‘ExxonMobil free to sell assets being paid for by Guyana to clean up oil spill’- Jagdeo

Dec 08, 2024 News

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Kaieteur News- Although Guyana is paying for the assets being used in the offshore production of oil in the Stabroek Block through the cost recovery mechanism, this does not make the country a part owner of the assets. This therefore means that in the event of an oil spill occurs as a result of the activities in the resource rich offshore acreage, ExxonMobil will be free to sell the assets to respond to such an event.

This explanation was offered by Vice President Bharrat Jagdeo, the country’s Chief Policymaker on the oil and gas sector.

During his Thursday press conference at Freedom House in Georgetown, this newspaper reminded the VP that he previously said the two Floating Production Storage and Offloading vessels (FPSOs) purchased by Exxon recently, can be sold to handle costs related to a spill. He was asked to explain the logic, since Guyana is repaying those expenses through the cost recovery feature, provided in the contract.

According to the 2016 Production Sharing Agreement (PSA) Guyana signed with Exxon, the contractor can deduct up to 75% of the oil produced each month to recover costs or investments made. The remaining oil is then shared equally with Guyana as profit.

As such, this newspaper asked Jagdeo, “…why should we sell our own assets to take care of an oil spill?”

In his response, the VP explained, “It’s a simple thing. You’re not part owner of any company. You don’t own these assets. So, ExxonMobil puts in the investment. They create a company; the company has these assets. We are entitled to receive in the future, 50%, once everything is paid off…you are entitled to collect 50% of future profits and they get 50% and then 2% royalty on the gross…that’s your entitlement to collect.”

A noticeably annoyed Jagdeo continued, “It’s a simple thing. Why do we have to keep explaining this all of the time? We don’t own 50% of the company. We have an entitlement as a state to 50% of the revenue. That is why we don’t have to supply any capital to invest, we don’t supply any capital.”

He pointed out that the Co-Venturers raise the capital and invests, allowing Guyana to enjoy the entitlement.

On the other hand, Jagdeo said that if the company was to dissolve and sell the assets, Guyana may then be entitled to 50% of the assets. “Now if you have a dissolution of the company and they sell off the assets, I guess we are entitled to 50% of the assets too in the situation where you dissolve the company so I hope that clarifies your question,” he noted.

Exxon’s investment?

Previously, Attorney-at-Law and Chartered Accountant, Christopher Ram identified Guyana as a co-investor in the Stabroek Block, as a result of the lack of ring-fencing.

It should be noted that to date, the cost of the three projects producing oil could have been recovered by ExxonMobil. They carry a collective price tag of US$18.5B, while more than US$25B has so far been recovered by the Stabroek Block partners- Exxon, Hess and CNOOC.

Liza One, pegged at US$3.5B, Liza Two which costs US$6B and the US$9B Payara project could have each been paid off in 2023 had Guyana ring-fenced the projects. A ring-fencing provision would mandate each project to pay for itself. After the cost of the project has been repaid, Guyana is poised to receive 50% of the revenues generated at the project. This means that revenue flow to the Natural Resource Fund (NRF) would significantly increase.

In the absence of this key principle, ExxonMobil is free to use the revenues from these producing fields to fund projects that are yet to commence production or invest in its exploration activities across the Block.

Ram had addressed Jagdeo’s rejection of his claim that Guyana is a de facto investor in petroleum operations. Jagdeo said he has not seen any borrowing by the government injected into the petroleum sector hence Guyana cannot be considered an investor.

The lawyer however pointed out that the Vice President must know that borrowings are only one form of financing of investment. Ram said, “As any company finance executive, or any review of financial statements of Banks DIH or DDL would elucidate for him, there are two other principal methods – raising money from shareholders via equity or preference shares, or retained earnings of the company.”

“It is a logical corollary that by virtue of being a 50% participant in profit oil from the Stabroek block, Guyana is bearing 50% of all costs, contractually or otherwise deemed recoverable,” Ram said.

(‘ExxonMobil free to sell assets being paid for by Guyana to clean up oil spill’- Jagdeo)

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• Assets, investor, Jagdeo, oil spill, ring-fencing

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