Exxon’s sacred mantras

Sep 15, 2019 Editorial

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There has been insistent talk about renegotiating that two-by-four-to-the-head contract with ExxonMobil. This publication regrets to share that renegotiation does not look likely; the odds are bleak. This is most discouraging for enraged Guyanese; but there is scant hope that ExxonMobil decision-makers will be inclined to move in the direction that all Guyana clamour that it should; just not the Exxon way.
The history of ExxonMobil’s actions regarding contracts executed with many nations emphasises this inflexible stance. It is one of unyielding positions repeated repeatedly where contracts are concerned. In the minds of ExxonMobil people: Contracts are sacred. They are non-negotiable.
The example of nearby Venezuela should paint a clear picture. Its action there was very clear. What the company did under different CEOs, projects steeliness of purpose; of not flinching. ExxonMobil does not bend; it leaves. It leaves everything behind. ExxonMobil did so more than once in Venezuela.
The year 1976 saw the first involuntary departure of the then Exxon from Venezuela under Carlos Andres Perez, when the waves of nationalisation of oil patrimony swept the world. The Venezuelans had started on this road back in 1971 under President Caldera, when natural gas assets were nationalised; the Oil Minister at the time (1976) was Juan Pablo Perez Alfonzo who, incidentally, had storied roots as one of the cofounders of OPEC.
What is relevant is that Exxon had to leave Venezuela almost fifty years ago. Exxon did not leave without some satisfaction. Unofficial reports allude to an agreement for Exxon to be favoured with discounted prices for Venezuelan crude, to serve as partial compensation for its losses.
Under Hugo Chavez, the ExxonMobil relationship was turbulent. The now departed Venezuelan strongman was not into the things held paramount by ExxonMobil, which prioritize the force and authority of global market mechanisms for commodity prices. Or the positioning and utilising of the oil wealth for maximisation of profits.
Oil was a political weapon for the former paratrooper and Bolivarian, who brandished it around dangerously. ExxonMobil stood in the path of its arc. It had to pay a price and it had to do with its standing contract. More specifically, calls – rather, more in the form of strident unalterable demands – to renegotiate. ExxonMobil did not blink. It refused to budge.
This was the case under then CEO Lee Raymond and what was faced, and responded to, in the same manner by his successor, Rex Tillerson, in 2007. The Cerro Negro project in the Orinoco Basin was the test case of who was going to blink first and give ground, and who would come out with the winning hand. This project commenced in the 1990s with Mobil being the major foreign oil presence. In 1999, Mobil merged and was folded under the flag of ExxonMobil, with Lee Raymond at the helm.
For his own domestic programmes and purposes, President Chavez strongly desired to fast forward one of the key money terms of Venezuela’s contract with ExxonMobil. It involved the 16.67% royalty rate due to Venezuela, but which was some years in the future. The original royalty terms (Guyanese should pay attention) was 1%. This very low rate agreed to by Venezuela in the 1990s was to attract Mobil to invest the billion-dollar sum required to explore the oil beneath the Orinoco River Basin (some more on that later). Now Senor Chavez wanted to advance the 16.67% rate.
Almost all the other minority presences balked, then capitulated. From Europeans to Asians, they bowed before the inevitable. Not ExxonMobil. It had ConocoPhillips as a lone partner in opposition. To ExxonMobil, contracts were that inviolable.
The corporation had done the same thing in Putin’s Russia; and it had even gone so far as to refuse politely offers from the Bush White House to intervene with a helpful word. That was the ExxonMobil way, but only when it suited its visions and circumstances on the ground, as interpreted by it, and it alone.
ExxonMobil under Tillerson was prepared to take its case and cause and pain before international law and bar for redress. It was not going to give in to Chavez. Because if it did so, then other countries, dotted around the globe, with which it had contractual relationships would be sure to jump on the bandwagon and demand renegotiation and better rates on their own existing contracts. That just could not be allowed nor encouraged.
It would be helpful to point out what ExxonMobil walked away from (forcibly and unhappily) in Venezuela. Authoritative geological surveys and assessments indicated a fabulous oil reserve in that Cerro Negro project in the Orinoco River Basin. The numbers are staggering.
By one estimate, it could be double the vast Saudi Arabian oil holdings, which is saying it is something extraordinary and worth, perhaps, compromising. ExxonMobil did not. From its own perspective, it had to hold the line and it did. Hardnosed, hardheaded, and hardball, it had to be. It could be that ruthless. It has used from the World Bank (Equatorial Guinea) to the State Department (Indonesia) to Dick Cheney (Russia) for its own strategic purposes. It knows when to say no, too.
None of this is good for Guyana or its agitated citizenry, relative to its own paltry contract with ExxonMobil. With the Venezuelan context painstakingly traced, there is little hope for receptivity to reopening and renegotiating for Guyana. Venezuela’s oil has a handicap: it is heavy. Thus, it requires heavy money, expertise, and technologies to bring to market. Venezuela pays a correspondingly heavy price for its blessing.
Guyana’s oil is lighter and sweeter, but comes with its own weighty reality: in a bad neighbourhood. The people at ExxonMobil knew this. They also know that they are the only people, who could move that oil, and give Guyana some money from it. But first, they must get their big pound of flesh to access it, pump it, and move it out of the neighbourhood. The bottom line is this: No changing. No new deal for Guyana. Highly disturbing, it is.

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