Guyana must not be the guinea pig

Aug 24, 2017 Features / Columnists, Peeping Tom

Exxon Mobil is going to be in the news for the next few years. American shareholders are not going to take lightly, charges being made that the company may have misrepresented risks related to climate change. Exxon has rejected the charges.
The fact that this was more than thirty years ago is not irrelevant. People invest money based on the confidence they have in the information which they have been provided and which they trust. If questions arise that make such information untrustworthy, it creates mistrust among stockholders and this creates mistrust.
Stockholders will be following closely the recent revelations by Harvard researchers that Exxon knew about the threats of climate change. If the threat of climate change is understated it means that the stockholders would have underestimated the possibility of alternatives to oil and therefore would have invested based on certain assumptions based on this understating.
Investors will fear that they may end up, as a consequence with what is known as stranded assets. Exxon will have a lot of explaining to do.
It is likely that the stock value of Exxon may suffer as a result of the recent report. This could not have come at a more inopportune time. The stock value of Exxon has declined marginally recently. A fire at one of its refinery in Rotterdam will also raise concerns.
Exxon has been suffering from flat production for quite some time. Its production growth has not been impressive. Production in African has fallen and the company, according to reports, has also suffered losses in Canada. The need to expand production to boost revenues and share values could be one of the reasons why Exxon is anxious to explore for new oil field.
The price of oil remains low, relative to the high levels which were enjoyed a few years ago when oil went over the $150 per barrel mark.
America is going to soon become a major oil and energy producer and this is likely to depress any attempts to spike oil prices. Natural gas, another big revenue earner, has also suffered from a reduction in prices as a result of increased exports from Qatar.
Guyana is hoping to be able to establish a plant for natural gas. It will find, in the present circumstances, a great deal of difficulty in attracting investments. Guyana’s energy needs are miniscule by international standards and are not likely to provide an incentive for Exxon to invest in a natural gas plant.
Exxon, despite the recent revelations about what it knew and was letting on, has been realistic in recent times about the future of oil and gas. It has acknowledged that within the next twenty five years, countries are going to be looking at a mix of energy solutions, including oil, gas, solar and wind energy.
But if this is the scenario which is being admitted to by Exxon, why is it keen to develop, at such short notice, the Liza well in Guyana’s waters? Why the rush?
For one, the plans of Exxon may be part of a wider plan to punish Venezuela for having nationalized US$10B in Exxon assets. America never forgets a slight and Venezuela has more than embarrassed the Americans by its actions against Exxon, regardless of what happened afterwards.
If Guyana has oil, then the Americans can reduce the importation of oil from Venezuela which will hurt that country. But it will also hurt long-term US relations with Caracas and therefore one suspects that the Guyana find is being used as a negotiating ploy by the Americans in dealing with Venezuela.

The bottom line though is that in the long term if America has to choose between Guyana and Venezuela, for oil, it will choose Venezuela which has far more reserves that Guyana. Guyana may just be guinea pig in a high stakes game.
Second, the announcement of a major oil find will provide valuable assurance to Exxon’s shareholders at this time when production is flat and share values have dipped. It will help restore shareholder confidence and even overcome the negative effects of the Harvard report.
Third, it will give ExxonMobil a source of increased production in the future. Exxon Mobil needs to ensure that when it downscales in Africa it can upscale its operations elsewhere including in Guyana.
Guyana should benefit once it signs a good deal. A 2% royalty is not a good deal. It is horrendous deal. And it is not a PPPC deal. The PPPC’s deal has ended. It was concerned with exploration. The contract has to be renegotiated by the APNU+AFC.
If on the other hand, the projected production from the Liza well falls short of expectations, then Guyana ends up the losers. The Guyanese people will not forgive any government which creates high expectations but delivered low results.