Dear Editor,
In defending the accounting practices and financial statements of Exxon – and by extension, its Joint Venture Partners Hess and CNOOC – Alistair Routledge, Exxon’s CEO in Guyana, claimed that its books are audited. Routledge is American enough to know that Enron was also audited by no less than the then top auditing firm in the world, Andersen. A couple years after a series of clean opinions and glowing reports, both Enron and Andersen collapsed under the weight of gigantic financial frauds and fake accounting.
Does one need to say more?
If you will permit me Editor, I would like to address some accounting and auditing issues concerning Exxon, Hess and CNOOC, the contractors for the Stabroek Block under the 2016 Petroleum Agreement. It may need reminding however, that it was the PPP/C’s Minister, Robert Persaud who in 2014 approved the arrangements between Esso (now Exxon Guyana) and Hess and CNOOC in which the two entities acquired their interest in the Stabroek Block. That approval was required under Article 2.2 of the 1999 Petroleum Agreement prevailing at that time.
Any diligent consideration of the arrangement would have entailed even a superficial inquiry and conditional approval of the financial information and accounting for monies paid for what amounted to a combined majority interest in the Stabroek Block. The Financial statements of all three companies for that year are conspiratorially silent on the question of money.
In Note 1 to its 2021 Financial statements, CNOOC discloses that it has “acted as a non-operated (sic) joint venture party”. Hess on the other hand described its investment as a “30% participating interest” despite the two companies becoming involved at the same time and on the same terms and conditions as CNOOC. Joint ventures are very common in the oil and gas exploration and production operations and are intended to spread risks.
There are two types of joint ventures. Those of undivided inches are by far the most common, in which the parties share an interest in the entire area, while in a divided interest, the interest applies to a proportionate part of the acreage of the contract area. By definition then, Exxon, Hess and CNOOC share 45%, 30% and 25% respectively in the entire Stabroek block.
The United States of America, a leading country in oil and gas accounting, has specific accounting rules governing such arrangements and transactions.
Exxon, however, as well as its co-venturers, seem to have their own rules of accounting. Even if that is not the intent, the effect of such loose rules allows all three companies to engage in various types of financial and accounting shenanigans knowing that their convoluted accounting will mesmerise both their external auditors, as well as any special auditors appointed by the Minister under the Petroleum agreement. No clearer evidence of this is required than Note 9 to financial statements of Exxon for the year ended December 2022. That note reveals that the intangible assets in the financial statements stated at over $2 billion gross, represents acquisition cost for interest “in the offshore Stabroek, Canje and Kaieteur blocks, net of depreciation”.
In relation to Exxon, that note suggests unambiguously that Exxon is allowed to ignore best practice not only in relation to the Stabroek Block but in relation to all its other interests. Are we being told that those who manage the policies and execution of Exxon’s operations are unable to identify such brazen and obvious malpractices? That would be devastatingly sad indeed.
In relation to taxation, all three companies religiously declare that they are subject to the income tax laws of Guyana and to the terms and conditions of the 2016 Petroleum Agreement. Yet, only CNOOC of the three companies discloses that the tax is paid by the Minister of Natural Resources out of the government’s share of profit oil. See 2021 audited financial statements.
Once again, the entire pool of the best and the brightest, including those responsible for the Natural Resource Fund, including the Natural Resource Fund Board, the Bank of Guyana, the Auditor General, the Minister of Finance, the Guyana Revenue Authority, all seem to miss what appears to be quite an elementary point, the effect of which is that the Fund is overstated.
In a much shorter note in the financial statements of the Exxon branch for the same year, the same drivel about subject to the income tax laws of Guyana is stated along with the comment that the amount of the tax is reported as “non-customer revenue”. Yet neither Hess nor CNOOC which share the same fiscal terms and conditions as Exxon has any such disclosure or accounting. The more technically minded among us may ask why the payment of taxes, a below-the-line item appears as revenue above-the-line, rather than in a statement of comprehensive income.
I am not seeking to excuse the special auditors IHS Markit appointed by the Minister who missed the US$92 million overcharge under the 2016 Agreement in their special audit, or TSD Lal & Co., the (same) external auditor for the three Stabroek block venturers who have consistently given clean opinions on their inconsistent and irreconcilable financial statements. The financial statements presented to the external auditors are clearly not in accordance with the requirements of the 2016 Petroleum Agreement or generally accepted accounting principles and standards applicable to joint-venture operations. These financial statements are neither acceptable nor auditable in their present form, despite Routledge’s sanctimonious protestations.
Yours faithfully,
Christopher Ram
