There has been an update in the largest lawsuit in the world, where the government of Chad is suing Exxon for approx $74 billion. This has been in dispute for over a year. I detailed this saga in a previous post here:
Or if you like it in audio form, I was invited to The Higherside Chats podcast with Greg Carlwood, and we discussed the situation in detail here (it jumps right to the point we start talking about Chad):
Anyway, it appears there has been a resolution. We were predicting one of three outcomes:
They settle out of court for a lesser amount
They do not settle, and Exxon is forced to leave Chad by the Chadian Government and Military
They do not settle, and the Chad gov't is overthrown by Exxon and/or Glencore
After half a year of deliberation, they finally came to a solution. Since Exxon owns 75% of Chad's oil infrastructure, and 96% of their exports are oil, and exports are more than 1/3 of their entire economy, it becomes apparent they had to reach some sort of accord or else it would destroy the country. Exxon simply has too much sway over the finances of Chad. But Exxon has net net profits of "only" $16 billion per year, so paying $74 billion is out of the question, they would rather withdraw from Chad.
So it appears after a year of deliberation, they have settled on the following terms to settle the lawsuit:
Exxon will be able to keep its exploration permit in the country through 2050 (a win for exxon)
Exxon pays Chad's government $819 million in "overdue royalties" for use of the land. (big loss for exxon eating up perhaps 1/20 of their yearly profit, but a win in that it's 1/100th the original lawsuit size)
Exxon pays back taxes that are owed. (I cannot find the amount, I think they may still be negotiating it but it might be substantial)
So in all, this is a pretty big hit for Exxon. In some ways this is just the cost of business, in other ways, this is taking approximately 1/20th of their total company net profit for the year, which is fairly significant. Maybe they won't be the most profitable company in the world this year.
So the Chadian government, now flush with cash, is going to pay off the humongous debt they owe to Glencore. Chad got this loan to buy 25% control of their oil infrastructure from Chevron so they can own their own natural resources income, or at least a part. So the 14th largest company in the world, Glencore, gave them a $1.3 billion loan due in 4 years, in 2018.
Funny how the amount Chad settled for with Exxon is approximately on the same range as they owe to Glencore, but a bit less. I think this is not a coincidence. It covers over half their bill to Glencore though, so either the "back taxes" part Exxon pays is going to be huge, or the gov't will work out a deal with Glencore to renegotiate the loan. Maybe they will make it a 10-year loan (and pay additional interest), or maybe they will just buyout the half of the 25% that they've paid for. I think that would probably be the best for the Chadian goverment, but I have a feeling the debt will continue to catch up to them. The debt is the control system. Perhaps they will sue Chevron next to try and raise more funds to pay off the debt.
Perhaps we will see other countries owned by oil companies follow suit and sue them for back royalties and back taxes, in order to get themselves out of debt and re-take ownership of their own national resources so that the people of the country might benefit instead of just these companies. Although making sure the governments actually help the people is a whole 'nother issue, but giving governments some power is better than letting companies hoard the profit for themselves. It's the reason we have (or had) anti-trust laws.
On The Higherside Chats podcast, we talked about how because Chad had to borrow all the money, it's in actuality like the 25% was transferred from Chevron to Glencore, with the Chad government basically being a puppet middleman. And so to get the money to pay Glencore, they sued Exxon. Now Chad has the money, and they'll give it all to Glencore. So basically, it's like Exxon just paid $800 million to Glencore, in order to calm the Chadian goverment and keep it solvent. But Chad now almost owns 25% of it's own money-making structure, but is beholden to some of the terms of this agreement with Exxon, and still has to finish paying off the $1.3 Billion it owes Glencore, which it seems 2/3 of the way done with after this lawsuit.
So overall I'd say this is a big win for the Chadian government, a big win for Glencore, and a painful short-term loss for Exxon. However in the long run it will obviously be best for Exxon, or else they would've ceased operations in Chad entirely.
Interesting outcome to the world's largest lawsuit. I applaud Chad for what they did here. It's no wonder you won't hear a whipser about on 99% of the corporate news media. If too many people knew what Chad did here, other countries might try it!
Part 2: I was just about to post the above, and coincidentially I see just today there is a new fascinating development in this story posted on Bloomberg:
Basically Glencore and even the IMF are saying that they want to extend the terms of the loan to 8 years instead of 4, to give Chad more time to pay off the debt, because they're not going to make it. But the gov't of Chad is refusing the terms offered by Glencore and wants better terms. Glencore has said they are getting very frustrated with how Chad is reacting.
Glencore also accused Chad of a "blatant breach of agreement" by diverting some crude flows away from repaying the debt, even though they are diverting enough to cause a governmental budget crisis in the government. Out of $271 million in governmental oil sales revenues in 2016, paying off debt took $231 million, leaving only $40 million for the government to use.
And in another unexpectedly interesting twist to the story, the gov't of Chad hired banker Rothschild & Cie earlier this year to advise it on the restructuring. Furthermore, and perhaps related, the president of Chad also just fired the Finance Minister of Chad last week.
So it seems now that the largest lawsuit in the world is resolved between the government of Chad and Exxon, the focus of the financial problem in Chad has shifted to the debt between Chad and Glencore, as they work out new terms to pay off the remaining hundreds of millions on their debt. It makes me wonder if Chad will ever actually get control of that 25%, or if they will just be trapped forever servicing a treadmill of debts, as they fail to meet obligations and more and more penalties and interest stack up against them. Will they restructure the loan in a way that mutually benefits both Chad and Glencore? Or will Glencore trap Chad in perpetual debt ownership? Or will the Rothschilds bail out Chad, and put the government of Chad directly in debt to the Rothschilds? After all, bailing governments out of financial crises is exactly how the Rothschilds have historically gotten their foot in the door toward central bank ownership. So we could see that play out again here.
Will Chad ever actually get independence from these oil companies and actually profit from the resources in the country? Or will it remain trapped by an endless treadmill of debts, hovering near the bottom at 186th out of 188 ranking on UN Human Development Index?
And eventually once the government actually does see some of the money from oil, will it actually give it to the people of Chad, or will they hoard it all for the political elite? We will have to wait and see.
However this plays out, it is clear this is one of the largest events happening in Africa today, affecting the quality of life of millions of people. Interesting how quiet the media is about it, isn't it?