More than a year after it first saw the IHS Markit audit of the US$460m in pre-contract costs claimed by ExxonMobil’s subsidiary, EEPGL, the PPP/C government says it is finalizing queries of “lumped” sums and investigating costs of items such as risers and the process should be completed in weeks.
Questions have been asked as to why the IHS Markit report has not yet been released and why the government was so dilatory in finalizing it considering that this was the first opportunity to probe expense claims by ExxonMobil. Moreover, at least US$9.5b in post-contract claims also have to be audited and an enormous backlog has been created which has seen the government scrambling to mobilise local accounting firms to participate in the process. Disallowed ExxonMobil expenses could result in increased profit oil to Guyana.
“Our team at the ministry and EEPGL (Esso Exploration and Production Guyana Limited) are working through some details that should be finished soon. There were some queries and we are working though those and then IHS will finish it from there,” Minister of Natural Resources Vickram Bharrat told Stabroek News when asked for an update last week.
“There are queries from us because remember we are looking at their expenses, so we are the ones who have to query it. So we are looking at that to get the details,” he added.
According to Bharrat, some of the expenses were highlighted by government because they were “lumped” together, in addition to time needed to cross-check costs in new and technical oil and gas areas.
“You see what they normally do, is to group or lump certain things together and we don’t have the expertise to check, with regards to all the expenses that are associated with oil and gas, as yet. Certain expenses we are not too familiar with say for example risers. How many risers you will need…this kind of technical information is what is needed. It is not as easy as auditing transportation, fuel usage or food or how much supplies. It is much different than that,” he explained.
It is unclear why these investigations were not concluded over the last year.
Bharrat referred this newspaper to Senior Petroleum Coordinator within the ministry, Bobby Gossai Jr., for additional information. Gossai said that the process should wrap up within the two to four weeks’ timeframe, as he explained what happened during the review process.
“That audit process is currently being finalized because we have to go through several … key areas of analyses as it pertains to expenditure and the drawdown of the cost factor. So between the period from last year to where we are today, the government has gone through an extensive review of the audit, to make sure that all of the features that have been listed for cost recovery are true cost recovery and not outside of the agreement for cost recovery. That took us some time but we want to bring that to completion very soon…we would want to say within two to four weeks we would complete that process,” he said.
“We had to go back and forth, so that we could fully understand that the monies that were allocated within the agreement and submitted for cost recovery are actually cost recoverable and not outside of the conditions of the laid down framework of the Production Sharing Agreement,” he added.
Gossai too said that “lumping” was found “within certain categories and when we dissect that we recoginse that perhaps the cost they may have put it in or line item was not necessarily cost recoverable.”
He explained that when that happens, “it has to be removed from the cost recovery application”.
“It means that cost is not within the agreement and that cost is a cost that has to be borne by the company and not taken out of cost recovery,” he said.
Finalizing
Government’s Petroleum Coordinator repeated that the process was stalled for verification of areas highlighted and said the teams were finalizing the works.
The period audited by IHS, according to Gossai, was from 1999 to December of 2017.
“We have been working with IHS Markit for cost recovery for the period 1999 to December of 2017. That is the audit process date and that is the work they had engaged the governments [past and current], ExxonMobil and all other parties, to look at the review of cost to that period.
He said that when the PPP/C took office in 2020, the audit had already been commissioned by the APNU+AFC but that the new government had queries.
Approaching seven years after ExxonMobil discovered oil in the Stabroek Block and two years after the first audit of any oil and gas expenses, there has been no completed audit of either pre or post contract costs.
A number of persons and organizations have called on the PPP/C government to not only release the report initiated by APNU+AFC but to inform the nation as to the status of the auditing of post-contract costs from 2015 onwards.
The revised Production Sharing Agreement was signed in late 2016 and former head of the Department of Energy Mark Bynoe had told Stabroek News that that audit covered up to 2017.
The IHS Markit audit will provide the first real insight into whether ExxonMobil has been making undue expense claims.
The non-release of the audit report has been compounded by the PPP/C government’s casual approach to the auditing of the whopping US$9.5b in post-contract costs.
APNU+AFC Member of Parliament David Patterson had in December asked questions on the audit that Bharrat had to provide oral and written answers for.
On the 24th of January this year, the questions were answered and Bharrat had told the House that the audit was still to be completed.
However, Patterson said he was shocked since when the APNU+AFC government left office the audit was near completion and he had registered his party’s disquiet saying that Bharrat’s responses to issues of national importance were disrespectful not only to the people of Guyana but to the National Assembly. He reasoned that from the answers provided it suggested that they are “lumping the audits in two phases.”
The first phase is to compile the cost of pre-contract from 1999 to 2016 to the initial stages of production. He stated that the audits should have been separately done to draw a line between exploration and production.
“This is unacceptable… over a year afterwards we are now being told that the pre-contract audit is incomplete,” Patterson said as he pressed to know if the IHS Markit audit was completed.
“Speaker, the simple answer to the question is no, the cost recovery audit process is still on-going…,” Bharrat had said.
However, in November 2020, Commis-sioner-General of the Guyana Revenue Authority Godfrey Statia reported that his agency had completed its part of the audit and handed it over to the then Department of Energy.
“We have actually completed our part and have given it to the Department of Energy to give to Exxon. When you are finished with an audit, you have to give the other party a chance to respond…,” he had told Stabroek News.
Both Bharrat and Gossai maintain that the audit was not completed with Bharrat saying that when his party took office in August of 2020 they were alarmed at the small amount of works done.
Bharrat said that his ministry had immediately engaged international consultants and local agencies to address a number of shortcomings. Those shortcomings were the cross-checks between government and the company on the report submitted.
Gossai last week made clear that IHS was contracted to conduct the audit for the period 1999 to 2017 and not any other period. He said that this fact could easily be cross-checked.
On cost recovery auditing from 2017 to 2020, Bharrat had said during the 2022 Budget Debate and in written response that monies for this cause had been appropriated this year and to the tune of some US$250,000.
He had stressed that the auditing of the over US$9B sum is an undertaking of the government and there is no need to request an extension from ExxonMobil as Patterson had questioned if the Ministry of Natural Resources or any other agency with oversight of the oil and gas sector, had approached ExxonMobil for an extension of the deadline for auditing the expenses.
