US$460M pre-contract costs must be subjected to special audit -Ram finds that figures in financial statements tell a different story

Mar 18, 2018 ExxonMobil, News

Local commentators remain outraged at the US$460M pre-contract costs, which ExxonMobil has imposed on Guyana. This cost dates back to ExxonMobil’s 1999 agreement with the Janet Jagan Government.

Chartered Accountant, Chris Ram

As for Chartered Accountant, Chris Ram, he intends to be unrelenting in his fight to know just how the company conjured up this exorbitant figure that was inserted in its 2016 contract with the Granger Administration.

In his recent writings, Ram said that there is a need for a special audit to be done on the pre-contract costs since based on his analysis, several things aren’t adding up. He said that this is necessary, since the sum can be recovered by ExxonMobil without the approval of the Minister.

NOT ADDING UP

With the use of financial statements, Ram was able to show how ExxonMobil’s pre-contract cost opens itself to much question and suspicion.

He noted that ExxonMobil is represented by three companies as the contractor for the Stabroek Block: Esso, CNOOC and Hess. Using the financial statements of Esso and CNOOC, he pointed out a few important figures.

At December 31, 2015, Ram said that Esso had property, plant and equipment (PPE) of $10B and losses of $12B of which $9B or 75 percent was incurred in 2015. In Esso’s financial statements, there is an amount of $1B under Exploration costs in 2015 being an unexplained credit.

“ Now, even if we were to make the unlikely assumption that all of Esso’s expenditure constituted legitimate pre-contract cost to December 31, 2015, at its highest, Esso’s portion of the $92 billion (US$460 million pre-contract cost) would be $23B.

Ram also noted that CNOOC at the same date had PPE of $16B and losses of $8B, making a total of $24B. He said that the financials of CNOOC describe the $16B as expenditure on “Exploration and Evaluation assets consisting of exploration projects which are pending the determination of proven or probable reserves.”

The Chartered Accountant said, “Forget for a moment that this is another clear violation of the ring-fencing principle which seeks to match expenditure to projects. It means that the burden and risk of exploration has been shifted from the oil companies to the taxpayers of Guyana. As the fired US FBI Director, James Comey would say, ‘Oh, Lordy!”

Ram further stated that the combined expenditure of Esso and CNOOC at December 31, 2015 was PPE of $26B and reported losses of $21B, giving a total of $47B. In United States Dollars, using a $200 rate, Ram said that this gives a total US$245 million, well short of the $460 million that the Government has accepted in the Agreement with ExxonMobil.

To make up the total of US$460 million, Ram said that Hess alone would have had to spend, in contract costs, some US$215 million or approximately $46B.

He said, “That defies logic and credulity. But there is more. It must be a stretch that the pre-contract cost of CNOOC, which only entered the sector in Guyana in late 2014 would have incurred greater contract cost than Esso. And an even greater stretch that Hess which signed with Esso in late 2014 would have spent nearly as much as Esso and CNOOC combined.”

Ram continued, “One would recall that Esso signed its first Petroleum Agreement in 1999, 15 years earlier, and it is the company which has been reporting all the oil discoveries. That either CNOOC or Hess which entered the sector in late 2014 would be outspending Esso arouses particular interest…”

Having looked at the available information, the Chartered Accountant said it is hard to avoid the conclusion that the US$460 million cannot be explained on any rational basis. Ram stressed that the only satisfactory and acceptable resolution of this matter is a special audit independently undertaken.

Discover more from Kaieteur News

Subscribe to get the latest posts sent to your email.

Latest News