Even as the nation awaits word on the first two audits of oil expenses, the government has determined that all questionable claims still not justified by the company in the IHS Markit audit of expenses from 1999-2018 would be disallowed, actions which could possibly trigger the US oil major moving to arbitration in a holdout to not pay, sources close to the process say.
Sources close to the process told the Stabroek News that both audit reports have been completed and ExxonMobil has been given time to respond “and flesh out with government the questionable expenses.” The company has returned the reports, but was still holding out on expenses not justifiable.
While the sum of the questionable expenses was unclear in the US$7.3 billion audit for the period 2018-2020, the one covering 1999-2017 had identified over US$214 million in unjustified claims.
The IHS Markit audit, which covered the US$1.67 billion in expenses for the period, was submitted in March 2021 and found among other details, 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. Those figures have remained unchanged, sources say.
This newspaper has reported extensively on the IHS Markit audit, which the government had said was not completed as both sides were still deliberating on the findings.
The contract on the audit on the US$7.3 billion sum by Ramdihal, Haynes, Vitality Consulting, and Eclisar Financial & Professional (RHVE) consortium was awarded in May last year.
One year later, on May 20, ExxonMobil said that it had submitted its responses to the findings of that audit and hinted that disagreements over revenue for blocks might be a hiccup, but it expected negotiations on the queries to be completed in a few months.
“So we provided comments… 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 had 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 US$7 billion. 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.
‘Move swiftly’
The Stabroek News had last week asked the government for an update on the audits and Vice President Bharrat Jagdeo promised that he would have Minister of Natural Resources Vickram Bharrat provide it.
On Friday, Bharrat told this newspaper that he would get an update and on Wednesday informed that the Guyana Revenue Authority (GRA) would this week release a statement on the audits.
Jagdeo said on Thursday that he was meeting the commitment made the week before, and informed that he met with both Bharrat and GRA Commissioner Godfrey Statia and discussed the issue.
“… I told them they got to move swiftly and wrap this up. The commissioner indicated that he believes that they can wrap up the old audit very soon and make serious progress on the new one. He has been having some discussions with the auditors,” he said.
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 stated that it had submitted its responses on the findings of the IHS Markit report and it again raised 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.
ExxonMobil has 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.
