By GHK Lall- Formula. Profit formula. Exxon-Guyana 50:50 profit formula. What are its elements? How do they feature? Should they be a factor in the Guyana-Exxon profit formula calculation?
Dr. Bharrat Jagdeo, Guyana’s MIT formula man, ventured the lazy and hazy. It went like this: ‘it’s the formula they use, stupid, and it has been consistent for the last three years.’ The new and improved Jagdeo, is the old and stale Jagdeo. Saying a mouthful, without saying anything at all. Overnight this profit formula became a search for the Holy Grail.
The next VIP in Guyana that I was about to pay a courtesy call on in my quest for enlightenment on this mystery profit formula was another MIT and Harvard Business School man, Dr. Ashni Kumar Singh. He is in charge of the money, so if anybody in Guyana should know, he’s the one. But circumstances changed.
For context, I have been pounding this profit formula issue, with neither Mr. Alistair Routledge nor Dr. Jagdeo coming forward with the helpful. In the instance of Mr. Routledge, he may have shared his profit joys over cocktails at the US Embassy, but hasn’t deigned to do so with Guyanese. Thanks for nothing, sir.
Some stalwart Guyanese in the group called OGGN noted someone brandishing a figure of Guyana getting US$13 billion in profits before Mr. Ram on a program, with which he disagreed. Where that US$13 billion with Guyana’s name on it came from, I would like to know. That’s not voodoo accounting; that’s plain old voodoo on the move. Mr. Responsibility, Dr. Ashni, was to hear from me, then the Fates intervened.
This was in the form of Leader of the Opposition, Mr. Aubrey Norton, jumping into the line ahead of Dr. Singh, only to confirm a nagging thought. I wish that he hadn’t, but he had to answer a question that the people from KN kept pushing.
How can it be that in a 50:50 profit gig, Exxon and its co-venturers collected US$10.4 billion and Guyana got US$2.6 billion? What kind of equal formula produces that result? What’s half and half, half-baked, or half-witted? What Mr. Norton said was something that I had inserted in one of my friendly writings on this same profit formula puzzle.
Remember to consider that baby elephant called ‘cost recovery.’ Say what? From the moment I heard that, I said that Chartered Accountant, Chris Ram was going to have a fit, and the smart set in the PPP Government (people of the caliber of Dr. Jagdeo) were prime candidates for a C-section.
In the rawest terms, how the hell could Exxon include up to 75 percent of its costs from oil revenues AND then add that back as part of its profit formula calculation? Pursuant to the 2016 contract, Exxon has every right to subtract 75 percent of its costs from Guyana’s oil revenue. It can recognize the earnings on the billions of its own equity that it invested in the Stabroek Block, and include that as income.
Thus, equity earnings, only the earnings, can be on the income side. Last, Exxon would be in order, in the general scheme of accounting, to count those earnings from equity as part of its net profits. Exxon, however, cannot and should not include in its profits, the money/equity that it invested in its Guyana oil operations. Money invested-whether from company equity, deep-pocketed backers, or bank loans-do not form a part of any conventional profit formula.
Again, the return is, but not the billions plunked down in Guyana. I apologize in advance if Mr. Routledge is offended, but if Exxon did so [incorporated the billions it lent Guyana for oil ops] in its profit formula calculations and on the income side of the ledger, then that’s not in keeping with any accounting convention. It comes dangerously close to accounting shenanigans, to put a harsh judgment on such action. The best that I am able to muster is accounting innovation. If adding back its invested equity (principal) is in keeping with what was once touted as Exxon world-class accounting standards and practices, I neither want to see nor know the rest.
I had said in one of my prior writings that if Exxon was fusing cost recovery money into its reported profits, then that should be made clear. Since that looks like what happened, it’s now not surprising that Dr. Jagdeo got his teeth and tongue jammed. What leaves in a bad place is that Guyana’s chief guardian of the people’s money, Dr. Singh, didn’t think it fit to share an explanatory word or two with his Guyanese paymasters. Some guardian he is. I wait to see when and how the next shoe will fall in this Exxon-Guyana profit formula matter that is now a full-blown soap opera. A comic one.
