ExxonMobil’s first development off Guyana found to be in breach of oil spill insurance obligations

A Guyanese court recently ruled that ExxonMobil failed to provide adequate insurance for the costs of recovering from a potentially catastrophic oil spill from its first oil development project located off the coast of Guyana.

According to High Court Justice, Sandil Kissoon, ExxonMobil “engaged in a disingenuous attempt” to dodge the full responsibility under its environmental permit for the Liza Phase I development for any damage that might be caused, as the firm “engaged in a course of action made permissible only by the omissions of a derelict, pliant, and submissive Environmental Protection Agency.”

“The agency sought refuge in silence, avoidance, concealment and secrecy notwithstanding the grave potential danger and consequences to the state and citizens if an event occurred at the Liza Phase 1 petroleum production facilities in the Stabroek offshore Guyana in absence of such financial assurances mandated by the environmental permit,” wrote the judge in the ruling.

The environmental impact statement for the project identified 12 islands with a gross state product of $147 billion that could be affected by an oil spill. Currently, the Liza field in the Stabroek block has two FPSOs and the first one, Liza Destiny, started production back in December 2019 as part of the Liza Phase 1 development. The second FPSO, Liza Unity, started production in February 2022, as part of the Liza Phase 2 development. 

The Stabroek block covers 6.6 million acres (26,800 square kilometres) and is operated by ExxonMobil’s affiliate Esso Exploration and Production Guyana with a 45 per cent interest. The company’s partners in the block are Hess Guyana Exploration (30 per cent) and CNOOC Petroleum Guyana (25 per cent).

“The court found that the duties, the liabilities and the obligations of Esso as stipulated at Condition 14 of the permit were set out in clear and unambiguous terms, in simple language that boded no uncertainty or lent itself to ambiguity. The court found too the unlimited liability which is exclusively that of the permit holder, Esso, is by no means unusual in any sense, since Esso, together with its co-venturers, are engaged in petroleum production activities in the Stabroek block for profit,” explained Justice Kissoon in the ruling.

As a result of the court’s decision, ExxonMobil has 30 days to provide unlimited insurance coverage for the project, since the court ordered the Environmental Protection Agency to issue an enforcement notice to Esso and Exxon Mobil to ensure it provides this to safeguard Guyana against the devastating effects of an oil spill.

Tom Sanzillo, director of financial analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), commented: “Since the judge found that ExxonMobil hasn’t provided sufficient insurance, Guyana taxpayers are currently exposed. The potential consequences for Guyana are catastrophic.

“The judge found that the unlimited parent guarantee was clear and well known to the company and Guyana EPA. The parties had time—since before December 2019, when production started—to settle the final terms of the insurance.”

Based on IEEFA’s statement, the ruling marks the second time that the deal has been found to violate local rules, since, a separate lawsuit resulted in a 2020 ruling that cut the length of the consortium’s production permits in Guyana from 23 years to five. In addition, litigation is pending over flaring from the project.

Even though a 2016 agreement between the consortium and Guyana prohibits flaring, more than 15.1 billion cubic feet of gas had been flared by July 2021, thus, ExxonMobil, which recorded nearly $56 billion in profits in 2022, paid an $8.4 million penalty to the Guyana Environmental Protection Agency last year.

The IEEFA underscores that the unlimited guarantee has “a specific meaning” in light of past oil spills, as BP reported that it provided $69 billion in payments to meet its obligations due to the 2010 Deepwater Horizon spill in the Gulf of Mexico, including response, cleanup, economic claims, government payments, settlements and restoration.

The judge’s decision and order comes shortly after the oil major made a final investment decision (FID) to proceed with Uaru, its fifth oil development project in Stabroek block offshore Guyana.

This project will have a production capacity of approximately 250,000 gross barrels of oil per day with production targeted to begin in 2026.