US$214mn of spending flagged in Guyana’s audit of ExxonMobil

14th April 2023

The Government of Guyana says that oil giant ExxonMobil must justify as much as US$214mn of the company’s cost oil claims.

This comes after a report of a 2019 audit completed by British firm IHS Markit (IHSM) of Exxon’s cost oil expenses between 1999 and 2017 flagged some US$214.4mn of the company’s claims for the attention of the government.

Stabroek News reported that sources indicate that of this total, US$34.34mn of claims are considered ineligible and US$180mn have no documentation.

Vice President Bharrat Jagdeo said that the report is with the Guyana Revenue Authority (GRA) and will be carefully reviewed, adding that if these expenses cannot be justified, they will not be approved.

“It has to go through a procedure. In the preliminary finding you have the contested costs. You have to get the company to respond,” said Jagdeo. He noted that once the report is received the company is required to submit additional documentation.

“If they can’t submit additional documentation, then the cost is disallowed. So, it comes out of the cost bank and goes towards profit oil,” clarified the Vice President. Where claims are disallowed, there would be adjustments made to the share of profit oil, likely leading to an increase of revenue for the government.

The GRA, which has come under pressure for the lengthy delay in releasing the findings of the audit said that this was due to the absence of an interim report from IHSM.

GRA Commissioner Godfrey Statia said that the firm submitted what it referred to as the ‘Final Audit Report,’ attempting to by-pass the Interim Audit Report requirement which was outlined under the terms of the contract. “A Final Audit Report cannot be compiled until the contractor (or Esso Exploration and Production Guyana Limited, in their capacity as the operator, of the Stabroek Block) is issued with a ‘Written Report” for response, said Statia.

Vice President Jagdeo revealed that technical expertise is hired to review the cost oil claims and that invariably there is some back-and-forth between the parties involved which makes it difficult for the government to give a timeline for the completion of the audit and review process.

“Now that report has been with the staff of the Ministry and with the GRA and all their technical people, for the last several years. Nobody’s hiding the report,” said Jagdeo in response to allegations that the report was being buried, adding that the second audit had been delayed to avoid a lack of participation during the COVID-19 pandemic.

“In no country in the world, you would not find intermediate reports being released to the media. You show me a country that is doing this where oil operations are concerned and we will do it,” declared the Vice President in March 2023.

Ensuring that Guyana does not lose millions in oil revenues is crucially dependent on auditing the cost oil claims. The current government inherited ExxonMobil’s pre-contract costs in 2020, and the 2016 Production Sharing Agreement (PSA) already contained US$460 million in pre-contract costs. Additionally, the former administration faced criticism for provisions for another US$400mn from 2016 to 2017, which some have argued will also come under the rubric of cost oil.

Meanwhile, the cost-recovery audit for 2018 to 2020 of the expenses of ExxonMobil Guyana’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) has been submitted and is being sent to ExxonMobil for responses on the findings within a two-month timeframe.

“Like in any audit, you have to send it and they have to give explanations as to all the findings. Once that’s done, we can say we accept or we don’t accept [their explanations]. If there is a dispute, there is a dispute resolution arrangement there. So, let us await their responses. It’s an area that we will pay a lot of attention to,” said Vice President Jagdeo in an update.

In May 2022, an American-Guyanese consortium of auditors which includes Ramdihal & Haynes Inc., Eclisar Financial, and Vitality Accounting and Consultancy Inc. was awarded a US$751,000 contract by the government to review around US$7.2bn in costs associated with oil operations in 2018, 2019, and 2020. The consortium is being supported by global companies such as SGS and Martindale Consultants to perform the audit.

Under the 2016 PSA mentioned above, up to 75% of oil revenues can be used to cover production costs, with the remaining profit oil split evenly between Guyana and the Stabroek Block operators, ExxonMobil, and partners Hess and CNOOC.

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