Latest update June 15th, 2024 7:51 PM
Oct 20, 2023 Editorial
Kaieteur News – The Chief Executive Officer of ExxonMobil Guyana Limited (Exxon), Mr. Alistair Routledge, has weighed in on the merits of ring-fencing versus no ring-fencing of Guyana’s offshore oil projects. To paraphrase Winston Churchill, what Mr. Routledge did was deliver a rigmarole about no ring-fencing to conceal possible corporate rogueries. It was Mr. Routledge waxing smoothly and richly, and which revealed much about what he and his company are about.
For starters, Mr. Routledge took the good soldier routine: “what matters to the government and the people are really maximizing the development of the resource and maximizing the revenue optimally into the natural resource fund and operating without the ring-fencing is what will help do that.” Mr. Routledge’s rank paternalism is rejected out of hand: leave maximizing revenue from its oil riches to the Guyana Government and Guyanese. Nobody can know that more than Guyanese, and nobody should take it upon himself to lecture locals regarding revenue maximizing priorities. Do not try to foist no ring-fencing upon this nation because it helps to take care of Exxon’s visions about profitability, and how it manages and presents that publicly.
No ring-fencing provisions help Exxon to engage in expense management, possible expense smoothing, so that its financials present the best earnings light to those who watch that like hawks. No ring-fencing empowers Exxon to massage and manipulate expenses on projects to its advantage. As Mr. Routledge himself admitted, this “affects the timing of cash flows.” Call it what pleases, cash flows or earnings or income, but when such flows are timed to maximize the impact of the company’s profit picture, this is what an absence of ring-fencing makes possible. No ring-fencing facilitates spreading out expenses over the life of several huge projects.
Rather interestingly, and most cagily, Exxon’s Mr. Routledge continued with this: “The potential downside of what we have seen from our experience is that in doing that [ring-fencing] what we can sometimes end up with is you strand resources because you tie a project and you say well there’s some resources outside of that ring-fence but on a standalone basis they are no longer economic or they struggle to compete for investment.”
He didn’t say that, cannot be saying that, given the enormously costly oil projects that the Government of Guyana has been pushed to approve one after the other, starting with Liza 3, 4, and 5, and with the sixth project now pending. The sixth oil project barreling towards approval is for US$12.9 billion, which is a massive amount for Guyana, one of its largest yet. In view of what Exxon’s studies have indicated relative to the billions of barrels of oil equivalents embedded in those projects, it makes no economic sense for Mr. Routledge to point to and speak of “some resources outside of that ring-fence…”. They either form part of the project with known reserves, or they are not ventured into because their returns would be unprofitable for both the operator and for Guyana. What we think that Mr. Routledge is doing is dangling mirages (“some resources outside”) to mesmerize Guyanese, as a rationale for no ring-fencing.
Further on the revenue maximizing point that Mr. Routledge spoke of more than once, and in different phrases, oil prices are now operating in a viable band above the US$80 per barrel threshold. Prices could increase or decrease, as has been the history of this choppy commodity. Sustained production cuts or demand destruction each have their positives and negatives. Hence, it makes sense to maximize Guyana’s intake now rather than in the future. New technology could make material inroads into oil’s near monopoly on energy needs. A new set of discoveries around the world could relax current supply restraints. An accord has been signed by Venezuelan politicians competing for power there, which could lead to the removal of US sanctions and a flood of Venezuelan heavy oil into the supply pipeline. These developments, singly or in combination, could upend OPEC+ hostage taking and pressure oil prices downward. The maximised revenue that Guyana was betting on could then be in jeopardy. This is why ring-fencing should be normalized now with each new project. Guyana needs more now, at least its suffering citizens do.
HELP ME, HELP ME PLEASE!!!
Jun 15, 2024
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