PROFIT-METRIC IS MISLEADING and FALSE: USE REVENUE METRIC (14.5/100 BARREL) TO EDUCATE THE NATION ABOUT GUYANA’S SHARE OF OIL REVENUES

Mar 19, 2024 Letters

Dear Editor,

The “52%-profit” touted on those Exxon’s billboards in Guyana is mathematically incorrect. In Mathematics, you cannot add 2% of 100 barrels (2 barrels) to 50% of 25 barrels (12.5 barrels) and get a result of 52% profit. As Attorney Chris Ram said, “You cannot add two unlike things”. Treating base 100 and base 25 as the same thing is like adding apples to oranges. Somebody at the highest level of the government should have recognised this Mathematical error and called it out two years ago when the billboards were first mounted.

If we want to educate the Guyanese nation about its “take” from the State’s Oil Enterprise, we should avoid using the profit-metric. Better to use share-of-revenue metric or share of barrels out of every hundred.

I present two illustrations to show how the profit-metric is false and misleading:
(1) Total production 100 barrels. Cost Recovery 75; 25 available for profit-share. Guyana gets 12.5 barrels. That is 50% profit.
(2) Total production 100 barrels. CR 90. Ten remaining for profit-share. Guyana gets 5 barrels. Those 5 barrels are also 50% profit.

So, we now have the results of our little illustration. Both 12.5 and 5 barrels represent 50% profit. Thus, the profit-metric can lead to absurd results. There is an old accounting joke where the accountant tells the CEO, “I can make profit anything you want it to be”.

Surely, to represent 12.5/100 barrels or 14.5/100 as 50% and 52% profit respectively, on billboards is false, misleading, and damaging to the psyche of the Guyanese people. It is simply an outrage.

The govt of Guyana should order Exxon to take down those billboards. Order Exxon not to use the word profit on those billboards. Say simply: Guyana’s share of revenues is 14.5 out of every 100 barrels. Or 14.5% of revenues.

Note: If Guyana ramps up production from 460,000 bpd to 1.2 million bpd, Guyana’s share will still be 14.5/100 and will remain so until all the oil is pulled from the seabed. Absence of Ringfencing will make sure Guyana’s share of revenues does not rise above the 14.5/100-barrel level.

To think that production will ramp up to 1.2 million bpd by 2027 and Guyana’s share of revenues remain fixed at 14.5 barrels out of every 100 is unfathomable. The oil companies’ goal is always to drill all the oil as quickly as possible – but in this particular case study – with Guyana’s take remain fixed for 30-years, it makes it a sweetheart deal of the century. This thought brings up Exxon’s determination to prevent Chevron from buying Hess’s 30 percent shares for a reported $53 billion. Exxon has a reputation for fighting aggressively for any advantage over its competitor. Exxon’s private dealings with the Govt of Guyana on the other hand is still a dark hole. Dr. Jerry Jailall once observed that GoG and Exxon are united on the same side fighting against the Guyanese people who agitate daily for a renegotiated Fair Deal for its oil resource. Spokesmen for the GoG have not once articulated reasons for renegotiation of a Fair Deal contract.

One final note: Exxon’s stock price closed at $111 on March 15th. (It averaged $56 a share in 2021). Exxon’s stock price will likely double to $222 by 2027. I would urge GoG to invest at least 50% of its SWF in Exxon’s stock. If GoG’s hands are tied and cannot renegotiate for FAIR VALUE for your oil resource, then do the next best thing – buy Exxon’s stock.

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