Exxon’s interest rate, try return on equity- capital 

Aug 19, 2024 Features / Columnists, News, The GHK Lall Column

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Kaieteur News – If anyone had said to me that a simple interest rate question would transform the economist in Bharrat Jagdeo to such a contortionist, I wouldn’t have believed it.  It is incredible that in Guyana, to name the interest rate that Exxon is charging Guyana is seen as a vice by Vice President Jagdeo. Considering this development, I cannot help asking myself a question, one shared with my fellow Guyanese (and Americans).

Did the richest people in the world per head have to part with their heads, as part of their rich, still unsweetened oil bargain?  Or to ask this same question in another way: are the richest people anywhere in existence now expected to behave as if they are the stupidest?  When a national leader of the glorious prowess of Jagdeo is petrified into impotence to layout the interest rate that Exxon is charging Guyana, then what is he good for, what can he answer?  The West Indies test team’s first innings score?  Since he cannot answer a simple as they come interest rate question, even the Test score may be too much for him.

C’mon Jagdeo-ji!  I know that a man with the pedigree and panache of a former president behind his name is more than capable of answering an interest rate question.  If not that label, then how does make some money on the money it invests in Guyana? I will lend my brother Jagdeo a hand to lift him out of Exxon’s clutches (please remember to give it back [the hand, that is]).  Exxon is not holding itself out as a bank to Guyana.  Exxon is not lending money to Guyana to develop its oil sector. No sirree! Alistair.  From commander in chief to captains of commerce to comrades and citizens: Exxon is investing in Guyana.  There is no regulation that puts a cap on return on investment, the money put into an oil project.  For those a little sluggish on the draw, I recommend Chris Ram’s Road to First Oil column in the SN edition dated June 14, 2024, and titled, “Exxon’s incredible (and unique) return on Equity.”  It is not in the single digit category, folks.  How about trying out this (dunce) cap to see if it fits.  Using the written words of Chartered Accountant Ram: “the return on average equity…is a unique 96%!

No wonder neither Exxon nor Jagdeo has any time to waste with repeated questions about paltry interest rate charged. Me too would hide that 96% return, so overpowering (and revealingly embarrassing) it is, while Guyana must be content with the measly percentage that it manages to scrounge from its oil asset.  It took a Guyanese to work out and extract EXXON’S RETURN ON EQUITY FROM ITS GUYANA INVESTMENT.

I think that this renders moot this business about the interest rate charged by Exxon.  I would make the argument that in Exxon’s mind, there is no interest (loan) rate to speak about, but an investment one.  Now Exxon is nothing if not the smartest fish in town, with the next smartest being the local favourite son, Bharrat Jagdeo.  Because there is another delightful quirk in the interest rate that is not an interest rate regime.

Exxon is not borrowing money.  Recall that bubbly beast from Bharrat J: money is not easy to borrow, particularly for fossil fuel companies in this season when the UN and other noisemakers are beating drums about climate change and a planet that is endangered.  Exxon sweetly sidestepped all that, shall I say, trash and hogwash.  The talk from Exxon’s big chiefs like Darren Woods and Alistair Routledge that has quietly sneaked pass Guyanese was always about equity capital, equity invested. It goes without saying that Exxon is entitled to a handsome return for its confidence (and cash) in Guyana.  But let me say this: if I am making a 96% return in a partnership that is half and half on paper, I would be ashamed (or slick enough) to hold that as close to my chest as possible, and as long as I could do so.  In layman terms, Exxon collects back its investment PLUS A PROFIT ON IT (ROE/ROIC), AND THEN ALSO SHARES IN WHAT REMAINS AS OIL PROFITS.  IT IS PROFIT PLUS PROFIT (PPP).  I must check with Goldman Sacks to see if that is how its partnership relationship worked.

Exxon invested its scarce equity capital in Guyana’s oil.  There is a cost to such an action, and Exxon recovers it in spades. Jagdeo calls it “massive.”  Thanks for stringing this along under a technicality, the literal, when he knew what was meant all along.  In the instance of the tens of billions invested – the company’s own precious equity invested – here in Guyana, there is no law that limits what returns can or cannot be.  Speaking for myself only, I did not think that the rate of return to Exxon was in single digit percentage terms, even low double-digit numbers.  But that 96% average return on Equity sent me overboard. Move over interest rate charged.  Return on equity/capital invested is king of the hill, as Exxon’s knights in shining armor have reminded Guyanese again and again.  The digging that number out of Exxon’s latest financials was a superb solo effort by Guyanese Christopher Ram as such solely pertains to Exxon’s Guyana equity investment.  The man deserves a medal.  Me, I am collecting yonder what’s mine.  Interest rate stood to be a ring around Guyanese necks.  Return on equity is the guillotine dropping to chop off their heads.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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• Americans, Development, Exxon, Guyana, President Jagdeo

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