Financial Analysis Report of EEPGL, HESS and...

FROM PAGE 9 to FY 2022, the cumulative operating income for the period amounted to G$1.693 trillion. Notably, for the years 2019 and 2020, cumulative losses were reported of G$25.8 billion. The cumulative net cash inflows from operating activities amounted to G$2.033 trillion for the period or US$9.8 billion. The net cumulative cash outflows from investing activities amounted to G$2.033 trillion, and the cumulative net cash outflows from financing activities for the period amounted to $6.441 billion or US$31 million.

Importantly, it must be noted that the net cash outflows from the investing activities are essentially the cash outflows reinvested in Guyana for both exploration activities and development of new projects for production within the Stabroek block.

Whereas the net cash outflows from financing activities represents the cash flows remitted to the parent companies, representing repayment of invested capital contributed by the parent companies. As such, the oil companies reinvest 99.69 per cent of their net operating cash flows and profits into the Guyana market as previously explained. This means that less than 1 per cent of the net operating cash flows from Guyana is utilised for dividend payments to shareholders by the parent companies.

The lack of ring fencing in respect of the fiscal framework was one of the main criticisms at the outset of the renegotiated Stabroek block PSA. The ring-fencing requirement is typically applied to oil and gas fiscal regimes with income taxes as part of the fiscal framework. In the case of Guyana, the Stabroek block PSA does not have an income tax component, per se, save an except for a nominal corporate tax.

Thus, the ring-fencing provision, for this reason, is not necessarily applicable because its purpose is usually to determine the taxable income in a given fiscal year.

In hindsight, there is another important dimension that stakeholders should consider wherein the lack of ring fencing is an incentive favourable to Guyana. With the imposition of ring fenc- ing, the cost of capital would have been higher than the current cost of capital and it would have restricted the current fast-paced development of future projects.

To this end, the lack of ring fencing is enabling future projects to be financed from the cash flows generated from Guyana’s operations, which is cheaper, versus sourcing capital from shareholders’ equity and employing higher levels of debt financing which would be more expensive as well.

The local media, many local and external analysts and industry observers held the view that the Guyana market accounts for a substantial portion of EEPGL’s parent company’s net earnings globally. However, the illustration in the analysis herein confirms that this is not the case, which is an important perspective for the Guyanese stakeholders.

In this regard, EEPGL’s parent company, namely ExxonMobil’s comprehen- sive income for FY 2022 amounted to US$56.234 billion of which EEPGL’s comprehensive earning for the period amounted to US$522 million, thereby representing 0.93 per cent of ExxonMobil’s global net earnings. Also, the net cash flows from operating activities of EEPGL represents 4.6% of the net cash flows of the parent company; the total assets of EEPGL represents 2.93 per cent of the parent company’s total assets; and the cash and cash equivalents as of the end of year for EEGL represents 0.05 per cent of the parent company’s cash and cash equivalents at the end of year. ii) That the oil companies and the government are united in keeping cost recovery numbers hidden according to one local media report.

About the Author

3.

Concluding Remarks

Overall, the analysis invalidates the following contrary views of other analysts and political commentators where: i) EEPGL and its co-ventures raked three times more profit than Guyana for the period FY 2020–FY 2022, and

Joel Bhagwandin is a public policy/financial analyst―and an experienced financial professional with more than fifteen years’ experience in the financial sector, corporate finance, financial management, consulting, and academia. He is actively engaged in providing insights and analyses on a range of public policy, economic and finance issues in Guyana over the last six years. He has authored more than 300 articles covering a variety of thematic areas. Joel has also written extensively on the oil and gas sector. (Author’s professional profile on LinkedIn can be accessed here: https://www.linkedin.com/in/joel-bhagwandin-57481470/.)