Via The Guardian, an article on whether a recent Guyana court ruling requiring ‘unlimited guarantee’ from oil firms to cover costs of spills could change offshore drilling throughout region:

A ruling from Guyana’s high court could change the face of offshore oil drilling throughout the Caribbean, according to financial and legal analysts.

The ruling ordered the country’s Environmental Protection Agency (EPA) to require an independent liability insurance policy from Esso Exploration and Production Guyana Limited (EEPGL) and an “unlimited guarantee” from its parent company, ExxonMobil, in the case of any damage caused by the company’s oil and gas development in the country.

“ExxonMobil Guyana and our Stabroek block co-venturers have adequate and appropriate insurance and proposed guarantees in an amount that exceeds industry precedents and an estimate of potential liability,” Exxon said in a statement.

The $600m (£481m) insurance policy EEPGL holds from Exxon’s wholly owned subsidiary Ancon UK Ltd, and its $2bn parent company guarantee is well below the potential cost of damages for a catastrophic event, however.

“BP has said it spent $69bn to meet its obligations after [the 2010] Deepwater [Horizon spill],” said Tom Sanzillo, the director of finance at the Institute for Energy Economics and Financial Analysis. That sum included the cost of immediate response and cleanup, economic claims from local residents as well as fishing and tourism businesses affected by the spill, legal settlements, and restoration.

The environmental impact assessment for the project in the Guyana case, the first of five Exxon well sites permitted there so far, found that a catastrophic well event could carry oil to 12 different Caribbean islands.

“These are countries whose economies rely heavily on tourism and fishing,” Sanzillo said. “Damages could be in the tens of billions, or more. Guyana taxpayers are currently exposed.”

Justice Sandil Kissoon ruled that it should be the company, not the country, that takes on that risk, and that the law is clear on this requirement.

“I remember it distinctly because I wrote the language myself,” said Dr Vincent Adams, the former head of Guyana’s EPA. “It says that insurance shall be reviewed by the agency on an annual or regular basis to ensure that it’s of the right type, et cetera. And then the key is it says that there has to be a parent company guarantee to cover everything over and above that insurance amount. It’s very clear.”

Exxon Guyana’s president, Alistair Routledge, has made such assurances verbally, saying in an interview last year that “there is no limit to what we would do to respond” to an oil spill.

“Exxon says all the time: ‘We are Exxon, we would never walk away,’” said Adams. “That’s nice. Why not put it in writing?”

Such a guarantee would be unusual in the oil industry. In Exxon’s home country, for example, while liability for immediate offshore oil spill cleanup is unlimited, liability for the resultant damages is capped at $167.8m. BP’s $69bn payout came from a mix of legal settlements it was required to pay and voluntary payments.

Various officials in Guyana’s government, which has been supportive of Exxon to date, issued statements about the negative impacts the ruling would have if it stands.

“The ruling can have profound ramifications and grave economic and other impacts on the public interest and national development,” the country’s attorney-general, Mohabir Anil Nandlall, said.

International experts in the offshore industry also weighed in. Elmer Danenberger, a former US Department of Interior engineer who consulted for the National Commission on the BP Deepwater Horizon oil spill, wrote of the ruling: “Unlimited liability is a rather daunting and open-ended obligation that would trouble permittees in any industry.”

Since news of the ruling broke, Exxon’s stock price has dropped more than $10, a nearly 12% decline in two weeks.

Meanwhile, environmental lawyers are looking to the case for inspiration. “Lawyers from around the world who are fighting oil and gas, off the coasts of southern Africa, off the coast of Mozambique, and in other places in the Caribbean are going to be looking at this decision and, and paying close attention to whether the financial guarantees being provided in other oil and gas exploration and development permits are at an equivalent level,” said Carroll Muffett, the CEO and president of the Center for International Environmental Law.

The ruling has also prompted two new shareholder resolutions proposed in the leadup to Exxon’s annual meeting on 31 May. One seeks disclosures that would allow investors to better evaluate the scope of potential liability associated with a worst-case spill.

The other requests an actuarial assessment of the potential cumulative risk to Exxon from current environment-related litigation against the company and its affiliates, including the recent ruling, which is one of seven cases the company is facing in that country.

An appeal against the ruling has been lodged by Guyana’s EPA. If overturned, the plaintiffs will probably appeal against that decision to the Caribbean court of justice, whose justices would then hold the fate of oil drilling in the region in their hands.