Exxon fails to submit pertinent data to GRA on $900M pre-contract costs …- Parties agree to extend audit deadline

Oct 05, 2018 News

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By Kiana Wilburg
USA oil and gas operator, ExxonMobil, has not submitted all the information requested by the Guyana Revenue Authority (GRA) for a thorough audit of the controversial US$900M pre-contract costs.
This was confirmed by GRA’s Commissioner General, Godfrey Statia.
Yesterday, the tax chief said that the oil giant had a September 26 deadline within which to submit certain pertinent documents. He said that the company has asked for more time to do so.
The tax chief was reminded however that Guyana has an October 7 deadline within which to conduct the audit of the pre-contract costs.
Asked about the implications Exxon’s delay might have, Statia said, “The nation will get more time. It is an agreed understanding. The most important thing is that we made the request for the audit within the timeframe…Guyana is safe.”
Statia also reminded that Guyana will be assisted by several global organizations with ties to petroleum auditing experts. He said that the International Monetary Fund (IMF) is one such institution.
The Commissioner General said, “I have acknowledged that we have some capacity issues and we are working feverishly to improve and build in this regard. And we are not going at it alone. There are international partners who are interested in seeing Guyana succeed in this industry.
For example, the IMF and the World Bank will be helping us in all cost recovery matters. They have several experts who are versed in detecting all the petroleum accounting tricks and I am happy to have them on board.”
The GRA Commissioner General also noted that the IMF will be lending its expertise to help Guyana audit the controversial pre-contract costs, which is believed to be some US$900M.
Statia said that the IMF and the World Bank would be training GRA officers in the areas of petroleum accounting, cost recovery audits and other tax related matters. He said that help would also be provided to develop a risk assessment strategy for the sector. This training is slated to begin in the first week of November.
FINANCING FOR ASSISTANCE
Statia said that the support from the IMF will be financed through the Managing Natural Resource Wealth (MNRW) trust fund, which has also funded the technical assistance received so far on petroleum taxation and revenue management.
Kaieteur News understands that the Fund and other institutions will be tasked with auditing, examining and verifying all available documentation and records necessary for charges and credits relating to the contractor’s activities under the Petroleum Agreement.
This means all books of accounts, accounting entries; material records and inventories, vouchers, payrolls, invoices and any other documents, and correspondence will be requested and checked thoroughly.
The international bodies will also determine if any required documents are yet to be submitted.
The global financial bodies will also assess the impact of the audit on future Profit Oil and Profit Gas, its subsequent petroleum tax implications and if relevant tax entitlements are optimized in the interest of the Government of Guyana.
US$900M PRECONTRACT COSTS
International lawyer, Melinda Janki, was one of the first persons to note that the country is neck-deep in US$900M worth of pre-contract costs.
During a panel discussion on Guyana’s oil contract with ExxonMobil at Moray House, Janki reminded that the country has to pay US$460M in pre-contract costs. This covers the period 1999 to 2015. But there is a second lot.
Janki noted that the contract specifically states that Guyana is to pay contract costs from January 2016 to when the deal was signed on October 7, 2016.
The international lawyer said, “The costs for the whole of 2016 were about US$583M and if you apportion it to October, you get roughly US$400M. Again, Minister of Natural Resources, Raphael Trotman has agreed for Guyana to pay this.
As at October 7, 2016, Government’s attempt to sell our oil costs us US$900M. I have found no law which gives the minister the authority to burden the nation with this, so it is quite possible that he acted illegally.” (See link for more details: https://www.facebook.com/jerome.edwards.925/videos/2144978259094356/)
In his earlier writings on the petroleum sector, Chartered Accountant Christopher Ram had also pointed out that there was a second set of pre-contract costs specified in the 2016 Agreement signed by Minister Trotman.
Speaking with Kaieteur News on the matter, Ram said his examination of the financial statements of ExxonMobil’s partners (Esso and CNOOC/NEXEN and Hess), the second element of pre-contract cost for the period January 1, 2016 to the execution date of the 2016 Contract – some time in October 2016 – could range anywhere between G$75B to G$100B or roughly US$375 to US$500M. He noted therefore that Janki’s estimates are within reason and that it is up to Exxon as the Operator to disprove these amounts.
Significantly, Ram pointed out that the Government ought to have been aware of the exact amount for the second set of pre-contract costs since Annex C to the 2016 Agreement required that those costs be provided to Trotman before October 31, 2016 and agreed on or before April 30, 2017.
Ram expressed fear that neither the US$460 million – which in his opinion is substantially and improperly inflated – nor the additional US$375M to US$500 M, has been subject to any verification, let alone audit.

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