A SN daily blogger pesters me on this subject: Oil Companies’ financial risk assessment for exploration in Guyana. “Most politically unstable place in Caribbean”, he says. Five biggest Risks – Political risk, Geological risk, Price risk, Supply & Demand risk, Cost Risk. Seems clear the blogger is talking about political risk – gov’t overthrow, nationalization? Guyana is a place of ethnic politics. As bad as it is, it poses no risk to Oil companies; in fact, it is obvious O.C. manipulate the racial divide to their advantage (evidence: Norton after meeting with Exxon executives cannot bring himself to utter the word “renegotiation”; more evidence daily these executives have Jagdeo in their pockets. Jagdeo comes off like a VP of Exxon, not Guyana). Zero chance of Nationalization.
Proven oil reserves of 11 BB. (Total reserves could reach 21 BB). World demand for oil is very strong – despite plans for transition to Clean Energy. The contract is written in such a way that O.C. recovering all their capital and operational expenses is guaranteed. Cost Recovery is capped at 75% of revenues, taken off at the top, before profit sharing is calculated. Cost Recovery is done on an expedited scale. To the duplicitous advantage of O.C., moneys recovered as Cost Recovery are ploughed back to open new oil fields and wells, they perform the role of Retained Earnings. On one hand Working Capital steadily expands, but mostly with funds taken out as Cost Recovery. It is plainly double dipping, doubly benefitting. The concept of Ring Fencing has the potential to limit the duplicity – but Mr. Jagdeo would not support renegotiation.
What chance is there for O. C. not recouping their investment? Zero. Let’s say $2 billion is expended for exploration and no Oil found. What concern is that for GoG or Guyanese or this army of pro-Jagdeo/Oil Companies bloggers? Oil companies are heavily capitalized, owned by millions of shareholders. Their business model prepares them for those risks. Recently Exxon took multi-billion-dollar write-off of their assets in Russia. Makes billions at a clip, takes w/o once in a while. Why Mr. Jagdeo is pre-occupied with Exxon’s recouping its investment? Mr. Jagdeo is VP of Guyana, should be pre-occupied with getting a Fair Contract for Guyanese citizens. Page 159, Steve Coll, Private Empire: “The generous terms [of the contract] were required, O.C. insisted, to compensate for the exceptional risks they would endure in Chad [or Guyana] No political order likely to last for 35-years”. This was a scam at best.
Exxon’s people drafted the contract and inserted the most favourable royalties [for themselves]; also inserted something called Stability Clause that nullified the powers of host country’s parliament. No new taxes can be passed to impact O.C. profits. Also O.C. profits tax’ waived for life of contract in Guyana. Compare Guyana’s with Suriname’s contract – and the scam of the Guyana contract stares you in the face. Here is a conundrum. Average market price moved from $65 to $110 generating billions of windfall profits since Ukraine war started. UK, Canada, USA have or are in the process of levying windfalls’ tax amounting to $billions. Poor Guyana owns the resource and is collecting wind.
Why would any President or VP of Guyana be concerned about “financial risk assessment” of Oil Companies investment in Guyana – when such an egregiously lopsided contract had been signed? Signed but never read – in Chad as well as in Guyana. Guyanese are misguided to be concerned with “financial risk assessment”. Proven oil reserves. World demand is very strong. Contract makes Cost Recovery a priority (first cut on revenues). VP Jagdeo is always defending the contract.
In fact, Hess and Exxon’s presidents are always boasting about their possession of the world’s latest discovery and best oil assets – “It is right here in Guyana”.
If Guyanese were to do a faithful reading of Steve Coll’s book on Exxon, they would find, like me, that the Oil Contract is a scam, and contains several clauses that are outrageous illegalities and frauds. The latest exposed: Oil Companies spokesman denies royalty paid to GoG is recovered as an expense, then says it is paid out of O.C. share of profits. This is incredulous. Contract does not provide for that. Those folks – including Mr. Jagdeo – who want the Guyanese people to be more concerned with “risk assessment” of Oil Companies investment here in Guyana are deliberately trying to divert our attention away from renegotiation.
Sincerely,
Mike Persaud
