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ExxonMobil investment returns should not be used as a way to further deprive Guyana of its oil wealth – Norton
Kaieteur News – Opposition Leader Aubrey Norton says Guyana’s oil wealth should not be affected by disproportionate returns on ExxonMobil’s investments.
Opposition Leader Aubrey Norton
ExxonMobil is the operator of the Stabroek Block, with a 45% interest in the block, while its joint venture Guyana Exploration Company Limited holds a 30% interest and CNOOC Guyana Petroleum Company Limited holds a 25% interest.
Under the terms of the 2016 Production Sharing Agreement (PSA), the partners invest in the development and operation of the block and recover those costs on a monthly basis from Guyana’s oil. Notably, 75% of each month is used for cost recovery, with the remaining 25% shared with Guyana as profit.
However, beyond profits, ExxonMobil has also enjoyed “huge” returns on investment, as Vice President Bharrat Jagdeo revealed earlier this month.
An investor’s return is the percentage of net gains or losses on an investment over a period of time. This is a key area where oil companies could abuse it to extract more profits by charging the state unfair fees.
The government remains reluctant to reveal the company’s rate of return, but opposition leaders have urged that the costs should not further deprive the country of its wealth.
At a recent press conference, he told Kaieteur News: “As a country, we invited ExxonMobil to invest; we want them to get a return on their investment. We do not want a disproportionate return and in that regard, as we have said, we will use this clause in the PSA to make changes that will ensure that the people of Guyana benefit and reduce the asymmetry that exists in the PSA.”
Meanwhile, on the unknown interest rate or rate of return, the leader said, “We have made the request, we need details, as I have said before, but our overall policy position has not changed, we need to make changes to ensure that we benefit more, every area of the contract should be addressed to ensure that the people of Guyana benefit greatly and at the same time ExxonMobil gets a reasonable return on its investment.”
The Opposition Leader declined to comment on what a reasonable rate of return would be. He said he needed to have the necessary information so as not to come up with “big economics”. Norton explained that he had to assess the amount of investment to date, depreciation and decommissioning, among other factors, to arrive at that figure.
“All these variables have to be taken into account. We have to develop an economic model that allows us to take all these factors into account and then come to reasonable conclusions, but if I say that is just ‘Big Mac economics’,” the leader pointed out.
Huge returns
Guyana’s chief policymaker for the petroleum sector, Vice President Bharrat Jagdeo, clarified that the company did not use loans to finance the development of the Stabroek block; therefore, no interest costs were added to the bank’s costs.
The Vice President made it clear that the company is using the revenue generated from the block and financing the development project through equity. According to him, the company is earning Its return on equity is “huge”.
He explained: “If you provide financing, and nobody does that, you’re a free investor, and if you have costs, then you recover them. So you get a return whether it’s in the form of a loan or equity. So in this case, Exxon has made it clear that there are no interest costs. They’re funding the operations with equity and their own retained earnings. There are no interest costs, so don’t you think they’re getting a return on equity? They’re getting a huge return on equity, and that’s exactly what’s happening here. They chose not to go the interest route, but they’re getting a return on equity.”
Since there is no interest cost, Kaieteur News asked the oil and gas industry’s top decision maker on Thursday what the company’s return on equity was.
To this end, Jagdeo explained that interest rates change over time, adding that after the investment is repaid, the company will receive greater returns in the future.
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