Dear Editor,
Guyana needs to be wary of the many so-called foreign experts who are seeking to dominate the local press and pronounce on Guyana’s economic affairs. To this end, particular reference is made to the commentaries of Tom Sanzillo, Director of Financial Analysis at the Institute of Energy Economics and Financial Analysis (IEEFA), and Gerard Kreeft, another so-called energy transition advisor.
Tom Sanzillo sought to argue – without any facts or any real analysis – that the gas-to-shore project is a recipe for bankruptcy. His analysis was carried widely in the Kaieteur News on several occasions, to the extent that other so-called experts are relying on this flawed and disingenuous work of the IEEFA, which is being propagated widely in Guyana.
Gerard Kreeft recently made such reference, and also sought to argue that Guyana’s promised billions is an illusion.
Both experts are completely out of their depth, because there is no illusion in regard to Guyana’s oil deal. The reality is such that Guyana has a Production Sharing Agreement (PSA) with Exxon, of which Guyana’s take is 50% profit share and 2% royalty. So, there is no illusion; the contract and profit share are real.
As far as Tom Sanzillo is concerned, I have recently challenged his work at the IEEFA, offering a detailed response in which my counter analysis concluded that Tom Sanzillo and the IEEFA seem to lack the capacity to conduct any credibly sound and robust analysis on the Guyana case study, and any sort of reasonable comprehension of the ‘country context’ from the many different dimensions – some of which were alluded to herein. Palpably, there are many variables omitted and/or ignored from the analyses with respect to Guyana’s macroeconomic framework, the development trajectory, the political economy, investors’ confidence, and Guyana’s capability on these fronts.
The analyses by the institute, therefore, are undoubtedly weak and are not cogent.
This response was carried in parts in my weekly column, “Economy & Finance”, in <<Guyana Times>> on Sunday January 3, 2021 and Sunday January, 10, 2021; the third part will be carried on Sunday January 17, 2021. The full response was also emailed directly to the IEEFA for Tom’s attention.
For those who are interested in reading my detailed analyses in response to the IEEFA’s report on Guyana, the report can be accessed on my website at https://jbconsultancy.info/compilation-of-jbs-full-response-to-tom-sanzillo-director-of-financial-analysis-at-ieefa-on-guyanas-oil-gas-sector-open-debates-parts-12-3/.
The local press further referenced Gerard Kreeft’s work, in which he published an article in the Africa Oil+Gas report titled “Whisky Galore: Developing an Energy Roadmap for Guyana”, in November, 2020. In his article, Gerard ignored some important contexts. If one were to examine his piece, one would quickly observe that though the article was titled “Developing an Energy Roadmap for Guyana”, the article in no way speaks to a road map; rather, it was heavily critical of ExxonMobil, chronicling some of the challenges the company experienced, which resulted in its poor financial performance. By doing so, Gerard went on to argue that Guyana is ExxonMobil’s cash cow as a result of the company’s declining financial performance over the years.
It should be mentioned that nothing is wrong with Guyana being the cash cow for ExxonMobil.
Gerard did not explain to his readers, though, that the global oil industry is one that is heavily capital intensive, and, by its very nature, is an extremely risky business. For example, imagine you are an investor who invested over US$500 million in exploration cost only to find zero crude. That is US$500 million that has to go down as sunk cost. Not only is the nature of the oil industry business one that is highly risky, but this is compounded by high regulatory costs in other countries whose industries are heavily regulated, and of course risks of oil spills, which are also very costly to oil companies. ExxonMobil, unfortunately, has not been spared the manifestations of such risks over the years, and has borne the costs that come with it. One must understand that these are factors that are beyond the control of ExxonMobil, coupled with the demand and supply dynamics that impact oil price volatility as well.
In his ramblings, Gerard seems to favour ‘Total’ over ExxonMobil because of its perceived greener business model over Exxon. This is where Gerard has erred – fundamentally, by ignoring context altogether. As a Guyanese people, we must be reminded that oil exploration activities have been conducted for more than two decades by various companies, and they were all unsuccessful explorations.
ExxonMobil, on the other hand, was determined to not give up on Guyana, and with persistence, it secured the 1999 contract, and 16 years after, it struck oil in commercial quantities. Had it not been for ExxonMobil, Guyana would not have been an oil producing country today.
It is ExxonMobil’s shareholders who took on the risks and invested their funds. One has to ask: How many investors are prepared to invest billions of U.S dollars – not knowing whether there is oil there or not – and to collect dividends from that investment 20 years after, from the time of exploration to drilling and extraction of the crude, before it can be sold. Then, another three to four years to recover the initial investment.
Further to note, owing to the now burgeoning oil and gas sector, Guyana’s average Foreign Direct Investment (FDI) annually pre oil was US$260 million. Post oil production in 2019, FDIs amounted to US$1.7 billion, which is an increase of US$1.4 billion or 536% from what Guyana’s normal average level of FDIs was before becoming an oil producing country. So, these are some of the important contexts that one must not ignore and one must not forget.
Gerard also erred with regards to the Production Sharing Model and how the investment is treated in terms of recovery. Like Tom Sanzillo, Gerard has it wrong – that is, the Government will owe ExxonMobil US$20 billion by 2025. The Government of Guyana will not owe Exxon a single cent. The Government did not invest a single cent in the resource development. It is Exxon shareholders’ monies that were invested and continue to be invested, of which the costs will be recovered from the sale of crude, and the Government gets a profit share plus royalty.
Editor, in a subsequent letter I will address the issue of what might be the modus operandi of the IEEFA and self-made experts like Gerard Kreeft, as I have already exhausted the word limit in this missive.
Gerard Kreeft’s article can be accessed here: https://africaoilgasreport.com/2020/11/in-the-news/whisky-galore-developing-an-energy-roadmap-for-guyana/.
I will end by saying that up to the point of writing, a local media house has been trying to engage Tom Sanzillo to a public one-on-one debate on the issues his Institute wrote about and my detailed response to him. I am still awaiting Tom’s confirmation. In my subsequent letter, we will find out why Tom and Gerard are unlikely to accept such challenge.
Yours faithfully,
JC Bhagwandin
Principal Consultant/ Financial Analyst
