Winners and Losers

Sep 17, 2019 Features / Columnists, Peeping Tom

Is it a coincidence that every time an election is about to be held in Guyana, the oil exploration companies suddenly announce discoveries?
Guyanese will recall that just days before the 2015 election, Exxon announced an oil find in Guyana’s offshore waters. Now we are on the eve of another election, we are once again being greeted by the announcement of new oil finds – one by Tullow and the other by ExxonMobil. But who benefits from these oil finds: the oil companies or the people of Guyana?
The new oil finds are not going to increase the production levels of first oil next year. Production is still pegged at 120,000 barrels per year. The new oil finds will not bring forward the date of production so that Guyanese will benefit earlier from first oil.
The new oil finds will not lead to an increase in the royalties. Exxon will not up its 2% royalty and Tullow has no reason to adjust its 1% cost recoverable royalty.
The new oil finds also will not result in any new or additional signing bonuses. The government is so afraid of the Americans, that it dare not even suggest that in light of the oil finds now exceeding an estimated 6 billion barrels of oil, a new signing bonus, commensurate with the total reserves, be paid to Guyana.
Guyanese therefore have to be contented with the pitiful US$18M which was signed and which will evaporate in payments to the foreign law firms which are representing Guyana before the International Court of Justice.
Not only will there be no new signing bonus, but ordinary Guyanese will not benefit from the signing bonus which has been received, and which is in an interest-bearing account at the Bank of Guyana. Not a blind cent of that signing bonus will come Guyana’s ways. By the time, the legal fees are tabulated, the US$18M will be fully utilised.
Guyanese will not benefit from local content as a result of the new oil finds. The contracts for the provision of equipment and supplies to the oil companies have already been gobbled up by foreign multinationals. What is left for Guyanese to fight over is the gravelling, such as local transportation, meals, and the rentals of some local buildings, some of which may be claimable as cost recovery by the oil companies.
The oil companies are the main beneficiaries of the announced new oil finds. The value of their shares has spiked. Their shareholders have seen an increase in the worth of their shares. These companies will also be able to raise more capital on the stock and venture capital markets, once it is shown that they are sitting in lucrative oil stocks. The oil companies are sitting nice
Exxon shares have risen by a $1.09 as at yesterday. It means that any stockholder who has a million shares made a cool US$1M by virtue of the announcement that Exxon has struck another oil well find in Guyana.
Exxon’s stock value has been rising since the last week in August, which was before the recent attacks on oil facilities in Saudi Arabia. The attacks will further push up the prices of these stocks.
Exxon, in the meantime, is offloading its oil assets in Norway. The recent announcement of new discoveries will do a world of good for its investors, since it will boost shareholders’ confidence in the company.
The big winner over the past week, however, has been Tullow. Its shares rose by almost 10%, a steep rise by stock market standards for oil shares.
The oil companies, and their shareholders, are smiling all the way to the bank on the back of reported new oil discoveries in Guyana. But the Guyanese people are still left with their begging bowls pleading for some of the crumbs which will fall from these companies’ tables.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper)

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