ExxonMobil’s world being shaken

May 19, 2023 Editorial

Kaieteur News – The exciting world of ExxonMobil has had some more excitement recently.  More excitement than it bargained for, more than it is willing to handle.  But face and deal with it the company has to, for it has been given no choice.  The ruling earlier in May from Guyana’s Judge Sandil Kissoon is what has the senior people at ExxonMobil upside down and scrambling around for whatever cover they can find.  Even the shareholders of the company, previously only too glad to count their rich dividends, are now forced to face a new reality.  It is called parent company guarantee.

A parent company guarantee in the event of an oil spill of considerable magnitude in Guyana’s offshore oilfields would be very draining to ExxonMobil’s coffers.  Everybody hopes that there would be no such occurrence, but nobody knows that if a truly big one was to happen, what could be the implications of it.  The implications of how far it reaches, how much damage it causes, and what would be the total costs involved for people and environment.  Just to put a figure on something like that is enough to trigger the most extreme anxiety.

All that the corporate chiefs at ExxonMobil have to do is cast a sideways glance at the accounted for costs borne by BP for the Gulf of Mexico explosion, and those that are estimated to come.  BP has spent close to US$75B already for that massive spill, and some projections are that the final figure could be as high as US$145B when the years have passed, and all claims absorbed.  Whatever the number ends up being, it is the kind that compels nightmares for CEOs and their boards.  This is what ExxonMobil has to grapple with at its upcoming Annual General Meeting (AGM) on May 31^st, and it comes under the heading of parent company guarantee.

As a practical matter, no company in any kind of business wants to be giving any such thing.  Companies prefer to make promises, or cap what their share of liability should be.  Naturally, it is sound business sense to obtain the maximum insurance possible, so that the company’s liability, in this instance guarantee, would be the smallest amount possible. What is a very helpful sweetener for ExxonMobil in the context of Guyana is that insurance premia would be paid by the country from its oil revenues.  Still, there is that judicial ruling that calls for a parent company guarantee from ExxonMobil.

If there is an oil spill that the insurance coverage can handle, then the guarantee remains untouched, and is good to have in reserve.  On the other hand, should there be a spill of the kind that the world talks about, one that leads to tremendous destruction, then the parent company guarantee looks better than gold.  In fact, for the host country, Guyana, it would be a godsend.  While that would be so for the oil producing nation, the reality for ExxonMobil is that the same guarantee transforms into this financial monster on its back, unless hedged.  This is why ExxonMobil has fought long and hard, used up a lot of time, and played games, with issuing this guarantee.

Now, matters are in motion, thanks to Judge Kissoon’s ruling, and there cannot be any evading the issue anymore.  The AGM will be the place to weigh what is involved in the ruling, and what could be the financial significance of any parent company guarantee that it issues, and which legally binds the company to whatever is required to cover all damages.  It goes without saying that the shareholders are caught in a dilemma.  They want to protect their investment in ExxonMobil, and the guarantee helps to ease that worry. By the same token, that guarantee is not going to come cheaply, and ExxonMobil is going to hedge it at different levels, each of which is going to cost huge sums.  Those costs could serve as a bit of a dampener on the gorgeous profit flows from ExxonMobil.

From Guyana’s perspective, the oil is produced, and we have the fullest protection: parent company guarantee.  It is also possible ExxonMobil’s people may be more conscious of safety limits in Guyana offshore oilfields.

• ExxonMobil, Judge Sandil Kissoon, Mexico, offshore, oil spill