ExxonMobil has submitted its responses to the findings of the US$7.3 billion audit for 2017 to 2020 and hinted that disagreements over revenue for blocks may be a hiccup but stated that it expects negotiations on the queries be completed in a few months.
“So we provided comments back this week to the government and they’ll be reviewing those and then there’ll be subsequent back and forth, as we move towards finalization. As I reflect on the process, I think the processes have gone quite well. There’s been really good collaboration between our company, the auditors, the government, a lot of transparency,” Chief Financial Officer, Phil Rietema, yesterday said in response to questions on the audit by the Stabroek News.
“And so this is a typical natural process, and there’s always going to be little differences of opinion and, you know, some of those we agree with. You know, we are talking, as you noted, about 7 billion US dollars. So there’s an expectation that through the audit process, there will be some areas where maybe they work solely for Stabroek operations [or] they belonged in one of our other blocks, and so we discuss that and align. So I think this one will continue to progress over the coming months and I expect that it will get into alignment with the government at that time,” he added.
Rietema said that it was expected, because of the large sums being up for scrutiny, that there would be trading discussions between government contracted auditors, but that it has remained transparent throughout that process.
“The audit process is in steps, is going to have some back and forth. So you know an audit kicks off and the auditors come in. There’s you know, a meeting and we talked about a scope of work. It takes a number of months. We provide a lot of information. They work through that. There’s clarifications, they then take the findings to the government here. GRA [Guyana Revenue Authority] is involved, Ministry of Natural Resources is involved and then they have a draft report. Further requirements are then shared with us. They then take the information they’ve seen and say, ‘Hey, we have a few areas where we think there’s concerns. There’s then another 60-day period where there can be comments back and forth on that and that’s the period we’re in now,” he explained.
The company was last Wednesday expected to submit their response but had asked for an extension to this week, sources explained.
Last week, Minister of Natural Resources, Vickram Bharrat, had referred the Stabroek News to Guyana Revenue Authority Commissioner Godfrey Statia, for an update 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 have 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 US$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 US$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, ISD – $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 US$13,516,352.
A total of US$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.”
ExxonMobil had earlier this month 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.
Rietema said that while the PSA has a specific timeframe, the company will not hold firm to ensuring those as it has no problem with overlapping days in the interest of scrutiny.
“As we’ve said, we welcome the scrutiny on the expenses, you know, our company, we pride ourselves on driving value and trying to find the best value for our dollars. And we’ve said to the government, I think the Vice President has mentioned as well, that we are going to be audited,” he said.
“I mean there’s certain parts of our agreements that would suggest that there’s perhaps a time limit but we continue to work with the government on the audit you know, we’re not you know, we’re cognitive and those time limits, but we what we really want to drive to is the right outcome where everything has been has been reviewed and agreed upon,” he added.
