Dear Editor,
TOM Sanzillo has been writing on Guyana’s oil-and-gas sector for quite some time now. Readers would recall that I have repeatedly challenged the so-called analysis Sanzillo published through his organisation, the IEEFA. In fact, at one point I particularly requested of the very newspaper that propagates his work to invite Sanzillo and myself on their radio programme to have a one-on-one debate concerning the weak and flawed analyses he publishes and my responses thereto. However, Sanzillo declined to participate.

For ease of reference, please see the links below to my responses to Tom Sanzillo.

https://guyanachronicle.com/2022/05/27/joel-bhagwandin-responds-to-tom-sanzillo-ieefa/.

https://guyanachronicle.com/2022/05/30/tom-sanzillos-ignorance-of-guyanas-economic-context-and-reality-in-his-mediocre-analysis-part-i/.

https://guyanachronicle.com/2022/05/31/tom-sanzillos-ignorance-of-guyanas-economic-context-and-reality-in-his-mediocre-analysis/.

Of recent, Sanzillo again emerged with a series of articles on Guyana’s oil-and-gas sector and I have responded to almost all of them. In the process of doing so, I became rather curious to find out if Tom is deliberately being mischievous, or if he just simply lacks the capability to do any real financial analysis.

Based on my research findings, it appears that it is a combination of both of the above–that is, he lacks the capability and secondly, he and his organisation evidently have an agenda against oil-and-gas companies. So, in the pursuit of their objective, they are producing all sorts of illogical and flawed analyses.

I recently visited Tom Sanzillo’s LinkedIn profile and found out that Sanzillo has a Bachelor’s of Arts Degree in Politics. Now, to be abundantly clear, I am not questioning the legitimacy of Sanzillo’s qualification, but obviously the suitability of his academic training against the field he is dabbing in renders him unqualified to so do. He has absolutely no academic training in accounting, finance, economics, business or energy economics. according to his professional profile on LinkedIN, yet he masquerades as a financial expert. Whereas, clearly he has no professional, academic or technical authority and credibility in the area of finance. He is a political scientist by training and this explains his profound incomprehension to even understand my rebuttals to his work.

Further, it appears that Sanzillo doesn’t even have a MBA, or a Master’s Degree or any other degree in business, because any business qualifications covers training in finance and financial analysis – other than the more technical professional qualifications such as ACCA, CPA, CFA, or even a degree in finance. Yet, he calls himself an expert in finance.

(Note: I stand corrected if Sanzillo does have other finance-related qualifications but did not make mention of same on his LinkedIN professional profile).

Here are two recent examples of Tom’s flawed analyses and misrepresentation of facts for the ease of reference for the readers.

1) Tom said that every Guyanese owes ExxonMobil $9 million and that Guyana has to repay Exxon’s debt, but this is incorrect.

Guyana has zero liability. Exxon’s investment is recovered from the revenue generated from the sale of crude, that is why there is a 75 per cent cost-recovery ceiling.

2) In response to the Vice-President who said in his recent press conference that Guyana will earn about US$2 billion annually at a conservative price of US$50 per barrel by 2025, Sanzillo argued that this is inaccurate because Guyana’s take for 2019 through 2019 did not amount to US$2 billion.

That being said, Tom Sanzillo ignored a number of critical variables in his assertion at number 2 above. These are:

i) Oil production commenced in December 2019 from Liza phase 1 at a production level of 120,000 barrels per day.

ii) There is a 75 per cent cost-recovery ceiling from which the development cost or the initial capital expenditure (CAPEX) (which includes exploration and field development cost) will be recovered. Hence, during the cost-recovery period which would be relatively short (about five – seven years), Guyana’s net take will be relatively smaller versus during the post-recovery period, where the net take will increase significantly – naturally because there is a moderate-to-low operating cost.

iii) Another important variable Sanzillo ignored is that production levels will increase to about one million barrels by the end of the decade; hence, naturally, Guyana’s net take will also experience substantial increases.

iv) In fact, Liza phase 2 commenced production in February 2022 with a production level of 220,000 barrels per day, plus the 120,000 barrels per day from Liza phase 1, by 2024 Payara will add another 220,000 barrels per day, and the fourth development which is Yellowtail will add another 250,000 barrels’ day, thereby bringing total daily production to 810,000 barrels per day by 2025, when all four of these developments will be producing concurrently.

Thus, obviously in 2019, 2020 and 2021 Guyana could not have earned this much with only Liza phase 1 producing at 120,000 barrels per day.

Sanzillo disingenuously stated that the budget estimates did not show Guyana will receive US$2 billion even by 2025. However, if one were to examine the appendix of the budget 2022 speech on page 99, one would be able to confirm that the estimated inflows from profit oil and royalty by 2025 is US$1.8 billion, which is close to US$2 billion.

Furthermore, at a production level of 810,000 barrels per day @ an average price of US$50, Guyana’s take in the form of royalty plus profit oil will work out to US$2 billion annually, and this is during recovery period. Thus, the Vice-President was correct when he said that Guyana will earn about US$2 billion annually, based on future estimates by 2025.

It is worthy to note as well that in the post-recovery period of the CAPEX for the four developments (Liza phases 1, 2, Payara and Yellowtail), Guyana’s net take will increase to about US$5.3 billion with the assumption that the operating cost is 30 per cent of revenue, down from the 75 per cent ceiling after the CAPEX is recovered.

It would appear, therefore, that Sanzillo does not care to include these variables in his analysis because it would run counter to his narrative or whatever might be his agenda against oil companies.

That said, Guyanese need to be wary of these foreign experts who pronounce with supreme arrogance on our economic state of affairs, and, who are ill-informed and at best lacks a thorough understanding of the issues and subject matters they are pronouncing upon altogether.

Yours faithfully,
Joel Bhagwandin
Financial Analyst