Answers, please

May 21, 2023 Editorial

Kaieteur News – Some shareholders of American oil giant, ExxonMobil, are agitated.  When shareholders become jittery, then they do not sit on their hands, they move with energy and determination to get answers.  They seek real answers that make sense, answers that help the recipients to determine if their investment remains a viable one, and should be stayed with, or that it is suddenly looking risky and ought to be dumped as quickly as possible.  This is what is rocking ExxonMobil, as a shareholder subset, Mercy Investment Group, is pressing for answers on the possible Guyana exposures, and the financial significance of them.

Shareholders in any company either invest their own money, or that of other people, and in the instance of really huge shareholders/investors, it could be in the billions. For his or her own funds, there is a personal stake in the investment, which could be a significant part of asset base, which harbours reasonable sensitivity if there is reason to believe that the investment could be in jeopardy. As if that is not bad enough, when a shareholder group, or investment manager, aka a portfolio manager or hedge fund manager, is using other people’s money then that introduces certain elements into the mix that lends to vigilance and an abundance of caution.

When it is other people’s money being invested, there must be a level of care, and continuing prudence manifested, in both the funds invested and the management of it.  It is what fund managers and portfolio managers are paid handsomely for, when investments are successful, as in recording market gains or yields.  These shareholder groups, investment managers and so forth, must complete their due diligence, and always be keeping abreast of developments relative to a company in which enormous amounts have been invested.

It is this diligence and vigilance that informed all ExxonMobil shareholders of the landmark ruling coming of Guyana, and its many meanings for their investment in the company.  The substance of the ruling issued by Judge Sandil Kissoon is that ExxonMobil has to provide a parent company guarantee to cover any and all damages resulting from an oil spill in its offshore operations in Guyana.  Those shareholders of ExxonMobil who were very pleased with the rich contributions of Guyana’s high-quality oil to the company’s bottom line, and their own dividends were suddenly jarred into high alert.

High alert because a parent company guarantee, as ordered, has massive financial implications.  First, it is going to be costly.  Second, it would be an annual drain on ExxonMobil’s earnings.  And third, once it remains in force, then it affects negatively the usual sweet dividend stream. To make matters worse, it is blindingly apparent from the wording embedded in the judge’s ruling that ExxonMobil’s Guyana subsidiary (Esso Guyana) has dragged its feet in a number of areas.  One of those areas is in responding to its risk management responsibilities with dedication, energy, and timeliness.  Risk management relative to an oil spill, and having all of the field safety requirements locked in place, plus the proper coverage for possible damages, regardless of the extent.

This is what is causing considerable alarm among the shareholders who have poured millions upon millions into buying the stock of ExxonMobil.  In a worst-case scenario, an investment could lose significant value overnight.  In another, the dividend stream from ExxonMobil could just as quickly dry up.  Moreover, the company could be subject to costly claims of gross negligence, for which the consequences could be incalculable.  Though ExxonMobil has signaled that it is appealing Judge Kissoon’s ruling, that is no comfort.

This is because one of the key ingredients emerging from his decision is how Esso Guyana has played fast and loose with its obligations in its local operations.  How much risk is there?  What is the magnitude of these risks?  What has been done to mitigate them?  Has the ExxonMobil’s Guyana subsidiary done everything to manage the exposures?  These are the troubling questions that are causing great anxieties among the shareholders of ExxonMobil.  Now that the ruling is for an unlimited parent company guarantee, all of ExxonMobil’s shareholders and everyone else have come alive, and they are screaming for answers.  They had better be the right ones.

• American, Editorial, ExxonMobil, Guyana, Mercy Investment Group