Dear Editor,
REFERENCE is made to Professor Andre Brandli’s letter to the Editor of Stabroek News dated October 11, 2022, with the caption, “Mr Bhagwandin is operating completely in the dark with his calculations.”

Professor Brandli argued that “in essence, Mr Bhagwandin is trying to mislead the readership of Stabroek News by presenting fictitious scenarios of the development of Guyana’s future oil revenues using assumptions.” Brandli went on to state that there is no reliable data in the public domain on the capital expenditures (CAPEX) and operating expenditures (OPEX) for each of the two floating, production and storage and offloading vessels (FPSOs).

Editor, with due respect to Professor Brandli, he is making a dangerous assumption to believe that there is no reliable data in the public domain. Professor Brandli is completely wrong and in fact, it is he who is in the dark. Editor, but I will forgive Professor Brandli’s ignorance because I don’t believe he resides in Guyana, but I do. If he were residing in Guyana and well integrated into the system, the private sector in particular, he would have known the following:

> Firstly, all publicly registered companies in Guyana are required to file their audited financial statements with the Deeds Registrar. While these may not be published anywhere on the Internet, in the case of the oil companies, they too are required to file their financial statements. Anyone can literally go to the Deeds Registry and request a copy. Christopher Ram did so and published one of his columns on the 2021 consolidated financials for EEPGL, CNOOC and HESS. I also did so. So, for Professor Brandli’s edification, the 2020 and 2021 financials for EEPGL, CNOOC and HESS are publicly available and accessible, and I am in possession of those statements.

> Secondly, if Professor Brandli conducts a simple google search on ExxonMobil Guyana, he will find all of the project economics information for each development, including the estimated capital expenditure for each development. For ease of reference, here’s the link: https://corporate.exxonmobil.com/locations/guyana/guyana-project-overview#LizaPhase1ProjectDescription,https://corporate.exxonmobil.com/news/newsroom/news-releases/2017/0616_exxonmobil-makes-final-investment-decision-to-proceed-with-liza-oil-development-in-guyana.

> Liza 1, the CAPEX is US$4.4 billion; Liza 2, CAPEX is US$6 billion; Payara the CAPEX is US$9 billion and Yellowtail, the CAPEX is US$10 billion, bringing the total CAPEX for the four approved projects so far to US$29.4 billion. These are reliable data cited from the above credible source.

> Hence, with the project economics data, any economist of Professor Brandli’s calibre can use the data to construct a modelled forecast under different scenarios for the four approved developments so far, to reasonably ascertain what would be the government’s take and the country’s take.

> Thirdly, looking at the consolidated financials for 2021, the OPEX represents 42 per cent of total revenue; therefore, the remaining 33 per cent would have been allocated towards recovery of the CAPEX. This being the authentic, actual, and credible consolidated financials for 2021, it is reasonable to realistically assume, for the purpose of any forecast analysis, that the 75 per cent cost-recovery cap comprised OPEX representing 40 per cent of the total cost and recovery of CAPEX representing 35 per cent of total cost, capped at 75 per cent.

> Fourthly, ExxonMobil (Guyana)/EEPGL, on a regular basis facilitates various stakeholder engagements with the private sector, especially through the business support organisations such as the Guyana Oil and Gas Energy Chamber (GOGEC), the Georgetown Chamber of Commerce (GCCI) and the Private Sector Commission (PSC). Through these engagements, EEPGL shares information such as updates on project development, local content spends etc., and also avail themselves to answering questions from the private sector. Again, for Professor Brandli’s edification, I am an active member of the aforementioned organisations, and I am almost always present at these engagements, and so I am privy to hands-on industry information from the industry players directly. Most times, these engagements are coordinated and initiated by the private sector organisations. Recently, I participated as panel speaker on the recently held GBS summit, where I presented on the development of natural gas markets in the region.

That said, when Professor Brandli, a seasoned academic who knows well more than anyone else the importance of research and fact checking anything before making any intelligible pronouncements on any issue or subject matter, he should have done some research on who is Joel Bhagwandin, what is his level of involvement in the industry, if at all, which organisations he is a part of, make some phone calls and consult with google (in the case of the CAPEX or project economics data).

Professor Brandli went onto argue that in the absence of ring-fencing, no one can reliably predict when Guyana’s share of revenue will go beyond the two per cent royalty and 50 per cent profit. Editor, again for Professor Brandli’s edification, to date 33 wells have been drilled in the Stabroek block, of which three are dry wells and the remaining 30 are commercially viable wells, accounting for the estimated 11 billion barrels of proven reserves to date.

The exploration cost per well ranges between US$60 million – US$100 million. Applying the higher end cost, these three dry wells would amount to US$300 million. Juxtapose this with the gross revenue that the 30 commercially viable wells will generate over their productive life; the cost of the dry wells so far will be less than one per cent of total revenue. In fact, using the project economics for the four approved developments so far, the gross revenue at an average price of US$60 per barrel would amount to US$177 billion. The cost of the three dry wells represents 0.17 per cent of total revenue, therefore, having minimal or almost zero impact on the bottom line.

For greater clarity, the four developments alone account for just under three billion barrels of crude oil out of 11 billion barrels of proven reserves in total, to date, representing just 27 per cent of the total proven reserves in the Stabroek block to date or less than 1/3 of the total proven reserves.

Professor Brandli’s final argument in his letter, he weighed in on the sanctity of contract as a misconception by the Vice-President and argued that the financial risks for the consortium ended in 2019 with the onset of oil production. Editor, it is a misconception to believe that the financial risks ended for the consortium in 2019, when the reality is such that oil is a volatile commodity, oil prices are impacted not only by global demand and supply dynamics, but also by geopolitical tension. To this end, the world only recently witnessed the playout of these dynamics when oil price literally crashed below US$10 during the pandemic period and then skyrocketed above US$100 post-pandemic on account of the compounded effects of the Russian/Ukraine war. Consequently, as demonstrated herein, financial risks are always a concern in the oil and gas industry, globally.

Editor, I wish to deal with the sanctity-of-contract argument in a more comprehensive manner, but space precludes addressing this issue in a single letter. As such, I am inclined to do a part two of my response to Professor Brandli to deal specifically with this aspect of the debate.

Yours faithfully,
Joel Bhagwandin
Financial Analyst