Pre-contract cost… US$460M seem to have been pulled from an alternate universe- Hinds

Feb 10, 2018 News

Chartered Accountant, Nigel Hinds

It is simply unheard of for a company to just quote a figure to be paid, whether by another company, a person, or a government, without at least giving a breakdown of the expenses.
So said Chartered Accountant, Nigel Hinds, yesterday as he expressed his concerns about the US$460M pre-contract cost that ExxonMobil wants Guyana to pay.
Guyana is now hurrying to put measures in place to monitor and assess cost recovery claims. However, it has already tied itself to the repayment of US$460,237,918. This is according to the 2016 Petroleum Sharing Agreement (PSA) that Minister of Natural Resources, Raphael Trotman, signed with ExxonMobil.
Annex C of the PSA deals with Cost Recovery. The list of items to be included in cost recovery is vast.
One of the many expenses that Guyana will have to stand is what is referred to as “pre-contract cost.”
The pre-contract cost is referred to in the contract as the “cost incurred by contractor with petroleum cooperation carried out pursuant to the 1999 Petroleum Agreement.”
Hinds said, “There seems to be no science in the mathematics used to arrive at these figures; it’s more like numbers sourced from an alternate universe.”
The accountant said, too, that he is sure that most right thinking Guyanese would like to see a breakdown of the pre contract cost or have an explanation on how the amount was determined.
Hinds noted that US$18 million identified post-investigation by Christopher Ram amounts to four percent of the US$460M pre-contract costs.
He described the money as a “slush fund” (money used for illicit purposes, especially political bribery).
Hinds said, “Considering the billions ExxonMobil will spend in post-contract costs, the slush fund signing monies will be less than one-hundredth of one percent. What a tragedy!”
The quoted US$460M may very well be just part of the pre-contract cost.
The PSA said that this sum shall be “included” in the pre-contract cost. The PSA states that the pre-contract cost “shall include four hundred and sixty million, two hundred and thirty seven hundred thousand and nine hundred and eighteen United States Dollars (US$460,237,918) in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015,
“and (2) such cost as incurred under the 1999 Petroleum between January 1, 2016 and effective date which shall be provided to the Minister on or before October 3, 2016 and such number agreed on or before April 30, 2017.
For purposes of this paragraph, the term pre-contract cost includes contract costs, exploration costs, operating costs, service costs, and general and administrative costs and annual overhead charge as those terms are defined in the 1999 Petroleum agreement.”
According to ExxonMobil’s website, even though the agreement was signed since 1999, the company only initiated oil and gas exploration activities in Guyana in 2008, collecting and evaluating substantial 3-D seismic data that led to the company safely drilling its first exploration well in 2015.
The PSA also ensures that Guyana stands the cost of even the interest added to loans taken by ExxonMobil for the purpose of the operation.
The PSA states, “Interest, expenses and related fees incurred on loans raised by the parties comprising the contractor for petroleum operations and other financing costs providing that such expenses are fees and costs consistent with market prices.”

2 thoughts on “Pre-contract cost… US$460M seem to have been pulled from an alternate universe- Hinds”

MyFun1 February 10, 2018 at 1:15 pm

I wonder what % of the US $460M Trotman, Greenidge et-al was promised by Exxon one of the most corrupt US Companies.
rs dasai February 10, 2018 at 1:36 pm

Nigel
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