Critique of U.S.

Capital Energy Oil Exploration Drilling Environmental Statement, Belize

For the Sarstoon Temash Institute for Indigenous Management (SATIIM) Richard Steiner, Professor and Consultant Oasis Earth, Anchorage Alaska [richard.g.steiner@gmail.com] October 15, 2012 _________________________________________________________________________________________________ Overall Finding: The Environmental Statement (ES) is insufficient, and it is strongly recommended that the Government of Belize (GOB) deny the permit for the project as proposed. Before reconsidering the project, the GOB should require substantial revision and more detail in an ES. Fatal Flaws in the Environmental Statement - The Environmental Statement (ES) accurately states (p. 231) that: The exploration drilling will violate a number of the regulations for which the [Sarstoon Temash National] park was declared particularly (i), (iii), and (vii) above. Of most concern is the running of roads into the park which has the potential to open the area to commercial scale illegal activities such as logging. In this regard, section (i) of the park regulations states: Access is restricted except for research, education, and management activities; section (iii) states: No roads, piers, or other transport infrastructure will be allowed, and section (vii) states: No habitat disturbance of any kind will be allowed. Obviously, the project would violate these requirements. And the ES states that exploration activities inconsistent with the Sarstoon Temash National Park (STNP) will also include deforestation and the risk of pollution from oil spills. The STNP falls within IUCN category I and II protective status, and some areas such as the rare, waterlogged peat sphagnum ecosystem - are designated as internationally recognized RAMSAR Sites. The admission that the project would violate the purposes and regulations of these protective designations should constitute a fatal flaw to the approval of the project. - The ES finding that: There will not be any adverse impact on the terrestrial flora and fauna of the area, ignores the very real risk and impact of a major spill resulting from a loss of well control during exploratory drilling. But in section 16.3.5 the ES states that a spill would create serious impacts to wildlife and the local economy, which is clearly correct. That the ES does not further discuss this potential for serious impact from a major spill constitutes a fatal flaw in the ES.

- The ES finding that: No adverse impact can be expected on socio-economic conditions of the area, similarly ignores the risk/impact of a major spill. This is a fatal flaw. - The ES does not consider or discuss any potential impacts to offshore marine ecosystem, which could be impacted, for instance, by an oil spill from Drill Site A flowing down the Temash River and then offshore, or from vessel transporting diesel fuel for generators at the Drill Sites. A major spill could even impact coastal areas of Guatemala and Honduras, yet this was not discussed at all. This is a fatal flaw. - The discussion of blow out prevention in section 15.2 and Appendix B is far too general, and needs much more detail. In Appendix B, the Technical Measures to Prevent Blowout are limited to just the Blow Out Preventer (BOP), and even at that, it is too general to ascertain the effectiveness of the BOP to be used the wells. The broader and more important issue of blow out prevention includes well design and well integrity management, yet Appendix B does not discuss this at all. Section 15.2 discusses these issues in only very general terms (e.g., that certain valves and devices will be installed, etc.) without any further detail. The ES does not detail well design and well integrity management in necessary detail, and it does not discuss anticipated reservoir pressures, BOP pressure ratings, casing design, cement slurry formulation, pressure testing during drilling, and plans to manage pressure anomalies (e.g. kicks) during drilling. The ES fails to acknowledge any commitment by the operator to comply with American Petroleum Institute (API) and American Society of Mechanical Engineers (ASME) standards, which are the global industry standards. The API standards also incorporate the U.S. Integrity Management (IM) protocols, and designate High Consequence Areas (HCAs) where consequences of an oil spill are greater, thus requiring enhanced design standards. Yet the ES does not discuss this. This is a fatal flaw. - Section 15.4 discusses Response Measures in the Event of a Major Oil Spill, but it too is so general as to be virtually useless. It states that at the time of a spill, a program of management and control options will be put together. Thus, there is no pre-established Oil Spill Contingency Plan discussed, detailing equipment available, response approaches, etc. As well, there is no development of a worst-case oil spill scenario. This is a fatal flaw. - While the ES discusses transportation options (road and water) to Drill Site A, it omits entirely any discussion about potential transportation options to Drill Site E, which is deeper into STNP, in the rare peat sphagnum ecosystem that is protected as a RAMSAR Site, and thus where transport options are considerably more problematic. The ES states that: If in the unlikely event drilling takes place at this [Drill Site E] location, further studies will be carried out in accordance with the requirements of the [RAMSAR] Convention. Yet approval is sought herein by the operator to drill at this Site. This is a fatal flaw.

- The ES ignores the unresolved issue of existing legal and political protections for the rights of Indigenous land ownership in Belize, particularly the Maya. In particular the Belize Supreme Court ruled in 2007 (Cal vs. Attorney General of Belize, 2007) that: without the legal protection of the rights to and interests of the customary land, the enjoyment of the right to life and the very lifestyle and wellbeing of the Maya communities would be seriously jeopardized, and that the rights and interests of the Maya communities in their property are anchored in the Maya customary land tenure system and which does not make them any less deserving of the Constitutions protection afforded to other forms or species of property. Yet to date, the Government of Belize (GOB) has not fulfilled its obligations under this court ruling to fully identify Maya lands, and to award clear land title. The ES must discuss this issue in detail, yet fails to do so at all. This is a fatal flaw. - US Capital Energy signed a Production Sharing Agreement (PSA) on Jan. 22, 2001, with a revision Jan. 2, 2004; provides that companies have up to 8 years to explore for oil. Thus, even if the PSA revision date is used as the start of the 8-year exploratory window, the 8-year window has expired, and the PSA contract should legally self-terminate. The ES states (p. 252) that: The company is now way behind schedule in carrying out the exploration activities as called for in the PSA. Thus, it appears that the PSA, under which exploratory drilling would be conducted, is no longer legally valid or binding. This is a fatal flaw. Other comments - Regarding consultation, the ES states that the project team consulted with the Sarstoon Temash Institute for Indigenous Management (SATIIM), and the Toledo Institute for Development and Environment (TIDE) by providing these groups the Terms of Reference (TORs) for review, with the intent of incorporating their comments into the ES. However, the ES states that the EIA study actually began in April 2012, and thus it is clear that the TORs were approved and available prior to April. Yet Appendix I shows that SATIIM only received the TORs and the map of the proposed drill sites on August 13, and TIDE on August 14 -- just 2 weeks before the publication of the final ES. Thus, comments were solicited from SATIIM and TIDE not only after the study had commenced, but also after it had been completed, and the final report had been written and was in press. The TORs should have been provided to SATIIM and TIDE and with adequate opportunity for review and comment before the study commenced in April. That Nextera did not do so, yet claims to have afforded SATIIM and TIDE adequate consultation, is truly disingenuous. The GOB should not accept such disingenuous assertions. - In section 3.0, discussing legislative, regulatory, and the legal framework for the project, the discussion entirely ignores the issue with relationships with Indigenous Peoples in the area. In particular, the legal status of SATIIM is ignored. - The ES states that the 1994 SATIIM / GOB co-management agreement ceding management authority of STNP to SATIIM has subsequently expired and not 3

renewed. This is a critical issue, which needs further elaboration in the ES, particularly whether SATIIM has indeed relinquished its legal co-management status to this traditional land, as alleged in the ES. - Table 3.2, which lists relevant international conventions, ignores the UN Declaration of the Rights of Indigenous Peoples (UNDRIP), which requires Free and Prior Informed Consent (FPIC) of Indigenous Peoples before any such significant project is permitted on traditional Indigenous lands (which clearly STNP lands are). This Declaration was upheld in the 2007 Belize Supreme Court ruling, stating that: Article 42 of the Declaration, the United Nations, its bodies and specialized agencies including at the country level, and states, are enjoined to promote respect for and full application of the Declarations provision and to follow up its effectiveness; the GOB should be unwilling or even loath to take any action that would detract from the provisions of the Declaration importing as it does, significant obligations for the State of Belize in so far as the Indigenous Maya rights to their land and resources are concerned; Article 46 of the Declaration requires that its provisions shall be interpreted in accordance with the principles of justice, democracy, respect for human rights, equality, non-discrimination, good governance and good faith; and the GOB is bound, in both domestic law in virtue of the Constitutional provisions that have canvassed in the Maya case, and international law, arising from Belizes obligation there under, to respect the rights to and interests of the Mayas as members of the Indigenous Maya community, to their lands and resources. The ES must discuss this issue in detail, yet ignores UNDRIP altogether. - Regarding community consent, the ES reports that while some of the Mayan buffer communities support the project, some, notably Conejo Creek and Midway, have expressed considerable reservation about the potential impact of the project. This Indigenous Peoples dissent would seem to violate the provisions of UNDRIP (discussed above). - In discussing the issue of drilling in the National Park, the ES simply states that the GOB has effectively sub-contracted its rights to explore and exploit the subsurface resources of the area. But the ES fails to discuss in detail the legality of the GOB doing such in a National Park, the co-management agreement, and existing court rulings regarding the rights of Indigenous Mayans in the region. It should be noted that drilling in a National Park would not be permitted in the U.S., where U.S. Capital Energy is headquartered. The legality of the GOB ceding such subsurface rights to US Capital Energy, in a National Park and without resolving Maya land rights, is indeed questionable. - The ES appropriately recognizes that certain ecosystems in STNP are rare and unique, and contain some of the countrys last remaining stands of primary hardwood forest. - The finding that: the land use pattern will not be affected as this is a short duration activity and of a temporary nature, is simply inaccurate. Any land clearing 4

and site preparation is this area will last for decades, as is seen from old seismic lines cut through the region decades ago. And the ES later recognizes that road building into the park will create the potential for increase in commercial scale illegal activities, such as illegal logging and illegal hunting. - The ES needs to detail precisely where and how impacts may occur to endangered animals, migratory routes, and sensitive habitats, instead of simply asserting that the operator will use biodiversity offsets to compensate for such ecological damage. What might those biodiversity offsets be, and how would they be developed? - The ES needs to be more honest when it states that: In case hydrocarbon reserves are found, it will lead to all round prosperity for the region, including analysis of the many other areas in the world (e.g. Nigeria, Central Asia, Russia, etc.) where this has not been the case. - The ES only addresses impacts within STNP, and not the additional impacts from exploratory work outside the STNP. As the additional impacts from the 3 Drill Sites outside the park boundary will likely add to impacts inside the park, particularly in the event of a major oil spill, this should be remedied. - The highest ranked drill site: A, is within 200 m of the Temash River, a location which presents formidable risks in managing site development, drilling, waste containment and disposal, and potential oil spills from the site. A major spill from this drill site would flow into and down the Temash River, and into the Bahia de Amatique and the coastal reef ecosystem, and possibly along the coast to Guatemala and Honduras. This oil spill transport vector is evidenced by the extensive sediment plumes seen offshore of the river mouths during the rainy season. - Drill Site E is in the most vulnerable and rare ecosystem in the country, and one of the most rare in all of Central America the Tropical Evergreen Lowland Peat Shrubland with Sphagnum ecosystem. As such, it is recognized for protection as an internationally designated RAMASAR Site. But while the ES states that this ecosystem deserves special and separate consideration due to its extreme sensitivity, the ES does not proceed to provide such consideration. - The ES states that, while the Mesoamerican Biological Corridor Program (MBCP) has proposed maintaining a link with Guatemala through STNP, the value of STNP to the corridor is much diminished due to rapid deforestation. However, this ignores the potential for restoration of critical elements of the corridor in STNP. The potential for restoring corridor connectivity is significant, yet the ES ignores this potential entirely. And clearly, any additional habitat fragmentation caused by the proposed oil drilling projects would only further diminish the value of STNP to the MBCP. - The ES states that: No endangered species were encountered in the context of the project area, however a number of species within the park are of global 5

conservation concern or critically endangered. Yet, the ES does not discuss in any detail the potential impact on these species caused by the proposed project. - The ES discussion of mammals is insufficient, in particularly the presence and ecology of Black Howler Monkeys, pumas, jaguars, tapirs, and manatees in the area. - The ES discussion of icthyofauna (fishes) is also inadequate, as it simply lists species present, but doe not discuss the overall aquatic ecosystem, primary productivity, the life histories and habitat needs of the fish species, and their vulnerability to oil drilling and oil spills. In particular, the cichlid Mojarra de Oro (Cichlasoma bocourti), which is endemic to the area (e.g. found nowhere else), should be discussed in far more detail. That this species is confirmed in the Temash River is significant, and should require additional study. - In Section 4.2, methodology for faunal studies, the ES admits the methodology was insufficient in that it was conducted only during April, the dry season. This misses important information regarding the distribution and abundance of reptiles and amphibians during the wet/rainy season, when these animals are more active. In addition, the limited sampling misses other seasonal variations in wildlife and fishery ecology of the region, and is thus insufficient with which to assess impact. - The discussion of the ecosystem characteristics is insufficient. In particular, the rare permanently flooded swamp forest, the manicaria forest, and the waterlogged lowland peat shrubland with sphagnum ecosystem, which is unique in Central America and is thus a RAMSAR site, all need more detailed study and description. - At very least, the ES should present a detailed literature review for the ecological characteristics of all vulnerable species (bird, mammal, fish, etc.) identified in the document, but it does not do such. This should present what is known about these species reproductive ecology, feeding, migratory behaviors, and general sensitivity to human disturbance. In particular, the ES should include a discussion of the sensitivity of these species to oil spills, yet does not mention such. - The ES does not discuss the underwater noise propagation generated by the drilling projects, particularly from Site A next to the Temash River. This noise will propagate from above ground sources, as well as through rock strata into the aquatic environment. In particular, the potential impacts of underwater noise on manatees should be discussed. As underwater noise could significantly affect aquatic populations in the region, it must be addressed. - In section 5.2, the ES states that other chemicals such as thinners may be used, but does not discuss what these are, or their toxicity. - The ES does not itemize the various chemicals to be used for make up of the drilling muds / fluids, and it should.

- The ES is internally confusing, as it asserts in many places that only Water Based Muds (WBM) will be used, and then later discusses use of Pseudo Water Based Muds (PWBM). This should be clarified. - The ES understates the risk posed by the severity of flooding to the drill sites, in particular associated with hurricanes and other flash flood events known to occur in the area. - Water demand for the drilling project is substantial, at over 3,000 m3/day. And in drawing from the Temash River and its smaller tributaries during the dry season, which is when drilling will be conducted, the relative impact on local dry-season hydrology should be discussed. - I recommend that the GOB submit the water treatment and wastewater management plan for review and certification by an independent wastewater engineer. - The transport of diesel via tank vessel from Punta Gorda needs more thorough analysis, as this would pose a significant risk to the offshore and coastal ecosystem from spills e.g., what barges will be used, will they be double hulled, etc. The ES states that Capital Energy will have an emergency management plan that will detail the response measure in case of a fuel spill, but does not further discuss this. - Section 8.5 suggests that they may need to dredge parts of the Temash River, yet does not discuss this impact further. And the ES states that the operator may dredge an access canal between the Temash River and Drill Site A, but does not discuss this further. This could create significant impact in the Temash River, and must be addressed in a more detail manner. - The ES in section 9.3 states that the project will build 5 km of road to reach Site A in the park, and then states that: From the boundary of the park the road will extend 900km in the direction of site A. I presume they mean 900 m, not 900 km. And then they will directional drill from there, but do not discuss the angles and distances anticipated. This needs clarification. - In 9.4 the ES states erroneously that use of helicopters during the seismic survey will be limited, when it apparently means to say use during exploratory drilling will be limited. - In section 10, the ES states that gas flaring will be the dominant source of atmospheric emissions during the project, emitting over 3,000 m3 per day of NOx, CO2, CO, SO2, VOCs, and soot. But the ES does not adequately discuss the potential impact of such emissions. - The ES does not provide detail on well design, well integrity management, training and oversight of drill managers, and so forth. 7

- The ES only addresses exploratory drilling, and needs to at least anticipate impacts if commercial deposits are found, including production, transportation, storage, and refining. Recognizing that this would need an additional EIA/ES process, the exploratory phase needs to at least anticipate and discuss these potential future impacts. - Section 15.2.1.B states that a major spill is not possible, and then contradicts this only two sentences later, stating that: A major oil spill can result from the uncontrolled flow.. It is the unexpected oil and gas release from loss of well control, from the reservoir, that is the greatest concern. A good example was the 4.9 million barrel oil spill in 2010 from the BP Macondo exploration well drilled by the Deepwater Horizon in the Gulf of Mexico. This discrepancy deserves clarification. - The ES states that site management will have to draw up a contingency plan for hurricane response, and this needs to be done before project approval. - The ES provides inadequate discussion of the Cumulative Impact of the project, where potential impact of this proposed exploratory drilling project are considered in context with all sources of anthropogenic impact in the region. Among many impacts, this should include an assessment of climate change in the region over the lifetime of the project (if it goes to production), yet climate change is not mentioned in the document. As well, other impacts to be considered should include population growth, logging, fishing, hunting, illegal activities, etc., and all projected over the lifetime of the development, which may be 25 years or more if a discovery goes into production. - The ES does not address the potential for introduction of invasive species through the project, and propose rigorous mitigation measures. This must be remedied. - The ES does not address the impacts to Belize economy caused by the potential reputational loss to Belize by permitting oil drilling in its national parks, in particular the potential financial lose to the tourism sector; and the international concern that will certainly ensue over the management of Belizes protected areas. - The ES states that: Barring the unlikely event of an oil spill no irreversible effects identified. While this is an accurate recognition that major oil spills can cause irreversible effects, the ES does not further discuss this risk. - The ES identifies the most serious negative impact of the proposed project (barring a major oil spill) as the use of road infrastructure after drilling for illegal activities in the park, such as illegal hunting and illegal logging. The severity of this impact is ranked as high, and with a duration lasting years. Yet the proposed mitigation simply educating local people to respect wildlife and park rules will not effectively mitigate this impact.

- The No-Action Alternative described in the ES is inadequately developed, and the rationale for not selecting this alternative simply that the PSA obliges the company to conduct the drilling program - is inadequate. The No-Action Alternative needs to discuss the many benefits if this Alternative were to be selected. - Other Alternatives that were not evaluated and discussed include eliminating one or both of the Drill Sites in STNP -- Drill Site A as it is so close to the Temash River, and Drill Site E as it is within the rare peat sphagnum ecosystem, which is a RAMSAR Site. Both such alternatives need to be discussed. - The mitigation measures recommend that: The developer should develop a detailed development plan for this and any subsequent phases or the proposed project. Clearly, this should have been done prior to the conduct of the EIA and ES. And as the ES states the company intends to begin drilling in November 2012 (just 2 weeks from now), clearly it should have a detailed development plan prior to project start-up. - One mitigation recommendation is that: community leaders should be invited to observe the progress of the work, but does not discuss the potential for formal establishment of an independent, continuous local observer program for the project. This should be explored.