Latest update November 14th, 2024 12:12 AM
Jagdeo refuses to disclose ExxonM’s “massive” rate of return on investment
Vice President, Dr. Bharrat Jagdeo
Kaieteur News – Vice President, Bharrat Jagdeo, after revealing last week that American oil giant, ExxonMobil was bagging a “massive” return on its investments in the Stabroek Block, has refused to disclose the rate of return the company is charging Guyana.
An investor’s rate of return is the percentage of net gain or loss of an investment over a period of time. This is a critical area that can be abused by oil companies to profit more through unfair charges to the country.
Jagdeo clarified last week that the company was not using loans to fund the developments in the Stabroek Block; therefore, there was no interest cost added to the cost bank.
The Vice President made it clear that the company was using the revenue generated in the block and funding the developments through equity. According to him, the company was earning a “massive” return on its equity.
He explained, “If you supply financing, nobody does it and you’re an investor for free, if there is a cost to you then you recover the cost. So whether it comes in the form of a loan or an equity, you get a return. So in this case, Exxon has made it clear there is no interest cost. They are financing the operations from equity and from their own retained earnings. There is no interest cost so don’t you think they get a return on their equity? They’re getting a massive return on their equity and that is exactly what is happening here. They have chosen not to go down the interest route, but they are getting a return on their equity.”
Since there is no interest cost, Kaieteur News asked the Chief Policymaker for the oil and gas sector on Thursday to say what the rate of return on the company’s equity is.
To this end, Jagdeo explained that the rate changes overtime, adding that the company will enjoy greater returns in the future after the investments have been repaid.
Under the provisions of the 2016 Production Sharing Agreement (PSA) Exxon can deduct up to 75% of the monthly revenue generated at the Stabroek Block towards cost recovery (paying back itself for its investment). The remaining 25% is shared with Guyana as profits.
As such, Jagdeo said, “If you look at over time, this will grow significantly so it changes over time. Like right now if you look at it, it probably would be relatively low…let’s use US$30B in equity, but they are getting only, they are getting 10.5% of the total sale of oil. The total value of oil per year, when you compare that, based on equity investment, it may seem relatively modest over this period but when we start clearing off the cost bank then that grows enormously.”
The Vice President was careful not to disclose the specific rate of return on the company’s investments but noted that it will grow overtime.
“Their return on equity will increase significantly overtime so they are gonna get a great return on their equity, massive return on their equity,” Jagdeo said. He added that Guyana too will enjoy a significant increase in revenue after Exxon is repaid.
In the meantime, he noted, “There is no doubt that they are making a good, they are gonna get a good return and a lot of it, this return has to do with the fiscal provisions under the 2016 PSA that we have now adjusted in the new PSA so I think its self-explanatory.”
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