 1 Project

That permit includes language which speaks to the provision of environmental liability insurance together with a parent company or affiliate guarantee agreement. The court ruled that there was a significant degree of non-compliance by the EPA with its responsibilities to enforce the permit with respect to the related matters.

The ruling said that the EPA abdicated the exclusive statutory responsibilities entrusted to it by Parliament under the Environmental Protection Act 1996 and the Environmental Protection Regulations 2000. The document said, “The EPA has relegated itself to a state of laxity of enforcement and condonation compounded by a lack of vigilance thereby putting this nation and its people in grave potential danger of calamitous disaster…”

In light of the foregoing, the court granted an Order of Mandamus directing the EPA to issue an Enforcement Notice to EEPGL to perform its obligations under provisions of the Liza Phase 1 environmental permit which speak to insurance. 

The Court said the notice must state that EEPGL must, within 30 days, provide the unlimited liability Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee to indemnify and keep indemnified the Government of Guyana and the Agency against all such environmental obligations of EEPGL and its Co-venturers within the Stabroek block, together with Environmental liability insurance as is customary in the international petroleum industry. 

Such documents, the ruling indicated, are to be provided by an insurance company with good standing and repute that equates to Grade A Plus. Failing to do so would result in the permit being suspended.

The case was brought last year against the EPA by Frederick Collins and Godfrey Whyte. They were represented by Seenath Jairam S.C., Melinda Janki and Abiola Wong-Inniss.

Government said negotiations between the EPA and EEPGL took almost a year to conclude, resulting in a Parent Guarantee and Indemnity Agreement worth US$2 billion in liability coverage, in compliance with EEPGL’s financial assurance obligations under the Environmental Permit and the Environmental Protection Act. Government said these negotiations and their material details were placed before the court for its consideration.

Notably, the main area of difference between the government’s opinion and the Judge’s ruling appears to be whether the guarantee required by the revised Liza 1 environmental permit grants ‘unlimited’ cover.

The Liza Phase 1 Project achieved first oil back in December 2019 and is currently operated by an EEPGL-led consortium consisting of Hess Corporation and CNOOC Petroleum Guyana Limited. It is producing approximately 140,000 to 150,000 barrels of oil per day. 


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