Projection of US$1M per day is clearly wrong, extremely optimistic

Guyana’s earnings from oil profits, royalty

– int’l analyst

International financial analyst Sasenarine Singh is warning that the early projections of the likely revenue from Guyana’s oil sector are “dangerous, ill-informed” in light of the volatility of the sector, suspect figures from

the International Monetary Fund and the plethora of risks that accompany the industry.
Singh, in a recent interview with the Guyana Times, was responding to a dedicated ‘oil news’ network operated locally which suggested that Guyana was on track to

earn close to US$1 million per day from oil profits and royalty.
That outfit, according to the financial analyst, “just lifted a raw number of 120,000 bpd from somewhere, which it claimed was backed by the IMF…Unfortunately, the latest figure backed by the IMF was 100,000 bpd and such a declaration can be found in its 2017 Staff Report on Guyana, which was published in June 2017. In that 80-page report, on page 63, the IMF made absolutely clear that this number is a Baseline Scenario Assumption (BSA).”
According to Singh, “anyone who has done any sort of project management and financial forecasting will know that a BSA is nothing but an exercise in projections using uncertain variables, but when the project is fully developed it can possibly be

very different from the BSA numbers…In their BSA, the IMF estimate total oil production at the Stabroek Block will be around 100,000 bpd from mid-2020-2028 and then it shall drop to 80,000 bpd and then 60,000 bpd from 2033.”
Singh told this publication that this projection of close to US$1 million per day was clearly wrong and extremely optimistic.
Speaking to the dangers of such a prediction, the international financial analyst told this newspaper, “Such a number is feeding a tired Guyanese population false hope….Such a number can also cause many unaware of the facts to start building castles in the sky..”
Singh is adamant that playing with the emotions, ambitions and hopes of Guyanese was unethical at minimum and insisted that “it is too early in the investment cycle to have real convergence on the cash inflows to the Treasury”.
He used the opportunity to remind the public too that “profits are not cash flows” and reiterated “it is too early to project the price of oil”.
Singh noted too that based on a Corporate Finance course “I did at London Business School, and my 14 years of practical experience doing exactly this sort of analyses internationally, I clearly learned that in analysing the future cash flows from ‘Capital Investment’, one must always measure the multitude of risks involved in each situation. You must have a scenario analysis with many ‘noodles’ offering the several alternatives…Mathematical formulas that predict a single rate of return or best estimate are not enough.”
“I await the ExxonMobil production plan outlining the projected oil they plan to pump from 2021,” Singh said. “I was reliably told it can be as low as 40,00

0 bpd in the first 12 months.”
He has since adopted the position: “I encourage the Guyanese intellectuals to not play lotto with the minds of the ordinary man…At the end of the day, the only authority on the annual cash inflow from this project to the Treasury remains ExxonMobil, not a Minister, not a newspaper, not a President, only Exxon!”
Singh’s caution mirrors that of Opposition Leader Bharrat Jagdeo, who has repeatedly cautioned against persons misleading the populace with regard to the likely inflows from the oil sector in addition to public calls for the release of several pertinent documents, including the contract inked with ExxonMobil and the Natural Resources Ministry.
In June last, Jagdeo had berated Natural Resources Minister Raphael Trotman, saying “he is talking up expectation about massive future wealth”.
Not wanting to speculate, the Opposition Leader quipped that oil prices at “US$50 a barrel can’t solve our jobs problem”.
According to Jagdeo, there is a very “real possibility of Guyanese being worse off” come 2020 when “oil could be a blessing or a curse”.
He said the world was replete with examples where Governments have misspent their oil fortunes while ignoring other sectors.
Jagdeo used the opportunity to again lament what he called the politicising of any returns on the national patronage.
“What he (Trotman) does, he goes around talking up the future of this industry as though it will solve every problem in Guyana…As though there will be massive flows.”
The Opposition Leader had pointed to ExxonMobil’s pronouncements that by 2020 when it would begin production, it would have already invested some US$5 billion and this money would have to be recovered by the oil giant and its partners before any profits could be shared.
The former President, speaking to the volatility of the oil market and oil prices, said come 2020 Guyana could very well not be receiving any profits whatsoever, but instead would get just the royalty – not a massive amount when juxtaposed to the adumbrations of Government officials.