Introduction
As promised last week, today’s column and the next two are devoted to an overdue discussion of the notion of “working interest” as this is freely applied when referring to the grouping or consortium of the three oil companies leading the exploration and production of Guyana’s hydrocarbons in the prolific Stabroek Block. These are ExxonMobil [operating through its local subsidiary, Esso Exploration and Production Guyana Limited, EEPGL], Hess Guyana Exploration Limited, and CNOOC Corporation. Over the years, in these columns I have routinely used one of two alternative expressions to capture this entity; namely, ExxonMobil and partners, or ExxonMobil and co-ventures.
On reflection I admit that, for some readers this has been somewhat confusing. Especially as I firmly contend the noise and nonsense in the social and print media have contributed a great deal to the prevailing confusion, even though by no measure is this the only source of confusion. Two fallacious assertions can be identified in the noise and nonsense analysis.
These fallacies are firstly, that the Guyana Authorities subscribe to or hold equity/shares in the ExxonMobil consortium. In other words, Guyana is a commercial partner of ExxonMobil; indeed, similar to Hess and CNOOC. Secondly, debt incurred by ExxonMobil and partners for their local exploration and production operations is therefore debt for which Guyana is legally responsible for or owes to lenders!
Readers of this column should know that, debts which are not contracted and thereby guaranteed by the Government of Guyana cannot qualify as state obligations. That is why my recommendation for the Authorities to create a National Oil Company based on NRGRI principles, is designed to create a corporate company structure to lever a portion of the state’s hydrocarbon resources for commercial-based limited liability interest or co-ownership in the consortium partnership.
Admittedly, some of the confusion evident in public commentary may be attributed to the circumstance that very little column space in public commentary on Guyana’s oil and gas sector has been devoted to the Hess and CNOOC corporations. Almost exclusive focus has been on ExxonMobil including for myself. My only significant contribution on this topic has been back in 2018 when I indicated that the “consortium” leading the exploration and development of the Guyana “play” consists of 1) Esso Exploration and Production Guyana Limited (EEPGL), a wholly owned subsidiary of ExxonMobil (a 45 percent stake) 2) Guyana Exploration, a wholly owned subsidiary of Hess Corporation (a 30 percent stake) and 3) Nexen Petroleum Guyana, a
Hess Corporation (a 30 percent stake) and 3) Nexen Petroleum Guyana, a wholly owned subsidiary of China National Offshore Oil Corporation (CNOOC), (a 25 percent stake).In what followed was a brief assessment of these industry brands controlling the Guyana “play” as I termed it.
In the next section I offer a few comments on the notion of working interest in the oil and gas sector. These are standard and can be found in any glossary of finance, business, or petroleum/mineral terms.
Working Interest
Investopedia sums up the term concisely by declaring a working interest in oil and gas as referring to an investor[s] provision for a portion of the total costs [that is, initial and ongoing cost items] related to exploration, drilling, and production operations. Given this full-blown responsibility the working interest owner shares fully in all profits falling due to the given investment.
Typically, in order to facilitate easy comprehension, a contrast is drawn to an investor[s] with a royalty interest which is usually limited to returns on their initial investment. This of course leads to a lower potential for profits.
Expanding, a working interest provides investors with
1] a percentage ownership of the production profits,
2] a right to the drilling activities, and the resources produced.
3] income from resource production
while bearing responsibility for a percentage of the acquisition costs to the original landowner.
These are just a few of the differences between the two types of ownership rights.
Types
• There are two types of working interest: operated and non-operated. Operated working interest has a designated operator that makes all operational decisions. The operator selects wells, determines drilling, and handles all the day to day operations.
• A non-operated working interest member is not involved in daily operations but is consulted on production decisions. The well operator, after operating expenses have been covered, divides any additional funds between those holding a working interest, creating the source of income. Those holding a working interest may deduct certain costs, such as those associated with the depreciation of equipment.
