Exxon’s continuous flaring a breach of contract – Int’l Lawyer

International lawyer, Melinda Janki, believes that ExxonMobil’s flaring of associated gas at the Stabroek block’s Liza Phase One operation, appears to amount to a breach of contract. Associated Gas is gas which is produced from an oil field, as opposed to Non-Associated Gas, which comes from gas fields.

Article 12.1 of the Stabroek Block production sharing agreement (PSA), sets out the terms for the treatment of Associated Gas. It states “The Associated Gas produced from any Oil Field within the Contract Area shall be with priority used for the purposes related to the operations of production and production enhancement of Oil Fields, such as Gas Injection, Gas Lifting and power generation.”
Further down this provision, the principle of “full utilization” of the Associated Gas is stipulated.
Janki’s interpretation of Article 12.1 mandates that ExxonMobil’s local subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) utilize the Associated Gas for those purposes before anything else is done with the gas.

“The Petroleum Agreement clearly states,” Janki told Kaieteur News, “that Esso and partners must re-inject any associated gas that they do not use or sell. They are not allowed to flare it. They are not using the gas. They cannot sell it on the market because nobody wants to buy associated gas. But they are not re-injecting it, they are flaring it. Esso and partners appear to be in breach of the Petroleum Agreement and that is a very serious matter.”

ExxonMobil’s design for the Liza Phase one operation includes equipment to be used for the safe re-injection of produced Associated Gas. This mechanism is meant to ensure that the gas is not wasted, and that there is enough pressure in the reservoir to maintain optimal oil production.
The Liza Phase One environmental impact assessment, which is grounded in mention in the Stabroek block PSA, acknowledges temporary non-routine flaring at the operation. This allowed for ExxonMobil, during Liza Phase One startup in December, to fully commission the gas injection equipment.

The EIA written by Exxon itself, Janki pointed out, specifically frowns on the flaring of the Associated Gas. On page 41 of the 498-page document, it is stated “produced gas not used as fuel gas on the FPSO will be re-injected under normal operations. Continuous flaring of gas on a routine basis is not preferred, primarily due to the associated air emissions.”

In the case of Exxon’s Liza Phase One operation, flaring went way past the project startup, for much longer than the Environmental Protection Agency (EPA) anticipated. The company claimed it had to flare, since its gas compression equipment was defective and needed to undergo repairs overseas. Said repairs reportedly proved difficult to undergo with haste, given limitations the COVID-19 pandemic safety guidelines have placed on companies.

The EPA had responded by slashing ExxonMobil’s Liza Phase One production in June, from the 80,000 barrels per day, where it hovered in the month prior, to a maximum allowance of 30,000 barrels per day. This was meant to limit flaring of toxic gas while ExxonMobil awaited equipment repairs.
At the time, the regulator was headed by Dr. Vincent Adams, who had said that there is no way ExxonMobil can go back to the significant levels of flaring.

However, shortly after the People’s Progressive Party Civic (PPP/C)’s assumption of office in August, Dr. Adams was sent on leave and was replaced by Sharifah Razack, one of the EPA’s directors. Shortly before Adams’ removal, he told Kaieteur News that ExxonMobil is exploiting a loophole in its Liza Phase One environmental permit so it could continue to flare.
His view, told to Kaieteur News in June, is that the flaring is not in breach of the license; that the flaring counts as “start-up”.

He had said that he was rewriting the environmental permits for Liza Phases One and Two to close loopholes, as that office gave him the power to so do. However, his removal placed an effective halt on the rewriting of the permits.
“Under basic contract law,” Janki said, “Esso and its partners are liable for all the damage they have caused to Guyana and the Guyanese people by this breach of contract. The minister should insist that Esso and its partners compensate Guyana for the damage they have caused by flaring the associated gas. His job is to protect Guyana not ExxonMobil.”

The new government has set up a mechanism by which the Stabroek block co-venturers would pay fines for flaring gas, but that only applies to the upcoming Payara project.
The new government intends to wait until the earlier two permits for Liza Phases One and Two expire, to secure better terms. Meanwhile, Guyana gets no compensation for the flaring of what has now amounted to 12 billion cubic feet of Associated Gas.

Janki urged current Minister of Natural Resources, Vickram Bharrat to take action.
“Has the Minister sought legal advice?” Janki asked. “Is he going to make any effort to obtain damages for breach of contract or is he simply going to do nothing?”