VP Jagdeo refuses to answer rate of return on Exxon’s investment

Jun 25, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – Billions of US currency is being deducted annually from Guyana’s oil resource to pay back the ExxonMobil-led consortium for its investments in the Stabroek Block, yet Guyanese are not privy to the expenses being racked up by these companies or the interest rates attached to the financing of the projects.

Vice President Bharrat Jagdeo was asked on Thursday during his most recent press conference, hosted at the Office of the President, to expound on the rates being paid to the oil companies when he deferred the question and provided an unrelated response.

Earlier in his press conference, the VP said Guyana was paying a rate to Exxon as this is a standard practice for a return to be generated on a company’s equity. “Regardless of whether you make the financing in the form of a loan or equity you have to get a rate return. There is a cost of capital and that is how it is,” Jagdeo asserted.

This newspaper in a follow up question to the former Head of State’s remarks queried whether there was a standard rate Guyana is paying. The subject of a standard rate is particularly significant, given that Guyana has already been warned by the International Monetary Fund (IMF) that the country could lose massive revenue by failing to cap the interest rates on the investments for its oil projects.

The IMF said it is an industry norm that the government of the day disallows interests from being recovered on loans. Even if this is allowed, the administration sets a cap or limit to prevent the full interest amount from being recovered. The IMF pointed out that Guyana not only allows the recovery of the interest but also sets no cap.

In his response to the specific question however, the former President told this newspaper, “We are not paying anything. The Government of Guyana is not paying anything because they have to raise the financing using the best efforts; the cheapest cost of financing that is what they are supposed to do as a company, so this is what can be analyzed even when you look at the cost bank.”

Before further questions could be asked, Jagdeo requested that the press conference “move on”. The response from the country’s chief spokesperson on the petroleum sector casts a gloomy picture on what the true cost of capital is, and the total revenue Guyana could be losing annually on interest payments.

The 2016 Production Sharing Agreement (PSA) inked with ExxonMobil and its partners Hess and CNOOC allows for 75 percent of the Stabroek Block revenues to be recovered by the companies for their investments. Guyana then shares the remaining 25 percent profit with the partners, meaning the country collects 12.5 percent of the revenue. It also receives a meager two percent royalty on its sweet light crude.

ExxonMobil Guyana’s, Vice President and Business Service Manager, Phillip Rietema during a recent engagement with the press explained that the company’s investments are not supported by loans. Instead, Rietema pointed out, “To date, all of our capital has been sourced through equity contributions to ExxonMobil Guyana. We have no loans as you can see on the balance sheets.”

Businessman and Publisher of Kaieteur News, Mr. Glenn Lall during his radio programme aired on 99.1/99.5 FM said Exxon was attempting to shut up questions being asked on the interest rates Guyana is paying on the loans taken to develop the Stabroek Block when he told reporters that the investments are being funded through equity.

“The man said last week how the money invested in Guyana didn’t come from loans, it come in the form of what he called equity, meaning uncle, is them own company money them invest out there…that is what they are trying to put in Guyana’s head, so the interest rate question I keep on talking about gon disappear,” Lall told listeners of his June 19, 2023 programme.

The businessman was also keen to note that at a 10 percent interest rate on the US$50 billion investments in the Stabroek Block could mean Guyana is paying US$5 billion annually in interest alone. To this end, he pointed out that Guyana has been barely earning just over US$1 billion in profit and royalty a year.

Only on Tuesday this newspaper reported that the 26,800 square kilometer (6.6 million acres) Stabroek block, raked in gross revenue of US$9.8 billion in 2022. Currently, Esso Exploration and Production Guyana Limited (EEPGL) commonly referred to as ExxonMobil Guyana is producing oil from two projects there, the Liza One and Two.

From its gross revenue, ExxonMobil deducted a whopping US$7.4 billion towards the recovery of its investment for the petroleum related activities. Meanwhile, Guyana benefitted from a meager total of US$1.4 billion from the activities in the Stabroek Block last year.

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• interest, investment, oil, profits, return

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