Govt. allows Exxon to slash US$214M in questionable costs down to US$3M

Sep 05, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – After an audit report highlighted that there was US$214M in questionable costs incurred during the period 1999 to 2017, American oil giant, ExxonMobil has furnished the Guyana Government with several documents to justify a huge portion of that expenditure.

At a recent press conference, Vice President, Dr. Bharrat Jagdeo explained that the audit process has to allow Exxon an opportunity to respond to the findings therein. In so doing, he said that US$214M was broken down to US$11M following the receipt of documents from the oil company.

Kaieteur News was reliably informed by government officials yesterday that the oil giant has provided further information, taking disputed costs from US$11M to US$3M.

Key government officials told this newspaper that a robust verification process is being conducted on all the documents presented by Exxon to ascertain what will be the final amount that would be placed into the category of “disputed costs.”

“This process takes a series of iterations between the Guyana Government and Exxon because the (2016 Stabroek Block) contract allows for the company to have a right to reply. The audit report may say there is US$214M in questionable costs but the company must still have an opportunity to respond to the findings,” one official close to the matter stated.

This newspaper understands that Exxon is expected to provide more information to the auditor through the Ministry of Natural Resources in a bid to further reduce the US$3M costs.

The questionable expenses were flagged in an audit report that was done by IHS Markit, a British consultancy firm which continues to offer government advice in a number of areas relative to the oil sector. IHS was hired back in 2019 by the former David Granger administration to audit US$1.7B in expenses that were incurred by ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) for the Stabroek Block. Those costs were incurred from 1999 to 2017.

When the March 2021 report was leaked to sections of the local media corps earlier this year, it was reported on extensively. The Guyana Revenue Authority (GRA) had issued statement noting that the said document was not a final one; that it contained a number of miscalculations and was being worked on.

The document seen by this newspaper states for example that “the Government of Guyana has reasonable grounds to dispute US$214.4 million plus associated overhead adjustments of the costs currently included by EEPGL. This amount represents 12.8% of the cumulative cost recovery balance as of the 2017 fourth quarter statement.”

Further, the report states that the disputed costs fall into three main categories, the first being “Defined Costs for Removal” which amount to US$34.4 million. The report states that these costs have either been included in error, are not aligned with provisions in the Stabroek Block Production Sharing Agreement, are not related to petroleum operations, or are considered to fall outside of industry best practice.

The next category is “Inadequate Supporting Documentation” which totals US$179.8 million. The British auditing team said these costs suffer from aØ transparency issue as the cost basis, nature and justification of these costs could not be established with the furnished documentation even after several rounds of documentation requests from the Audit Team. Although these costs may be valid, the auditing team said government has the right to the transparency of how these costs relate to Stabroek Petroleum Operations.

The final category pertains to costs for which ministerial approval is required. This is to the tune of US$270,000. The report states that these costs have been identified as predominantly related to research and development and require ministerial approval before they can be considered cost recoverable.

Auditors also flagged a total of US$28.8 million which was incurred prior to date of January 10, 2015 when Hess Corporation and CNOOC Petroleum Guyana Limited even became partners in the block alongside Exxon.

Though Exxon has been able to reduce the disputed costs to a further US$3M, a report surfaced yesterday in the Stabroek News stating that the Commissioner General Godfrey Statia had given his no-objection to the US$214M amount. That letter was addressed to the Minister of Natural Resources, Vickram Bharrat. Kaieteur News confirmed with several government officials that the letter was indeed addressed to Bharrat about a month ago. When contacted for a comment Statia would only say, “I cannot confirm nor deny what you’re asking me.”

Further sources indicated that the letter by Statia is “dated information” and is already overtaken by the latest development which is that Exxon has been able to significantly reduce its initial disputed costs.

Kaieteur News also contacted other sources within the Guyana Revenue Authority who would only indicate that the tax agency never signed off on the reduction of the expenses.

Government officials explained that GRA does not have to sign off on anything at this point, though it has been a crucial partner in keeping a watchful eye of the process and making key recommendations where necessary.

Officials also returned to their earlier point that the oil giant needs to be given a fair opportunity to provide documentation to the British auditors on the said costs. Once this is done and a final report is prepared by IHS Markit, GRA would be able to review said report, the officials explained.

They stressed, “This is a tedious process but it is one the Vice President has explained several times at his press conferences, that the technical people need to be given an opportunity to be thorough. And that is what we are doing.”

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• Dr. Bharrat Jagdeo, Godfrey Statia, GRA Commissioner General, Natural Resources Minister, Vice President, Vickram Bharrat

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