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ExxonMobil’s return on investments should not be used as an avenue to further deprive Guyana of its oil wealth – Norton
Kaieteur News – Leader of the Opposition, Aubrey Norton has said that Guyana’s oil wealth should not be subjected to disproportionate returns on ExxonMobil’s investments.
Opposition Leader, Aubrey Norton
ExxonMobil is the operator of the Stabroek Block in which it has a 45% interest. Its Co-Venturers, Guyana Exploration Ltd. holds a 30% interest and CNOOC Petroleum Guyana Limited holds a 25% interest.
Under the provisions of the 2016 Production Sharing Agreement (PSA), the partners invest in the development and operations of the Block and recover those costs from Guyana’s oil each month. Notably, 75% each month is allocated to cost recovery, while the remaining 25% is shared with Guyana as profits.
In addition to its profits, however, Exxon also enjoys a “massive” rate of return on its investments, as was revealed earlier this month by Vice President Bharrat Jagdeo.
An investor’s rate of return is the percentage of net gain or loss by 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.
The government remains reluctant to disclose what the company’s rate of return is but the Opposition Leader has urged that those costs should not further deprive this nation of its wealth.
During a recent press briefing, he told Kaieteur News, “As a country, we invited Exxon to invest; we expect them to have returns on their investment. What we don’t want is the disproportionate returns and in that regard like we said, we will use that article in the PSA to make the changes to ensure the people of Guyana benefit and that there is a reduction of the asymmetry involved in the PSA.”
Meanwhile, with regard to the unknown rate or return, the Leader said, “We have asked for it, we need the details as I have said before, but our general policy position has not changed that we need to make changes to ensure that we benefit more, and every area of the contract should be dealt with to ensure that the people of Guyana benefit significantly while ExxonMobil gets reasonable returns on its investments.”
The Opposition Leader declined to comment on what a reasonable rate of return would be. He said he needed the necessary information at his disposal, lest he presents “jumbie economics.” Norton explained that factors such as how much has been invested to date, depreciation, and decommissioning would have to be assessed for him to arrive at that figure.
“All of those variables will have to be factored in. We’d have to develop an economic model that allows us to put all those factors in and then arrive at what is reasonable, but for me to just say that to me that would be ‘jumbie economics’,” the leader pointed out.
Massive return
Chief Policymaker of Guyana’s petroleum sector, Vice President Bharrat Jagdeo clarified 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 over time, adding that the company will enjoy greater returns in the future after the investments have been repaid.
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