Exxon Guyana pays US office over $2B in past two years — Financial Report

Jun 29, 2022 News

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Kaieteur News – Esso Exploration and Production Guyana Limited (EEPGL) that is presently the Operator of the Stabroek Block, is not a Guyanese company.
In fact, the company is registered in the Bahamas with ExxonMobil Global Holding Investment B.V. being the 100 percent owner of that company.
That being the case, its branch—EEPGL/ExxonMobil Guyana—locally, is expected to make annual payments to its home office, amounting to hundreds of millions of dollars each year, as is outlined in the company’s most recent filings of its financial records.
According to those documents, an amount of $847,407,889 ($800.5M) was due to be paid at the end of last year, while the previous year’s operations saw $1,326,315,642 ($1.4B).
According to the accompanying notes to EEPGL accounts, “parties are considered related if (a) one party has the ability to control the other party or exercise significant influence over the other party in making financial or operation decisions or (b) the party is a member of key management personnel.”
As such, the payments identified in the financial report represent amounts due to the Home Office and are considered related party balances.
The payment is but one of the expenses being deducted from oil sold from the Stabroek Block that has been earmarked for repayments or to be recovered.
Under the Production Sharing Agreement, up to 75 percent of the oil produced in the Stabroek Block can be earmarked to be used for deductions.
Other costs being recovered and paid for using ‘cost oil’ includes, decommissioning fees, Exploration and Production costs, leases and loans, among others.
This publication had also recently reported that despite ExxonMobil deducting 75 percent of Guyana’s oil towards its expenses upfront, the country seems to have no mechanisms in place to monitor the US billion-dollar spending of the oil companies.
Vice President, Bharrat Jagdeo, when asked recently, could not state whether the country has mechanisms in place to oversee and authorise any spending activity.
At a recent press engagement at the Office of the President, Jagdeo was asked to specifically say who is monitoring the spending but shifted the discussion to stakeholders in the Stabroek Block.
He said, “We’re a 50/50 business not from a management perspective. You have a different perspective…CNOOC is an investor, Hess is an investor, Exxon is an investor. The three of them own the consortium so then they hire an operator which is the management firm. So even CNOOC who has 25 percent shares and Hess 35 percent shares, they don’t make management decisions.”
He elaborated on the fact that the oil companies own 100 percent of the venture but yet they are not privy to decision-making.
Former director of the University of Houston’s Global Energy, Development and Sustainability programme and former Chevron executive, Tom Mitro, had recently argued that the country has been losing primarily through the deductions being made by the operator. His views were recently shared in a Forbes Magazine Energy report captioned
“As Guyana’s Oil Business Booms, Could a Potential New Deal With Exxon Loom?”
In that publication, Mitro highlighted that there are many other negotiable clauses in the contract, these were established in favour of Exxon – an approach that most of Guyana’s peers have not agreed to.
He cited as example, that one such provision allows Exxon to recover all interest on loans borrowed to fund the development of related oil projects. In practice, Mitro said, this means that the operator and its partners are able to charge Guyana for the cost of borrowing from their affiliates with no limits. “Contracts typically have cost recovery mechanisms, but usually with limits,” Mitro said, explaining that without written limits, companies can abuse the amount of borrowing they do within the conglomerate.
Another provision of the 2016 Production Sharing Agreement (PSA) highlighted by Mitro, allows ExxonMobil Guyana to not have to pay any income tax on their profit share, and that the government will provide a receipt that can be used for tax deduction purposes elsewhere.
Additionally, it was noted that there is a clause that allows Exxon the right to get cost recovery oil right from the beginning, to cover the future decommissioning and abandonment of the project at its end. These costs will not be actually incurred for several years.
The current contract was negotiated in 2016 and takes most of the terms of a 1999 agreement, signed by then President, the Late Janet Jagan.
It splits the oil output at 50-50 between the government and Exxon, and gives Guyana a two percent royalty (the 1999 agreement had a one percent royalty), after first deducting up to 75 percent of gross production as cost oil for recoverable expenses such as exploration and production costs, among others.

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