Loophole in oil contract allows ExxonM to rack up millions in cost overruns without approval from Govt. - Audit Report

Loophole in oil contract allows ExxonM to rack up millions in cost overruns without approval from Govt. – Audit Report

Apr 15, 2023 News

Kaieteur News – The ongoing audit of US$1.6B in expenses racked up for the Stabroek Block from 1999 to 2017 has found a number of areas for possible exploitation by oil companies.

The audit exercise which is being led by British firm, IHS Markit, has found that there are no safeguards in place in the Stabroek Block Production Sharing Agreement (PSA) which would prevent exorbitant cost overruns by ExxonMobil and its partners.

In a March 2021 report, the British auditor highlighted that ExxonMobil Corporation’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) which also operates the block, does not furnish local authorities with detailed budgets for their offshore operations. As a result of this, the auditors said, “There is limited transparency and the ministry (of natural resources)’s ability to monitor and review annual budgets and variances with actual expenditure incurred is reduced.”

As an example, IHS Markit said certain PSAs contain provisions that state overruns in actual expenditures are limited to 10% of the budget. Some provisions also state that operators are prohibited from spending more than a percentage above the work programme and budget without further approval. Some even go a step further to explicitly outline that expenditure incurred without approval or proper justification is not recoverable. The auditors said such provisions allow the host government to maintain project oversight.

The British team noted however that the 2016 PSA Guyana signed with Exxon and partners, does not require such approvals. As a result of this, IHS said EEPGL was able to incur US$330.3 million in cost overruns across 2009, 2010, 2014, 2015, 2017. The report also noted that EEPGL has not provided justification to changes and cost overruns against the submitted work programme and budget.

This newspaper also understands that the annual work programme and budget submitted by EEPGL to regulators does not even conform to international best practices. Furthermore, the plans and budgets do not provide the Government of Guyana with the ability to understand the planned activities or provide any oversight.

Auditors insisted that the work programme and budget should provide details of the activities planned to be undertaken and the resulting cost outlay, ensuring responsible and sustainable development of resources and procurement alignment with in-country value opportunities.

Kaieteur News understands that the Guyana team which consists of the Guyana Revenue Authority and the Ministry of Natural Resources is going through the foregoing meticulously with the aim of understanding how such a loophole can be closed.

It is now more than three years since the audit of US$1.6B in expenses for the oil-rich Stabroek Block is yet to be completed. Commissioner General of the Guyana Revenue Authority, Godfrey Statia said recently that government is now at the stage of awaiting feedback from Exxon’s subsidiary.

Statia did not provide a timeline for when this process would be completed, but assured that the document will be made public at the appropriate time.

A second audit is currently underway for costs totalling US$7.3B which were incurred from 2018 to 2020. That contract was awarded last year May.

British firm, IHS Markit, Production Sharing Agreement (PSA), safeguards, Stabroek Block

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