ExxonMobil included costs for some aspects of works for the gas-to-power pipeline in the US$7.2 billion it claimed for the 2018-2020 period, actions, auditors highlighted, that are not catered for under the Production Sharing Agreement (PSA) the US oil major and partners has with this country.
“We allowed the study costs for the gas-to-power pipeline but believe the NGL [natural gas liquids] plant costs are midstream costs outside of Stabroek Petroleum Operations,” the audit conducted by the RHVE Consortium stated.
The auditors said that the Government of Guyana may allow these costs under another agreement, but “they are not recoverable” under the PSA.
While gas from the Stabroek Block is being used for the gas-to-shore project, it has a separate agreement and that was signed last July with government for the project, estimated to be around US$1 billion.
ExxonMobil’s Country Manager Alistair Routledge had explained that the cost recovery mechanism for his company’s investment in the infrastructure for this country is outlined in the framework of the agreement. He explained that ExxonMobil was making an investment in order to transport the gas onshore and it is incidental to the original developments offshore.
“That’s mostly the pipeline. That’s several (US) 100 million dollars’ worth. So in some way, it needs to recover that cost. So the way that’s been agreed as well, [is] let’s make sure that that a price is put on the gas that reflects just that cost of infrastructure, no profit, just the cost of infrastructure. And what that means is that it delivers gas and very low priced to the country, very competitive with anything you’d see internationally. And therefore, that’s why His Excellency, the President, has been able to tell the country it will have the cost of electricity reduced,” he had said.
Aside from adding some Gas to Energy Costs, the audit which found less than US$100 million in flagged costs of the US$7.2 billion sum, revealed that when it was highlighted that some capital expenses for other blocks was overlapped under the Stabroek Block sums, the company told them frontally that it believed all the submitted expenses should be allowed.
“EEPGL insists that all capital costs should be paid 100% by Stabroek even though Kaieteur and Canje Blocks utilize the offices or shorebase or other facility, The rational offered by EEPGL’s personnel was “if it wasn’t for Stabroek, ExxonMobil would not be in Guyana,” the auditors said as they pointed out that that they rejected this assertion. “We find that position fatuous and unsupportable,” the audit said.
The company also believes that all of its in-country personnel are 100% chargeable to either Stabroek, Kaieteur, or the Canje block.
“We disagree, our position is that a portion of almost all non-operations personnel time, starting with the EEPGL President, should be absorbed by EEPGL as a 100% non-recoverable cost,” the audit said.
“Similar to payroll, although to a slightly lesser extent, EEPGL believes costs for almost all in-country activities are recoverable. We disagree. EEPGL has credited the Cost Recovery Statement for many non-recoverable costs, perhaps knowing an audit would call attention to them, but they did not reverse all that are not recoverable,” the document stated.
The audit was handed over to government last month and the challenged amount works out to around 1.3% of the total – much less than the 12.8% in the first audit of the US$1.67 billion by UK auditing firm, IHS Markit.
“We analyzed the Cost Recovery Account charges and credits for validity, propriety, and compliance with the PSA (Production Sharing Agreement) and Annex C. Based on the review, it is our opinion the Cost Recovery Account entries were in accordance with the PSA and Annex C, except for items discussed in the report,” the report says.
Of note too was that, according to the auditors, “EEPGL’s cooperation was outstanding throughout fieldwork,” it adds while noting that it had submitted 187 Information Requests and while some answers took longer to get, all were completed and they were overall, “encouraged by and pleased with EEPGL’s assistance.”
Coming in the wake of the expanding scandal over the illicit bid to reduce the US$214 million disputed figure in the IHS Markit audit, there will be intense interest in determining whether the claimed expenses of ExxonMobil and partners were properly scrutinised in the RHVE audit.
The GRA – as distinct from its functions of examining the tax returns of ExxonMobil and its partners, had declined to participate in a review of the disputed IHS figure as it had not been involved in the process from the start. It is unclear what the GRA’s role will be in relation to the RHVE report on the US$7.3 billion audit.
The US oil major also granted partial credit but did not explain why full credit was granted.
And when the company trained three local engineers in Houston, it billed to cost recovery much higher affiliate rates instead of the trainees’ salaries.
“Another interesting ExxonMobil internal accounting item that results in excess costs charged to the Cost Recovery Account is when three Guyanese local engineers trained for seven months in ExxonMobil’s Houston office. Instead of continuing to charge their actual salaries, as was done before and after the training, EEPGL charged them at the much higher Affiliate rates, instead of their actual salaries, which did not change, simply because of internal accounting,” the auditors said.
The audit explained that actual salaries, wages, and benefits of local EEPGL employees are booked directly to a “local” pool Cost Object. The local pool costs are then allocated to various departmental Cost Objects based on headcount, such as drilling, logistics management, geoscience, operations and financial, technical, procurement, general management, public affairs and so forth. Costs for each of these departments are then allocated between Block(s), such as Stabroek, Kaieteur, and Canje, based on the respective Cost Object department metric, such as work effort studies, headcounts, time writing hours, or drilling activity.
But the audit noted that “tracking the actual allocation of a specific employee’s time is tedious due to the numerous Cost Objects and allocation levels.”
It said the company’s employee costs are recoverable if the proper amount is allocated to Stabroek out of each department. “The allocation percentage of each department Cost Object was scrutinized, with numerous exceptions in the report for instances where we do not believe 100% of a department’s costs should be charged 100% to Stabroek/Canje/Kaieteur operations, that a portion pertains to corporate and other non-recoverable tasks and responsibilities,” the audit says.
The auditors also believe, the audit pointed out, that the costs discussed with relation to its Economic Development Center are valid; when they assert “many of the early costs were indeed for Petroleum Operations.”
Noted also in the audit was that EEPGL would not discuss production figures details with auditors, saying that it was not part of cost recovery.
The government has not stated its position on this report thus far.
