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Exxon Narrowly Avoids Oil Production Halt In Guyana

An appeals court has suspended an order issued by a lower court that could have seen supermajor Exxon lose its license to operate the Liza-1 offshore well that yields about half of the country’s oil output.

According to its contract with the Guyanese government, the consortium that operates the Liza-1 well and explores in the whole Stabroek block, must have insurance cover to be able to pay all costs of a potential spill plus an unlimited guarantee provided by the lead partner, which is Exxon, that covers everything not covered by the insurance policy.

Yet a Guyanese court recently found that this guarantee was non-existent and, in the case of a spill, the Guyanese state would have to shoulder the burden of any costs not covered by the insurance policy. Exxon and its partners appealed the decision and won.

Despite the favorable decision of the appeals court, Exxon would still need to make a security deposit of $2 billion within ten days, Argus reported, while the case waits to be adjudicated in the top appeals court of the South American country.

If the company doesn’t pay, the demand for an unlimited guarantee for insurance coverage would be reinstated, forcing Exxon to suspend production. This would cost the consortium partners some $350 million monthly in lost revenues, Reuters reported.

Exxon and its partners Hess Corp. and China’s CNOOC have made some 30 discoveries offshore Guyana since they started exploring the Stabroek block. Production is climbing consistently, likely to hit 400,000 bpd by the end of this year. Guyana is a priority jurisdiction for Exxon, along with U.S. shale.

Exxon, Hess, and CNOOC are the only oil producers in Guyana, but the country’s government has big plans. Guyana is tendering 14 more blocks this year as it seeks to speed up its transformation into a major oil producer while reducing Exxon’s dominance of its emerging oil industry.

By Irina Slav for Oilprice.com

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