No guarantee reports of oil companies’ audit free from fraud – Independent Auditor 

Jul 10, 2022 News

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 “Reasonable assurance is a high level of assurance but is not a guarantee that an audit concluded in accordance with International Standards on Auditing will always detect a material misstatement when it exists.”

By Gary Eleazar

Kaieteur News – Oil companies operating in the Stabroek Block, like any other company operating in Guyana, are required to file annual Financial Statements with the Deeds and Commercial Registry. These statements are expected to present a true and fair representation in all material aspects of the financial position of the reporting company.

Each year’s financials are supposed to be audited by Independent Auditors. The Independent Audit, however, done by entities contracted by the oil companies along with the financial statements, are no guarantee that there isn’t misrepresentation or fraudulent information being presented.

This much is clearly stated by at least one local private auditor that was contracted to prepare an independent report for the financials submitted by ExxonMobil Guyana’s Stabroek Block partners, Hess Guyana Exploration Limited—Guyana Branch.

That Financial Statement was prepared by the Hess management and an Independent Audit of that statement done by a local Chartered Accounting Firm, TSD Lall and Company.

According to the auditors in their report on the Financial Statements, “our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error….”

As such, the Independent Auditor in its report did note, “reasonable assurance is a high level of assurance, but not a guarantee that an audit concluded in accordance with International Standards on Auditing will always detect a material misstatement when it exists.”

The Chartered Accounting Firm did qualify the position further by pointing out that “misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.”

It was noted that the statements referred to, had been prepared by the Company—in this case Hess Corporation which TSD Lall and Company audited—would have been prepared by the entity’s management.

The Independent Report notes that it is the management which is responsible for the preparation and fair presentation of the financial statements in accordance with international financial reporting standards. Those financial statements, according to the Auditors, are expected to be prepared free from material misstatement, “whether due to fraud or error.”

While the oil companies would have been filing financial statements, audited by companies they would have hired privately, Guyana as a country is yet to complete auditing any of the bills submitted by any of the oil companies operating domestically, more so the Stabroek Block.

That oil block, which spans in excess of six million acres in Guyana’s Exclusive Economic Zone (EEZ), is operated by ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited, which holds a 45 percent working interest.

Its partners are Hess, which owns a 30 percent interest in the oil block, along with CNOOC Petroleum Guyana Limited with the remaining 25 percent.

According to recent filings with the local registry, ExxonMobil and its Stabroek Block partners in its first two years of full production generated a whopping $740,794,403,781 in revenue from the sale of crude netting more than this country’s National Budget during the same time.

Guyana as a country, presented in 2020 a national budget at some $330B while the following year, 2021 the national estimates were presented at $383B.

According to the records of the financial companies, between the three, total revenue from the sale of crude oil in 2020, the first full year of oil production in the Stabroek Block amounted to some $176,088,268,971.

By the following year, however, this had jumped to $564,706,134,810 in revenue generated between the three. As such, it would mean for the two years, the entities would have sold some $740,794,403,781. The total allocations for the two years for spending by the entire country was $713B, or about $28B more, meaning the single oil operation in the Stabroek Block in the course of its first two years of oil production generated more money than the entire country budgeted to spend in two years.

The country during that time earned $121B in the two years from its share of profits and royalty had as its share from its producing oil blocks. According to the records, for 2020, EEPGL reported revenues at $75,429,685,670 for its 45 percent share in the oil block.

Hess, in its financial records filed with the Deeds and Commercial Registry, indicated that for that year $59,239,583,301 was had from the sale of its share of crude while CNOOC Petroleum Limited reported $41,419,000,000 in revenue.

The following year, EEPGL reported a jump in revenues, realising $254,117,760,666 for its 45 percent interest. It would mean that Hess Guyana Limited realised $169,411,840,444 for its 30 percent interest in the Stabroek Block, while CNOOC Petroleum would have accounted for about $141,176,533,700 bringing that year’s total revenue to $564,706,134,810.

EEPGL on its financial statements recently had noted that 2020 was the first time the company earned a profit of some $132B having deducted its overhead expenses from the $254B in revenues that year as dictated by the Production Sharing Agreement signed between the government and the companies in 2016.

To date, EEPGL and its co-venture partners, Hess Corporation and CNOOC Group, currently have four sanctioned developments on the Stabroek Block.

The Liza Phase 1 development, which began production in December 2019 utilising the Liza Destiny floating, production, storage and offloading vessel (FPSO) with a production capacity of approximately 120,000 gross barrels of oil per day, recently completed production optimisation work that expanded its production capacity to more than 140,000 gross barrels of oil per day.

The Liza Phase 2 development, utilising the Liza Unity FPSO, began production in February 2022 and is expected to reach its production capacity of approximately 220,000 gross barrels of oil per day by the third quarter.

The third development at Payara is ahead of schedule and is now expected to come online in late 2023 utilising the Prosperity FPSO with a production capacity of approximately 220,000 gross barrels of oil per day. The fourth development, Yellowtail, is expected to come online in 2025, utilising the ONE GUYANA FPSO with a production capacity of approximately 250,000 gross barrels of oil per day. At least six FPSOs, with a production capacity of more than one million gross barrels of oil per day, are expected to be online on the Stabroek Block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources.

 

 

 

 

See pix as destiny

Caption: The Liza Destiny FPSO

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