H@rd Truths By GHK Lall – Parent Company Guarantee – Guyana could still get shafted

May 21, 2023 Features / Columnists, News, The GHK Lall Column

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Kaieteur News – Judge Sandil Kisson has ruled.  Exxon is appealing.  This is standard Exxon.  It will now wage a war of attrition, as it has customarily done for decades wherever it has operations and runs into trouble, including its own home turf of America.

If Exxon could conduct itself in the way that it has repeatedly done in the US, then what about here in L’il Guyana?  As Exxon appeals, I think that the clock is against it, plus its own shareholder sentiments, and there is still that biggest of the biggest: it is the CCJ.  This appeal is going to reach there.  Bluntly, I think the CCJ will look at the big picture, and shrink.  Not for Exxon; not even for Guyana.  But for the region.  Remember, I said it.  I move on.

What I really want to focus on today is this parent company guarantee.  My position is that there is going to be one.  Regarding how “unlimited” it is going to be, that’s another story.  But there will be one, if only for the reassurance of Exxon’s own people, to keep them from jumping ship.  I speak not of employees, but of investors.  So, let’s look at this some more, as I think of how Exxon is already weighing how to outwit and outflank Guyana.

There is a parent company guarantee.  Everybody is happy, with simulations done, risks recognized, and protective financial structures in place.  Having complied, even Exxon gets to declare how happy it is in its best corporate soldier fashion.  Guyana gets a piece of binding legal paper for its safety deposit box at the Bank of Guyana.  Whatever is done, do not leave it in American hands; accidents happen.  Remember Venezuela and its funds.

Now Exxon has the same piece of paper called this dreadful parent company guarantee.  It is a live grenade with the pin already pulled.  Unlike Guyana, the company cannot sit on it.  The people at Exxon know that they have only one choice.  They have to move quickly to hedge their open-ended exposure, which is what “unlimited” means.  It is what the authentic corporate players do: they hedge, as in passing off the exposure to somebody else for a price.  It is what America is built on: hedges.  So, Exxon reaches for Goldman Sachs, JP Morgan Chase, Bank of America, and others of like caliber.  An instrument is needed, or a vehicle, to cover potential liabilities beyond maximum insurance coverage obtained, which has the delightful setup (to Exxon) of Guyana paying the premia from it oil revenues.

All of the illustrious names I just identified above are going to jump on that big money-making opportunity from Exxon.  When spread across a consortium of deep-pocketed, big leagues hitters, all risks look relative, as la Long-Term Capital Management and Enron.  Big money it is going to be, and it could cost millions upon millions (and multiples of those) annually to provide the hedge for, say, US$30B or US$50B or US$70B, which is where BP and Macondo in the Gulf of Mexico, as the guide.  The bottom line is that Exxon has to come out-of-pocket to finance that astronomically expensive hedge, and it is one that has to be maintained for the life of its operations in the offshore oilfields of Guyana.

At this point, Exxon has two choices.  The first is to take it on the chin, grin and bear, and move on, with a rueful nod that this is the downside of doing business, risky business or the company can get creative in finding ways to layoff those expenses on the unsuspecting.  Anybody know any sucker around, a new kid on the oil block?  One that doesn’t know its elbow from its eardrum. Of course, it would be terribly bad form to seek to smuggle it under the cover of qualified expenses to be deducted from cost oil.  But, that does not rule out other possibilities, especially when the counterparty-a partner-would not be the wiser for it.

I face this reality, as harsh and discomforting as it is: we really do not know what Exxon uses out there in terms of expensive materials, or the true amount of output what it takes away, and so much more.  What we do know, we depend on the company, in its good graces, to share with us.  It is not the best of working relationships, but it is what we have lazily and proudly and wastefully maintained.  Just look at our infernal politicians across the board: they are all wrapped in Exxon’s flag.  But I trust that by now my fellow Guyanese have latched onto my drift.  In a nutshell, this is it: ExxonMobil USA is going to come up with some innovative way to stick the cost of that unlimited parent company guarantee right back at Guyana.  I know these people, what they are capable of, the lengths to which they will go, and how nothing stops them.  Take it from me; that’s all, folks.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• Exxon, GHK Lall, guarantee, Guyana, Judge Sandil Kisson

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