WITH respect to recent debates about the role of insurance in oil spills and who bears responsibility when such disasters occur, it is important to lay out the facts. Concerns about something as damaging as a spill and who would pay for it are justified. But it is vital to understand that insurance is not the primary form of assurance companies normally provide.
Insurance is ultimately just one of many avenues for financial assurance in case of a disaster. The first line of defence is always prevention and thankfully ExxonMobil is considered an industry-leading operator in this respect as a result of reforms made over the past three decades including a dedicated in-house spill response research programme.
During exploration, development and production, companies maintain many types of insurance to cover worker safety, construction, accidents, and more. But much of the media coverage thus far has mistakenly assumed that it is this insurance that pays for rare disasters like oil spills. As made evident by history, this is not normally the case.
When it comes to a significant accident like a spill, a company will normally pay most of the costs from its own pocket, which allows response activities to begin immediately. The example of the 2010 BP spill in the Gulf of Mexico illustrates how a company is held financially responsible for a spill, and where the funding for that liability comes from. Damages and liability costs were largely paid for directly by BP and other culpable parties such as BP’s drilling partners. The small remaining portion of the $69 billion in costs was split between insurance and the U.S. Coast Guard’s Oil Spill Liability Trust Fund, which is funded largely via taxes levied on the oil industry.
While insurance companies and lawyers may take time to determine liability, it is paramount that clean up and mitigation activities begin immediately following a spill. An insurance company must work out the legal and monetary details of lawsuits and damages, which can take years and often end up being only a small percentage of the actual costs. That’s a major reason why many companies choose either to self-insure or simply maintain large cash reserves to pay for any damage that might occur in the rare event of a spill.
ExxonMobil has made it clear that its own ability and willingness to pay for any damage caused by oil is not tied to the level of insurance and that it will cover all legitimate costs. The company’s local subsidiary, Esso Exploration and Production Guyana Limited maintains roughly US $5 billion in assets as additional assurance.
In the event of a spill, there would be little time to wait for insurance. Resources would have to be deployed immediately, in conjunction with the Civil Defence Commission (CDC)—the designated national authority with general responsibility for response to oil spill emergencies. The Maritime Administration Department and the Guyana Energy Agency would also be key partners responsible for coordinating response activities and operations. Oil and gas companies are required to have a comprehensive CDC-approved oil spill plan in order to operate in Guyana.
ExxonMobil, in collaboration with the CDC, also developed the oil spill response training for its Volunteer Emergency Response Team, which trains representatives from state bodies and citizen volunteers to respond in emergency situations such as oil spills.
The Stabroek Block companies are also negotiating with the government to provide an additional US $2 billion in guarantees—a level that meets international standards and even surpasses what regulators in countries like the U.S. and Canada require.
In addition to abundant financial, operational, and human resources, Guyana is part of the regional Caribbean Islands Oil Pollution Preparedness Response and Cooperation Plan, under which island states and territories may cooperate at an operational level in responding to oil spill incidents. These measures mean Guyana and ExxonMobil Guyana are well-positioned to respond to an incident if it does happen.
But prevention is, and should remain, the priority. The government should continue to implement and refine smart regulations to ensure that the growth of its oil industry does not come at the cost of health and safety.