Chris Ram projects himself as one who has a monopolistic authority on oil and gas and financial matters

Dear Editor,
REFERENCE is made to Christopher Ram’s letter to the Editor of Stabroek News dated October 12, 2022, and part one of my response thereto published in the Stabroek News and the Guyana Chronicle editions of October 15, 2022. As I have demonstrated in my first response which was not carried in its entirety by Stabroek News, Christopher Ram sought to discredit my professional and academic credentials cleverly and mischievously, but failed miserably. Christopher Ram forgot completely that he had already validated my credentials six years ago when he interviewed me for the CEO position of NICIL.
In his usual commandeering style, Chris Ram projects himself as one who has monopolistic authority on oil and gas and financial matters in this country. This second letter, therefore, aims to systematically deconstruct Chris Ram’s letter, wherein he surreptitiously sought to intimidate the undersigned. In this regard, Ram’s overwhelming demonstration of his covert intention to silence this author on oil and gas related matters, did not go undetected.
In my response to Nigel Hinds, Chris Ram confirmed that indeed the information Hinds requested of the Senior Minister with responsibility for Finance, Dr Ashni Singh, are publicly available. He cited the specific source for questions one and six posed by Nigel Hinds, but he then asked of the undersigned to point him to the source where he can find the others. For Chris Ram’s benefit, I had already dealt with this in my response to Nigel Hinds which, unfortunately, Stabroek News did not publish in its entirety. For the readers’ benefit, the other information he is referring to that Hinds requested to be furnished with is as follows:
How much is budgeted towards construction contracts for each region? The regional allocation of both capital and recurrent expenditure can be found in Volume 2 of the budget estimates. For greater clarity, construction projects would be part of the capital budget for the regions.
For the nine months ending September 30, 2022, how many contracts have been approved for over GY$100 million; what are the names of the contractors for the individual contracts and what is the total value for each contract approved? The award of all government contracts are not state secrets. All of the information can be found in the media. This was my original response to this question. But since Christopher Ram is a different kettle of fish and Nigel Hinds is a special individual, I will go further to say that even if all of the awarded contracts are not reported in the media, Nigel Hinds and Chris Ram can do two things to obtain the information as outlined hereunder.
First, all public contracts are subject to a public tendering process before being awarded. The public- tendering process is done in a transparent manner.
The minutes are published on the National Procurement and Tender Administration Board (NPTAB). Stabroek News also publishes the list of contractors who have bid for contracts. So, Nigel Hinds and Chris Ram can simply refer to the NPTAB website and obtain the list of all contractors who bid for any government contract, whether it’s for the supply of goods, services, or construction projects.
Second, if Nigel Hinds wants to have specific information as he requested, all contracts valued over $100 million, the minister is not the appropriate source to ask for this information. In order to do this, it means that the minister would have to call up all of the procurement entities of the State and have them supply him with that information. Hinds, however, is not a Member of Parliament to so instruct the minister. Regarding this type of information, the respective subject ministers are answerable to the National Assembly. That is not to say, however, that Hinds or anyone who is not a Member of Parliament cannot make such request and be furnished with such information. There is, in fact, a different process available to anyone from the general public, any tax-paying Guyanese citizen who wants to obtain this type of information, that they can initiate. In this respect, reference is made to the Access to Information Act of 2011. There is a functioning secretariat and a Commissioner of Information, to whom Nigel Hinds can direct the particulars of his question, in the form of a letter of request.
Moving onto my letter in response to Professor Hunte, Christopher Ram, who rushed to his rescue, argued that the terms such as operating expenditure (OPEX) and capital expenditure (CAPEX), do not apply to the 2016 Production Sharing Agreement (PSA). Ram went on to cite specific sections of the PSA that speaks to the details of expenditures in a line-item fashion. I hasten to say, though, that this comment coming from Chris Ram who is a chartered accountant, is a display of idiocy and pettiness. Just for the fun of it, I can be as petty-minded as Christopher Ram to prove him wrong. In section 2.3 of Annex C, on Annex C page 6, there is a definition for operating cost which is the same as operating expenditure or OPEX.
The definition states that, “operating costs are all expenditures incurred in the Petroleum Operations, which are other than Exploration Costs, Development Costs, General and Administrative Costs and Annual Overhead Charge and Service Costs not allocated to Exploration Costs or Development Costs shall be allocated to Operating Costs”. After all, Christopher Ram is not fully familiar with the 2016 Agreement as he thinks, because as proven herein, he is completely oblivious to the fact that this section exists in the PSA, that speaks to operating cost, in contrast to his absurd pronouncement that the term OPEX/operating cost is not applicable to the agreement. Further, the income and expenditure statements of EEPGL, Hess and CNOOC classify all of the expenditures as operating expenditure.
For the readers’ benefit, the term cost and expenditure mean the same thing in accounting and finance and therefore can be used interchangeably. So, whether it is referred to as operating cost or operating expense, abbreviated as OPEX, it is the same thing. Capital expenditures are those expenditures a business incurs for the acquisition of fixed assets. In the oil and gas industry, capital expenditures are all of the expenses incurred to undertake the investment. Hence, this is why the exploration cost, which is the cost of discovering the resource and to determine whether the resource is available in commercial quantities, plus the development cost are all part of the initial investment, thus, can be categorised as capital expenditure. Operating expenditure, on the other hand, are all the expenses incurred to operate the business, having first explored and developed the resource, then moving into operations that entails production.
In other words, capital expenditure includes all of the costs incurred as part of the initial investment from exploration to development such as the cost to build the FPSOs, the full infrastructure, equipment, etc., and operating expense include all of the costs incurred to operate the business, on a day-to-day basis. Christopher Ram knows this very well as a chartered accountant, yet, he has never conducted a comprehensive forecast analysis of the Stabroek Block to inform some of his opinions. For simplicity and for the purpose of financial and economic modelling, using the project economics information together with reasonable assumptions to create different scenarios with sensitivity analysis, and with the application of the fiscal terms in the PSA, this is how a financial forecast model can be constructed.
To this end, there are only three organisations that would have done a detailed forecast model, namely, the Inter-American Development Bank (IDB), Rystad, and this author (SPHEREX Analytics). While Rystad’s forecast was heavily inflated, the forecast done by this author / SPHEREX Analytics was closer to that of the IDB. The IDB’s forecast included the project economics of five FPSOs, and an average price of $50, to derive an estimated government take by 2040 of US$54 billion, while SPHEREX Analytics used an average price of $60 together with the project economics of four FPSOs, to derive an estimated government take by 2040 of US$49 billion. This has a present value (PV) of US$13.2 billion using a discount rate of eight per cent.
Ram went on to argue that the undersigned is mistaken in the reasoning for the 75 per cent cost ceiling. Ram’s contention is that the plain and simple reason for the ceiling is so that in any single month, the host country derives some revenue, no matter how bad the results of that month are. Ram is correct, but this is not the only reason or rationale. It is also to ensure that the initial invested capital (which is same as CAPEX), can be recovered quickly. As accountants and finance professionals would say, a shorter payback period rather than a longer payback period, is always desirable for any investment, especially given the scale and magnitude of the investment.
In paragraph six of Ram’s letter, he sought to demonstrate my unfamiliarity with the PSA Agreement by citing part of a sentence and completely misrepresenting the original context of what I said. Here is the full paragraph of what I said and the correct context:
“In essence, the country and the companies accrue far greater value in the long-term by developing and unlocking more of the resources into the future. This, in turn, extends the life of the industry for as long as the industry remains commercially viable, and to the extent that the oil and gas resources which are finite are available in abundance. In other words, the proven reserves in the Stabroek block to date are an estimated 11 billion barrels of crude. Hence, with a production rate of 1 million barrels per day (by the end of this decade) or 360 million barrels per year, the total proven reserves of 11 billion barrels of crude will be exhausted in 30 years’ time. That said, with ongoing exploration over the coming years, should there be fresh discoveries of another 11 billion barrels or more, then effectively, the industry’s life will be extended by another 30 years, all things being equal.”
In other words, I was speaking strictly about the industry and based on the proven reserves and how many blocks are explored with additional commercial finds into the future, these obviously will extend the industry’s life as long as it remains commercially viable.
I never said anything about the life of the PSA which Ram inadvertently and/or impishly insinuated, to confuse and conflate the argument (this is something Ram is very skillful at doing). This is exactly what Ram did with the Addendum to the 2016 PSA as well. He created a storm in a teacup when he propagated the argument that the Addendum is a form of renegotiation of the PSA, whereas it was not. He probably missed it, but I actually did a response to this which can be accessed and viewed here for ease of reference, in contrast to Ram’s views. https://oilnow.gy/featured/the-2019-addendum-to-the-stabroek-psa-does-not-equate-to-renegotiation/.
This is what happens when one involves oneself in the middle of a debate between two people and missing the entire debate at the outset. If Ram was really paying attention, he would have known that Professor Hunte and the undersigned have been engaged in an ongoing debate in the press since early August of this year. Hence, again, Ram is completely unaware of the full context altogether of the debate between Hunte and this author.
Finally, Christopher Ram, as demonstrated herein, set forth to discredit and silence this author judging from the language and angle of his letter. His questionable modus operandi, in this respect, was subtly exposed when he bashed a young professional who is trained in banking and finance and whose career spans more than a decade in the financial sector. It is worth noting that one of his confederates, a certain international lawyer who has no formal or informal training in accounting and finance or experience in this field, masquerades with self-conferred authority to publicly speak on financial and economic matters concerning the oil and gas industry. Yet, Christopher Ram supports this person and has no problem with this person dabbling in subject matters that this person has no academic, professional, or experiential authority to so do.

Yours faithfully,
Financial Analyst Joel Bhagwandin

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