ExxonMobil is expected to submit its response on Wednesday to findings of a nearly 180-page document on the audit of its US$7.3 billion post-contract costs from 2018-2020, in which, according to sources, there are “minimal anomalies”.
When contacted, Minister of Natural Resources Vickram Bharrat referred the Stabroek News to Guyana Revenue Authority Commissioner Godfrey Statia, as that agency is the technical body which has to sign off on the report.
“Once Exxon submits their responses, it is given back to the external auditors and they decide on the net response. It will then be sent back to me and I decide if it will be signed off,” was all Statia would say when contacted for an update.
But sources told this newspaper that the audit conducted by the Ramdihal, Haynes, Vitality Consulting, and Eclisar Financial & Professional (RHVE) consortium found “minimal anomalies relating to expenses”.
The consortium is made up of local accounting firms led by Professor Floyd Haynes, a chartered accountant and they had subcontracted the US firms of Martindale Consultants Inc and Squire Paton Boggs for technical support and expert assistance.
The contract for the audit was signed in May last year – 22 months after the change in government at a cost pegged at US$750,000 ($161.2 million).
On January 31 this year, Bharrat had said that a preliminary report on the audit had been completed.
“I would like to say that an initial update was submitted by the consortium and we are awaiting the second report which should be submitted in another two months from today,” Bharrat had told the Committee of Supply as his agency’s budget expenditures were being reviewed during the 2023 Budget, and in response to questions by Opposition MP David Patterson.
The RHVE Audit should reflect that ExxonMobil credited the cost bank $263,899 for a number of charges including its public relations work, since the IHS Markit report had revealed that the company promised to do so in 2020, as those expenses are not recoverable.
“Charges coded to ‘InternlChrg, Serv, Staff, Public Affairs’ are not cost recoverable. EEPGL [Esso Exploration and Production Guyana Limited] have stated that they will apply a credit of $263,899 to the Cost Bank in 2020,” the audit report stated.
That agreement by the ExxonMobil subsidiary was highlighted in the audit which covered the US$1.67 billion in expenses for the period 1999 – 2017. The IHS audit report found among other things that the government can contest US$214.4 million in claims by ExxonMobil, which translates to 12.8% of the US$1.67 billion in expenses claimed by ExxonMobil and partners for the period.
The disputed costs fall into three main categories – Defined Costs for Removal (DCR), Inadequate Supporting Documentation (ISD), and Ministerial Approval Required (MAR). For each of the categories, the sums were: DCR – US$34 million, ISP – $179.8 million, and MAR – US$0.27 million.
Under the sub-heading Venture Office and Payroll Report, the IHS Markit audit pointed out that EEPGL reported to the team that the Guyana Venture Office was established in 2014 and a total of $24,024,391 was recorded in the Statement of Expenditure and Receipts (SE&R), against (i) Office Operations/ General & Administrative and (ii) Venture Office Expenses.
According to the audit, the company’s payroll operations started to be recorded in the General Ledger in July 2014, which coincides with the establishment of EEPGL’s office in Guyana.
Payroll expenses between 2014 and 2017 total $13,516,352.
A total of $5,110,999 of Venture Office expenses was recorded in the General Ledger between 2004 and 2016 (excluding payroll).
However, upon scrutiny, the audit team said, it recommended that some US$185,695 of this total be removed from the Cost Bank as the company could not provide documents to persuade auditors that the sums were related to the operations stated or “as there is insufficient documentation to justify the purpose of these costs and confirm that they are related to petroleum operations”.
When it noted that charges coded to “InternlChrg, Serv, Staff, Public Affairs” were not cost recoverable, the report stated, the company said it would apply a credit of $263,899 to the Cost Bank in 2020. The audit did not state whether the company charged its public relations work to cost oil.
EEPGL also posted depreciation charges noted in account “A, nc, P&E” and totalling US$11,023, which was flagged and recommended to be removed from Cost Bank. “Charges to the Cost Bank should be made when transactions occur, not when the value of an item is written down in the accounts,” the auditors recommended.
ExxonMobil this week said that it had submitted its responses on the findings of the IHS Markit report and this raises again the question of when the government will disclose its final position on that report.
Annex C of the PSA deals with audits and the processes triggered during and after. “At the conclusion of each audit, the parties shall endeavour to settle outstanding matters and a written report will be issued to the contractor within sixty days of the conclusion of such audit. The report shall include all claims arising from such audit. The contractor shall reply to the report in writing as soon as possible and in any event not later than sixty days following receipt of the report indicating acceptance or rejection of the audit claim and in the case of a rejection showing explanations thereof,” the PSA states.
“Should the minister consider that the report or reply requires further investigation on any item therein, the minister shall have the right to conduct further investigations in such matter within sixty days of its receipt of contractor’s reply. If within sixty days of the minister’s further investigation the parties are unable to agree to the disposition of the minister’s audit claim, the claim shall be submitted to the sole expert in accordance with Article 26 of the agreement.”
According to the PSA, all adjustments resulting from an audit agreed to by the contractor and the minister conducting the audit shall be reflected promptly in the account by the contractor and any consequential adjustments in crude oil entitlements shall also be made promptly. “In the event that an audit claim by the minister is not settled to the minister’s satisfaction by the contractor’s reply as provided for …the contractor shall be entitled to recover any disputed accounts pending final resolution of the claim. However, any subsequent adjustments in the minister’s share of profit oil following resolution of the claim shall be repaid with interest, at the agreed interest rate as a first claim from the contractor’s share of future profit oil. In the event that the contractor’s share of profit oil is insufficient to provide for the minister’s extra entitlement including interest, the contractor shall promptly make an equivalent payment in United States dollars to the minister,” the PSA adds.
