The 2016 Agreement and the Environment

Every Man, Woman and Child in Guyana Must Become Oil-Minded - Part 46  

Introduction

For a country that will soon become petroleum dependent, Guyana’s petroleum legislation is not particularly expansive. There are two petroleum Acts – the Petroleum (Exploration and Production) Act comprising seventy-one sections and the largely gutted Petroleum (Production) Act which is now something of a misnomer since all it does is vest the ownership of petroleum resources found in Guyana in the State. That Act has a mere two sections. Then there is the Petroleum (Exploration and Production) Regulations made in 1986 comprising thirty-nine paragraphs, one Schedule containing four Forms, one of which has a First and a Second Schedule.

The word “environment” does not appear in any one of the Acts, and only adverbially in the Regulations in which pollution appears a few times. Fortunately, in 1996 the PPP/C Government passed into law the Environmental Protection Act (EPA). Accordingly, it was under the EPA that an environmental permit was issued on June 1, 2017 valid until 2040 for the Liza Phase 1 Project. This 46th column in the series looks at the conditions under which the environmental aspects of the petroleum operations are required to be conducted.

 

The Agreement

The Agreement itself contains one Article (28 – Social Responsibility and Protection of the Environment). That Article requires the Contractor to obtain an environmental authorization as required from the Environmental Protection Agency and comply with the provisions of that EPA in relation to any activity of this Agreement governed by the EPA. The Permit issued by the EPA as we shall soon see is issued not to the Contractor but to the Operator!

The Contractor is required to take necessary and adequate precautions, in accordance with good international petroleum industry practice, against pollution and for the protection of the environment and the living resources of the rivers and sea. The obligation does not seem overly onerous. If failure to comply with the provisions of the Article  results in pollution or damage to the environment, riverain or marine life or otherwise, the Contractor is required to take all reasonable measures in accordance with good international petroleum industry practice to remedy the failure and its effects. Where pollution occurs, the Contractor is required to treat or disperse it in an environmentally acceptable manner.

What happens if the pollution or damage is caused not by the failure of the Contractor to comply but as a result of an accident or an act of (poor) God? And let us not forget that the Agreement allows the Contractor to self-insure.

 

The Permit

The Permit issued by the EPA grants to Esso Exploration and Production Guyana Limited (EEGPL) the right to undertake Phase 1 of the Liza Development Project. The Project includes drilling of subsea development wells, installation and operation of subsea equipment, use of a floating production storage and offloading vessel (FPSO) to process, store and offload the recovered oil during production operations within the Stabroek PPL as well as the use of shore-based facilities and marine aviation services to support those activities. The Permit itself states that the operations must be carried out in the manner indicated in a set of documents comprising:

● an Application submitted on July 5, 2016; 

● the approved Environmental Impact Assessment dated June 1, 2017; and

● the Environmental and Socioeconomic Management Plan dated June 1, 2017 which includes the Revised Oil Spill Response Plan and Wildlife Response Plan dated June 1, 2017.

Those dates seem interesting with the Permit requiring some form of compliance with documents that bear the same date as the Permit. Interestingly too is the fact that Rod Henson, Esso’s country manager did not require any time for him, the environmental specialists in the parent company in The Bahamas, or its ultimate parent in the USA, or the two other oil companies – Hess and CNOOC/Nexen – both incorporated offshore – to study the terms and conditions attached to the Permit. The Permit and its acceptance were both executed on the same date, i.e. June 1, 2017.

 

Background

A short background of the Project may help to put the Permit in some context. This background is taken from a January 2017 EEPGL document so the carelessness with accuracy for which EEPGL is becoming well known may have to be forgiven. That document reports that EEPGL has a Petroleum Agreement with the Government of Guyana “dating back to 1999” and covering approximately 26,806 km2 (10,350 square miles) in the Stabroek block. It went on that in 2014, Hess (30%) and Nexen (25%) acquired a commercial interest to the block.

In fact, a Petroleum Agreement dated June 27, 2016 replaced the 1999 Agreement which would have expired. And in the later Agreement, EEPGL’s interest was stated at 45% with the other two companies holding the balance of 55%. Esso was however named in the 2016 Agreement as the Operator although it would have seemed more appropriate either for EEPGL to have applied for and obtained the Permit as Operator or that the application and Permit should have been in the joint names of the three contractors. This is not a cosmetic matter – the obligations of the other two contractors have crucial liability implications and ought not to be taken lightly, or worse still, be completely ignored. 

The project lifecycle for Phase 1 is scheduled to include engineering, construction, installation, commissioning, start-up, operations and maintenance, and decommissioning. The engineering phase will include design, Front-End Engineering and Design (FEED), and detailed engineering. The construction phase will include procurement, fabrication and construction, drilling, installation, and hook-up. Operations and maintenance will follow commissioning and start-up, and will be the longest phase of the project with a duration of at least 20 years.  

At peak, EEPGL will utilize approximately 1,200 personnel offshore during the stage where the wells are being drilled and the offshore oil production facilities are being installed. This number will decrease to less than 200 personnel during the production operations phase. A smaller number of personnel will be utilized at the onshore support facilities.

As the Permit Holder, among other terms and conditions:

● EEPGL must comply with any directions of the EPA where compliance with such directions is necessary for the implementation of any obligations of Guyana under any treaty or international law related to environmental protection.

● Is obligated to restore or rehabilitate the environment impacts resulting from any breach of the conditions of this permit.

● Must submit an updated environmental impact statement and environmental Socio economic management plan within one year of 1st June 2017. Coincidentally, today is the deadline for the submission of that statement and plan. 

● Must comply with all applicable laws and regulations, including but not limited to, the Guyana Environmental Protection Act 1996.

● Utilization of the best available techniques, which consider economic and technical feasibility, as well as the facilities and controls described in the Environmental Impact Assessment, to prevent or mitigate pollution in respect of any aspect of the operation which is not regulated by any other condition of this permit.

● Annually, to quantify aggregate greenhouse gas emissions from all facilities and offshore support activities which are directly owned or controlled by EEGPL in accordance with internationally recognised methodologies.

● Operate all mechanical equipment in accordance with manufacturers’ specifications.

● Utilise low sulphur fuel for major vessels, where available and commercially viable.

To be continued next week