Appeal Court Undermines Critical Oil Spill Safeguard with Parent Guarantee Ruling

BY: Dr. Vincent Adams

While looking ahead to a likely appeal to the Caribbean Court of Justice, Guyanese and Caribbean citizens must be worried sick about the Appeal Court’s devastating overturn of Justice Sandil Kissoon’s May 3, 2023 sage landmark Decision requiring Stabroek Block operator, ExxonMobil (Exxon) Guyana Limited (EMGL) to provide a Parent Company Guarantee (PCG) from its parent company Exxon and affiliates CNOOC and HESS to cover 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬 related to an oil spill.

As the Environmental Protection Agency (EPA) Head who created the PCG policy as the only necessary means to protect Guyana’s interest, with all due respect to the Court, I hands down disagree with its overturning of Kissoon’s profoundly thorough understanding of the context and well thought out Decision heralding the nostalgic feeling of national independence until now when ironically, the nation is about to celebrate its 60th anniversary of independence. Founding fathers Forbes Burnham and Cheddi Jagan must be turning in their graves witnessing the surrendering of Guyana’s sovereignty to new colonial masters such as corporate giant Exxon.       

Unbelievably, although Exxon unconscionably corrals 86% of Guyana’s God given oil patrimony, the Court still chose to exonerate this filthy rich oil giant from all liabilities. EMGL, and 𝐧𝐨𝐭 Exxon, is the sole contractor party to the Production Sharing Agreement (PSA) and all permits; and so, owns all of the liabilities despite 𝐧𝐨𝐭 𝐡𝐚𝐯𝐢𝐧𝐠 𝐚𝐬𝐬𝐞𝐭𝐬 to cover an oil spill. Consequently, in the event of a spill, EMGL declares bankruptcy and Exxon goes scot-free, leaving Guyana holding the bag of financial bankruptcy and environmental catastrophe – unquestionably the trickery behind Exxon creating EMGL to insulate itself from liability; hence, the necessity for originating the PCG to save Guyana. Exxon would never get away with such a scheme in its home country of the USA; but, as Judge Kissoon wisely puts it “EMGL is engaged in a course of action 𝐢𝐦𝐩𝐞𝐫𝐦𝐢𝐬𝐬𝐢𝐛𝐥𝐞 only by the omissions of a 𝐝𝐞𝐫𝐞𝐥𝐢𝐜𝐭, 𝐩𝐥𝐢𝐚𝐧𝐭 𝐚𝐧𝐝 𝐬𝐮𝐛𝐦𝐢𝐬𝐬𝐢𝐯𝐞 𝐄𝐏𝐀…putting this nation and its people in 𝐠𝐫𝐚𝐯𝐞 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐝𝐚𝐧𝐠𝐞𝐫 𝐨𝐟 𝐜𝐚𝐥𝐚𝐦𝐢𝐭𝐨𝐮𝐬 𝐝𝐢𝐬𝐚𝐬𝐭𝐞𝐫.”

Unfortunately, it appears that the Court accepted the nonsensical ghost defence arguments that the word “unlimited” is not in the permits; and that the guarantee should be capped with an estimate. The following EPA permit clauses in litigation are presented below for readers to judge for yourselves:   

Clause 14:1 “The Permit Holder (EMGL) is liable for 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬 associated with” an oil spill. 𝐍𝐨𝐭𝐞 the specificity of 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬 (definition of “unlimited”) which means 𝐧𝐨𝐭 𝐜𝐚𝐩𝐩𝐞𝐝 for example at the phantom $2 Billion estimate (accepted by the Court).

Clause 14:10 “EMGL must provide from the Parent Company or CoVenturers (CNOOC and HESS) one or more legally binding agreements in which they undertake to provide adequate financial resources to pay their respective environmental obligations if EMGL “𝐟𝐚𝐢𝐥 𝐭𝐨 𝐝𝐨 𝐬𝐨 ”. 𝐍𝐨𝐭𝐞 the specificity of “if EMGL 𝐟𝐚𝐢𝐥 𝐭𝐨 𝐝𝐨 𝐬𝐨”– dictating that parent Exxon must provide financial assurances/guarantee for 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬 which EMGL cannot pay (𝐟𝐚𝐢𝐥 𝐭𝐨 𝐝𝐨 𝐬𝐨) Again, the definition of “unlimited”.  

In summary, clause 14.1 mandates that EMGL as the permit holder is responsible for 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬. However, if EMGL has inadequate resources to cover all costs “ 𝐟𝐚𝐢𝐥 𝐭𝐨 𝐝𝐨 𝐬𝐨 ”, then 14.10 orders that deep pocket parent Exxon and CoVenturers are liable for 𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬 over what EMGL can cover. It is therefore unfathomable how such “unambiguous language” (Judge Kissoon’s words) could mean anything but an “unlimited guarantee”, since 𝐚𝐥𝐥 means no limit. Yes, the term “unlimited” is not mentioned in the permit, but that is ghost argument if the words mentioned mean the same as “unlimited”. Confusingly, the Court also found that “while Exxon remains liable for pollution related damages, that liability does not automatically require unlimited financial assurance”, completely ignoring the key operative words “𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬” at Clause 14.10 which could only mean “liability for 𝐚𝐥𝐥 pollution related damages”. It begs the question, why were key words “𝐚𝐥𝐥 𝐜𝐨𝐬𝐭𝐬” so visibly omitted from this most consequential finding?

Further, instead of “unlimited guarantee”, the ruling required an estimate of the damage as Financial Assurance, hinting that the Court may have been terribly misled that such an estimate is possible or ever done. Whosoever could do such an estimate has to be a fortune teller and should immediately purchase a lottery ticket. Nonetheless, just to humor such an ludicrous thought, the only possible estimating method would be of an analogous type using a similar situation such as the Macondo oil spill which occurred in our backyard, gushing 5 million barrels oil for 87 days costing British Petroleum $US145 B– none of which was, or could have been estimated! thereby leading to the million dollar question that was not addressed by the Court as to who will pay the cost of a Macondo type spill over and above Exxon’s farcical US $2B Assurance? It must be noted that this $2B ploy was Exxon’s first attempt in 2019 with insurance papers in hand to counter the EPA’s demand for the PCG, but it was instantly rejected.     

Another frivolous defence argument was that there was no specific PCG, when in fact, there can be no more of a substantively bona fide PCG than the legal language in the EPA Permits shown earlier. The only required side Agreement was to be amongst Exxon, CNOOC and HESS referenced in clause 14.10 earlier as the “binding agreement” to show how the three entities will share “pay their respective environmental obligations” which had to be approved by the EPA before start of operation. If the Govt testified that such an Agreement never existed, then they admitted to violating the permits by approving startups without that Agreement. The Court should have hoisted them by their own petard.

Sadly, the whole crux of the matter flies in the face of Guyana’s sovereignty at this time of the nation’s momentous 60th independence anniversary celebration, when Exxon is being enabled by authorities to evade its moral and financial obligation to bear all costs of spill damages occurring from operations earning it $Trillions, while cold bloodedly exposing to financial and environmental ruins, the poverty-stricken country that generously furnishes its wealth. Worse yet, besides dumping billions of barrels of hot, toxic, radioactive and oil laced produced water into our clean ocean, destroying its ecology and millions of fish eggs and fish life, and flaring of billions of cubic feet of toxic produced gas into our pristine air, causing health, acid rain, and climate change problems, Exxon is green-lighted to recklessly produce above the legal safe limits enshrined in the Environmental Impact Assessment, thus enhancing the chances of a spill without any liability coverage by virtue of this ruling. 

With Guyana at its tender age of policy and law making for this critical oil sector, consequential decisions such as this ruling must be informed by the numerous bad lessons learned from other countries. A case in point is the litigation in the British Courts involving Nigerians suing Shell Oil Co. for costs covering oil spills in Nigeria; but, because of the absence of a PCG, Shell’s defence was that the spills occurred under their subsidiary company as their operator, making Shell not liable. Surprise! Surprise!

Also, Repsol which operates in Guyana, was responsible for a small 12,000 barrels oil spill in Peru; and absent tight liability laws, the Government was forced to seize the passports of Repsol’s Executives and sued the company for US $Billions for cleanup and other liabilities, in addition to urgently establishing new laws to protect Peru from recurrences of this kind.

Lastly, it must not go unnoticed that Exxon had willingly agreed to, signed, and honored the PCG language first enshrined in the yellowtail exploration well permit in 2019 and repeated in all of the subsequent permits thereafter; but, only became an issue when the PPPC took office and sided with Exxon to negate it, resulting in the lawsuit by the two patriotic citizens that has brought us to this point.

𝙏𝙝𝙚 592 𝙂𝙪𝙖𝙧𝙙𝙞𝙖𝙣-𝙏𝙧𝙪𝙩𝙝 , 𝘼𝙘𝙘𝙤𝙪𝙣𝙩𝙖𝙗𝙞𝙡𝙞𝙩𝙮,𝙄𝙣𝙩𝙚𝙜𝙧𝙞𝙩𝙮 𝙄𝙣𝙂𝙪𝙮𝙖𝙣𝙖 𝘼𝙣𝙙 𝘾𝙖𝙧𝙞𝙗𝙗𝙚𝙖𝙣 𝙋𝙚𝙧𝙨𝙥𝙚𝙘𝙩𝙞𝙫𝙚𝙨.— ✦—