No co-management arrangement with Exxon to allow for costs monitoring

Aug 20, 2022 News

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…Jagdeo indicates country’s involvement after spending

Kaieteur News – The role Guyana plays in monitoring spending in the capital intensive oil industry here comes after the oil companies would have expended large sums of money in the development of the oil fields; after which Guyana is handed the bills to scrutinise. This is according to Vice President Bharrat Jagdeo when he explained during his latest press conference at the Arthur Chung Conference Centre on Friday, that it is for this very reason that the country is working on building capacity in the area of cost audit and verification. The Vice President explained that the arrangement it currently has with ExxonMobil and partners to develop the country’s oil endowment, does not afford the nation a “co-management” position which would allow the country insights into the companies’ spending to ensure beforehand, that Guyana is not being given bills with inflated costs for goods and services needed within the sector.

The VP said that currently it is a group of Guyanese companies, along with a foreign entity, that is conducting audits for previous costs handed to the country, and one of the main objectives is to build in-country capacity through the transfer of skills so that people who are more national in their outlook will look out for the interest of Guyanese and be vigilant in ensuring the financial protection of the country.

This is extremely important the Vice President indicated because when it comes to the authorisation and monitoring of spending by the oil companies, Guyana is not involved since the agreement with the US oil giant does not cater for such involvement. Instead, that is where the audits come in, the Vice President said.

“There is no provision in the contract for co-management,” Jagdeo clarified. “Although we are entitled to 50 percent of the profit; they manage. There is an operator that operates on behalf of the shareholders that run the company. So assuming that the cost are inflated, when the audit is done- (and) this is a post expenditure control…and they find inflated costs or unreasonable procurement practices that have led to inflated costs, they can then flag those and have them adjusted and then Exxon has to explain those.”  That is the control which the Vice President said currently exists where cost monitoring is concerned and that is precisely why now, by regulation, the Local Content Act was mandated.

The matter of cost monitoring and procurement of oil and gas goods and services has been one of discussion for stakeholders given that Guyana is responsible for all costs associated with the development of its oil wealth. The bills associated with the development of each field are handed to Guyana after the sum is removed as an expense and before the country gets its 50 percent cut of profit.  In receiving revenue from the sale of the commodity, Guyana gets a two percent royalty from the total income, then operational expenses up to 75 percent is removed by Exxon, before the remaining sum is split between Guyana and the oil associates. The bills Guyana receives have a two-year timeline in which the country has to scrutinise and make objections against illegitimate costs.

The argument therefore is that Guyana is left to lose when its only say is after the oil companies would have done the spending. That is especially so since stakeholders have pointed out that even if Guyana flags a cost that may look unreasonable, the companies do have the opportunity to reject and declare the expense legitimate. This would thus require legal involvement to make the determination, keeping in mind that the money would have already been deducted by the oil company and Guyana would be left at the mercy of the litigation.

Exxon requires various goods and services for the development of the Stabroek Block offshore project, whether it be shore base facilitation, drilling and subsea equipment, rental of oil ships (FPSOs), among numerous other needs; and these run up millions and billions of US dollars in costs. For example, just last month, Dutch-based company SBM Offshore, one of Exxon’s prime contractors, secured financing to the tune of US$1.75B from a consortium of 15 banks to build Guyana’s largest floating production storage and offloading called ‘One Guyana’,  which will operate in the Yellowtail Project. That sum is a cost Guyana will bear.

According to former Finance Minister Winston Jordan, all Guyanese should be concerned with how Guyana is receiving these bills without monitoring. He charged that “Nowhere along the chain do we have a Government of Guyana representative to intervene. So we are just being presented with massive bills, just bills upon bills and we don’t know how Exxon is accounting for these expenses…” He said, “We don’t know what costs would end up being carried over to other projects. We are barely being told by Exxon certain things but otherwise we are in the dark.” So far, Guyana has racked up an oil development bill more than US$9.4B which is currently being audited by the consortium, and is expected to be completed next month.

 

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