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The Sanzillo Report

Aug 09, 2021 Editorial

Kaieteur News – The Sanzillo Report on the oil outlook for this country promises the hellish for Guyana. What should be a time of reaping and rejoicing for Guyanese, even the lowliest ones, already looks forbidding with what is in store, compliments of thoughtless, heedless political leaders in successive national governments. In brief, this is what the Report by Mr. Tom Sanzillo of the Institute for Energy Economics and Financial Analysis (IEEFA) places before leaders of and citizens in a comprehensive and unsparing manner.
It is not as much as a bombshell of a Report as it would normally be, because we have been putting parts of this out before all Guyanese on a continuing basis, through the analyses of local and foreign heads. Though the effects may be somewhat less startling than before, it is what is brought out (yet again) on how badly we could fare with our oil gift and the future returns from it.
For what Mr. Sanzillo did in this Report was to flesh out the damaging details, and wrench out interpretations that leave us cold. This Report should leave all Guyanese cold, including any political leader who says that he cares about the welfare of each of the 750,000 citizens of this still poor and struggling society. It is one which could be condemned to a savaging fate, should Exxon be allowed to continue to get away with what is financial predation and murder by the numbers.
Among the devastating prospects unearthed by the Sanzillo Report is that, even in the best-case scenarios, this country stares at barely managing and barely getting by for the next two decades, because so much favours Exxon, and so little is on the plus side for Guyana. First, it is now beyond disagreement that Exxon is free to do whatever it pleases with expenses, including their amounts and the timing and placement of such billion-dollar expenses. On our part, Guyana is largely at sea, regarding the authenticity and relevance of those bulked-up expenses from prior projects (Liza-1/Stabroek Block). There is every indication that leaders and most citizens are already well entrenched in a culture of going along with whatever Exxon dumps in our laps by way of billion-dollar bills, so as to get along with the company.
As the Sanzillo Report confirms, this is a disaster not so much in the making, but one that has already started, and which is likely to place the profitability prospects of this country on a very slim footing. This could continue well into the next decade, while Exxon has carte blanche to rig expenses to suit its own visions and priorities. Among Exxon’s priorities, the one numbering the highest is the mandatory requirement to please feared Wall Street analysts, who pay close attention to the quarterly earnings of companies. A favourable reception from such powerful analysts usually means a rising stock price, which leads to plaudits for top management. From a Guyanese perspective, any praise for Exxon’s leaders comes at the expense (to be taken literally) of Guyana. Exxon gets to gouge us by steering its past expenses to current exploration projects.
Moreover, this sheds some additional light as to why Exxon, and the PPP government and its leaders who are in partnership with the company, are so enthusiastic about drilling, and more drilling, as rapidly as could happen. It is a rewarding business practice, even though on the sharp side, since Exxon gets Guyana to foot the bills, because it has a readymade reservoir to absorb the related exploration expenses. This is intensified by what the Report emphasized are the heavy hits inflicted by the lack of ring-fencing provisions. The handling of these historical costs, and the absence of ring-fencing and other protective contractual terms and conditions, leave Guyana at the mercy of whatever financial gimmickries that Exxon comes up with to smooth its earning numbers.
Because the second all-important priority of Exxon is to keep its big investors (Blackrock, and mutual fund giants Fidelity, State Street, and Vanguard) happy with a steady stream of dividends. Again, this is on Guyana’s dollar, and this is among the costly weaknesses that leave this country with the poorest prospects, should it continue unconcerned.

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