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A quest for self esteem
Dear Editor,
In most cases, active public and political debate over the management of our growing oil and gas industry is healthy for Guyana. But we must also be mindful of individuals who seek to raise their own profile by introducing inflammatory and erroneous concepts into the public debate.
Nigel Hinds’ recent letter is the perfect example. In it, he put forward the claim that ExxonMobil is not entitled to recover any pre-discovery costs for exploration and identification of our now known resources offshore.
Mr. Hinds knows fully well that the audit of the pre-discovery costs is in the public eye right now. He knows that he stands to raise his personal profile by commenting on that audit and those costs. And he knows that the idea that Guyana would simply pocket all the pre-discovery costs, basically billions of dollars for free, would be extremely appealing to people.
However, what he clearly doesn’t seem to know is how basic business expenses work – which is surprising for a chartered accountant.
Mr. Hinds’ claim itself, that cost recovery is a “farce,” is just that – a farce. He is knowingly misleading Guyanese with inflammatory statements, and we must not fall prey to his demagoguery.
Cost recovery is an integral and normal part of Production Sharing Agreements (PSAs) for oil and gas plays across the globe. Cost recovery allows companies that risked their own capital in the uncertain exploration phase to recoup those expenditures once, or if, the resource begins producing revenues.
Anyone can see how that assurance is crucial for exploration. If companies weren’t going to be compensated for their efforts, they wouldn’t front the cost of exploration. In that case, countries themselves would have to pay for exploration – a high-risk undertaking that could sink entire economies if they don’t pay off.
Many nations, like our own, would be unable to pay for these activities and may never gain access or even knowledge of the resources below the sea.
Also important to note is that in the absence of a discovery, the oil companies would practically forfeit the money they put in up front.
Nigel Hinds should know that not allowing cost recovery would cause irreversible damage to Guyana’s reputation with ExxonMobil and with the international investment community at large. It’s fair to say that no international energy company would invest here again – the risks would be far too great.
The whole point of the ongoing audit is to make sure that every dollar of those costs that are being recovered are legitimate – we must trust in that process and live up to our end of the standard oil exploration and production contract. By claiming otherwise, Mr. Hinds is simply looking to improve his own reputation and stir up anger for his own gain.
Recovery of costs is one of the most basic concepts of accounting. Mr. Hinds is apparently in need of a refresher on the subject; he should re-examine his accounting text books.
Sincerely,
Clement Smith
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