After months of intense negotiations on oil spill coverage and other insurance provisions, ExxonMobil’s local subsidiary Esso Exploration and Production Guyana Limited (EEPGL) was last week granted an environmental permit for its Liza Phase 2 project.
The permit’s granting by the Environmental Protection Agency (EPA) came on the same day that ExxonMobil and its partner Hess played up developments offshore Guyana with Hess hinting at the possibility of first oil from the Liza Phase 1 project later this year.
It appears that the Liza Phase 2 permit was officially granted after both companies held their first quarter 2019 earnings calls – Hess on Thursday morning and ExxonMobil on Friday morning.
“Yes it is true. They have met all the requirements as requested, including approval of their plan for development from the Department of Energy,” EPA head Dr Vincent Adams told Stabroek News when contacted yesterday.
“We did agree on the language to ensure that all costs are to be covered by both insurance and the parent companies,” he added, when pressed to explain.
The issuance of the permit had hit a snag last month as not only did the US$2 billion+ coverage ExxonMobil had secured from a United Kingdom insurance firm did not meet local insurance requirements, but the language used in the company’s application did not satisfy the EPA that this country would be covered above that amount by EEPGL’s parent company.
EEPGL, whose parent company is ExxonMobil, and its partners Hess and CNOOC Nexen, has an agreement with the Government of Guyana for its offshore operations in the 6.6 million acres Stabroek Block. EEPGL is the operator and holds 45 per cent interest in the block while Hess Guyana Exploration Ltd holds 30 per cent and CNOOC Nexen Petroleum Guyana Limited, 25 per cent.
Both ExxonMobil and Hess last week had their first quarter earnings call with executives of both companies highlighting developments in the Stabroek Block, which included the Liza Phase 2 plan.
Fielding questions from investors, Hess’ Chief Executive Officer, John Hess, assured that Guyana’s political climate would not affect operations, even as the company’s Chief Operating Officer, Greg Hill, expressed confidence in them obtaining the Liza 2 permits.
“Can you speak to the process to sanction Liza 2 and any governmental challenges you expect to get that sanctioned and permitted? And second of all, what’s the latest news on the no-confidence vote? And does that have any impact on future permitting?” Ross Payne of Wells Fargo Securities asked.
“I think I will talk to Phase 2 and John will speak to no-confidence vote. But on Phase 2, as we said in our opening remarks, the approval is imminent. So, we don’t expect any issues,” Hill replied.
“In terms of the no-confidence vote, as you probably are aware, the no-confidence vote was overturned in court. It’s now going to a higher court to have that ruling upheld. We expect that to occur during the month of May and I can assure you, the current government is running their approval process in the normal course of business, and we don’t see the no-confidence vote or the overturning of the no-confidence vote of having any impact in the day-to-day running of the Guyanese government and their oil affairs,” Hess added.
For ExxonMobil’s part, it informed that a Final Investment Decision on the Lisa 2 project was awaiting governmental and regulatory approvals, as the company reiterated most of what it had said on its plans through to 2025, at its December Investors Conference.
“The Liza Phase 2 developments will use the Liza Unity FPSO (Floating Production Storage and Offloading vessel), which will have the capacity to produce up to 220,000 gross barrels of oil per day with startup expected by mid-2022. A final investment decision is expected soon subject to government and regulatory approvals. Planning is also underway for a third phase of development at the Payara field, which is expected to have the capacity to produce between 180,000 and 220,000 gross barrels of oil per day from the third FPSO. Sanction is expected to occur before the end of this year with first oil in 2023,” said Neil Hansen, Vice President of Investor Relations and Secretary of ExxonMobil.
Global standards
This newspaper reported last month that liability coverage that meets global standards and language for coverage were areas that had caused some difficulty in the negotiations between the company and the EPA.
“The one thing I have been asking is: ‘What is the international standard? And if that standard would be used here?’ We are not asking out of the ordinary. All we want to have is what are they required to do for the developed countries and we should not expect or will accept anything less. In the application for the permit, there wasn’t evidence presented to satisfy the requirements for insurance and the key was in the clause for liabilities where it said EEPGL will cover. EEPGL is a limited liability company, they do not have the assets to cover. They are a subsidiary of ExxonMobil as everyone knows. Verbally, I was given the assurance that ExxonMobil would pick up the cost over and beyond the insurance coverage. But you have to understand that in business getting documentation is key. Yes, putting it in black and white. I wanted specificity as to how it would be covered by insurance and the parent company. ‘Oh, it will,’ then fair enough, show me in writing how,” Adams had previously explained.
Attorney Melinda Janki had expressed concern that the liability coverage submitted by ExxonMobil was not enough as she pointed to the US$65 billion and climbing price tag of British Petroleum’s (BP) 2010 Deepwater Horizon spill. Janki had pointed to EEPGL’s financial statements for 2015, saying that the monies that the company had was not enough for insurance. As at December 31st, 2015, EEPGL’s total assets stood at $11,311,566,872.
She had said that the US$2 billion amount is not enough coverage and the issue needs to be addressed lest this country is left hapless in the event of an oil spill or other big accident.
Adams had pointed out that on careful analysis, persons would understand that it was for the same reason that the EPA asked ExxonMobil to provide coverage for its subsidiary and it did. However, a binding clause of a maximum amount and how that would be paid was not stated.
Adams yesterday pointed out there were “intense discussions and negotiations about language” when ExxonMobil met with his agency’s officials and the Department of Energy.
He expressed that he was “relieved” that an agreement was reached between the sides where the “coverage may have exceeded any such liabilities of its kind which proves that ExxonMobil is committed to assuring a safe and environmentally sound operation and will not walk away in the event of an incident.”
As it pertains to the issue of the company now meeting local insurance regulations, Adams thanked Bank of Guyana Governor and Commissioner of Insurance Gobind Ganga for the guidance he has given in resolving the issue. He explained that with a commitment from the company to meet local insurance laws, it will be Ganga and local insurance regulators who will be working with the company to see this happen.
And with a number of operators exploring start-up possibilities, they will have to match the assurances and liability coverage given by ExxonMobil as Adams said that the language used in the agreement between the EPA and EEPGL will now “form the template for all other such arrangements.”
Meanwhile, as it pertains to first oil possibly being earlier than the projected first quarter of next year since the Liza Destiny FPSO should arrive in Guyana by August of this year, Hess acknowledged that the project is moving ahead of schedule.
“Well, I think as we said in our opening remarks, we expect first oil by first quarter 2020. The project is going well. The project is ahead of schedule. There is a chance that it will be on before that. I think it’s the reason that there is a little bit left in the schedule is because we started all the open water activities. So, I think it’s prudent to stick with our by first quarter 2020 for now until everything shows up in theater and you start the open water work,” Hess said, in response to a question posed by Bank of America representative John Abbott for his colleague Doug Leggate.
