Exxon’s dishonourable actions signal contempt for Guyana – Former Ambassador

Nov 09, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – Former Ambassador to Guyana, Professor Kenrick Hunte said that ExxonMobil’s unlawful disbursement of funds from the Liza 1 and 2 revenue streams for activities in the Kaieteur and Canje blocks, as well as other expenditures signals the oil major’s “utter contempt for Guyana”.

He said that the company could not get away with such actions in the United States as there would have been stiff penalties. Hunte who served as Guyana’s ambassador to South Africa, has since called on the government to put systems in place to sanction ExxonMobil if it commits similar transgressions in future projects. The abuses were uncovered by auditors who scrutinized ExxonMobil’s US$7.3 expenses for the Liza 1 and 2 projects.

This newspaper in recent weeks has been exposing the abuses revealed in the report, which covered the oil company’s expenses during the period 2018 to 2020. In one of the most brazen acts, ExxonMobil was caught using revenues from oil-producing projects in the Stabroek Block to cover expenses related to two other blocks—Kaieteur and Canje. In addition to using revenues from the Stabroek Block to fund works in other blocks, the audit also uncovered countless instances where the oil company used Guyana’s profits on activities totally unrelated to oil production. These include puppet shows for Exxon’s staff and their families dance classes among others.

Vice President, Bharrat Jagdeo was questioned about this last week at his news conference, but he would only say that the contract, which the oil giant signed with Guyana means that the expenses will not be included in the cost bank for the Stabroek Block. “I maintain my position that it would be illegal and I repeat that. The audits would have revealed that now and as I said before, there will be consequences. If you did unauthorised work, you don’t go to jail according to PSA, it just doesn’t form part of the cost bank,” the VP said. When asked whether the revelations were not grounds enough to arm future projects with penalties, if such reoccur, Jagdeo said there is already a mechanism in place to address this. The mechanism to which he referred to is that it would not form part of the cost bank. However, he did not indicate whether the administration would impose financial penalties on the company. Jagdeo said the revelations from the audit justify the right to audit, which he said, “gives you a chance to see whether the expenses justified or not.”

However, for Hunte referencing the work done by the consortium of auditing firms, Ramdihal & Haynes Inc., Eclisar Financial, and Vitality Accounting and Consultancy Inc., with backing from Martindale Consultants, said that ExxonMobil would not engage in this behaviour in the USA, where financial penalties would unreservedly be imposed by the appropriate government department. As such, he questioned whether this unprofessional behaviour will continue on future projects in the Stabroek block, given that EMGL claims that they have invested US$50B. He also asked whether the auditors have access to the EMGL financial documentation in real-time, not years later, so that this deceitful behaviour can be terminated before it impacts Guyana share of total revenue.  Also, Hunte questioned whether going forward, can a simple system be commissioned in real time of counting barrels so that Guyana can receive its fair and equitable share? “This approach of counting barrels will establish a transparent system that is currently lacking; it will not violate ‘the supposedly inviolable contract sanctity cause of unending serfdom of Guyana’; and moreover, this approach will allow the full breakeven level of output to be determined and the correct profit level to be derived. Incidentally, the current 75 percent of total revenue that is allocated as total cost is a fake cost measure, since it violates the elements that are included in a cost function.”

Meanwhile, asked to weigh in on the issue, Elson Lowe, Economic Advisor to the Leader of the Opposition Leader said the Government of Guyana must meet with the operator and make it clear that costs that are not appropriate should not be included in the cost bank, but even further, the government needs to ensure there is clarity when it comes to costs from other blocks being claimed in the Stabroek block cost bank. “We believe that unless boundaries are set with the operator this problem is likely to persist, and in fact may even spill over into the operations of the block Exxon and its partners recently won in the latest oil block auction. Costs incurred in other blocks cannot and must not be claimed in the Stabroek Block,” Lowe emphasized. He said the government is clearly afraid to confront the operator on almost any issue. “We raised our concerns about the allegations that the Operator was not providing data in the first audit when we met with the Operator because we did not consider that to be acceptable. The PPP’s inability to manage oil companies operating in Guyana is costing Guyanese billions of dollars in delayed revenue. We cannot merely look to recover funds after they have been incorrectly used, rather, we need to set guidelines and make it clear that this is not acceptable.”

Five shocking instances

The Ramdihal & Haynes Inc. audit report gave a meticulous breakdown of five instances where the Stabroek Block’s financial resources were used for Kaieteur –a block Exxon walked away from this year –as well as Canje. Kaieteur News reported that as a result of the five instances in which the oil companies acted in violation of the contract, auditors insisted that the Stabroek Block account be reimbursed with US$3,812,653. In the first instance, the report states that Exxon used the Stabroek Block revenues to cover a permit fee for a Kaieteur Geotechnical and Geophysical Survey. When auditors made this discovery and roasted Exxon for such a flagrant violation of international best practices, Exxon agreed that it should not have occurred.

As a result, auditors asked that the US$16,039 used to cover that survey be returned to the Stabroek Block cost bank. Auditors said this was done in October 2022. In the second instance, auditors found that Exxon included its cost recovery statement for the Stabroek Block, 100% of the costs associated with an Emergency Response Study for oil spills from Guyana wells. Auditors said the Stabroek Block revenues should not have been used to cover 100 percent of this activity since the study looked at wells in the Kaieteur and Canje blocks.

Auditors said Stabroek’s share should have been 50% of the cost or US$ 32,575 while Canje’s share should have been 25% or US$16,287.64 and Kaieteur’s share 25% or US$16,287. Exxon was therefore asked to return US$ 32,575 to the Stabroek Block’s account. In the third case, auditors said Exxon charged the Stabroek Block’s producing projects, 100 percent of the cost for various vehicles. The auditors contended that since the vehicles are also used to support activities related to the Kaieteur and Canje blocks, Exxon must return US$404,285 to the Stabroek Block account. In the fourth case, the auditors said Exxon charged the account of producing Stabroek Block projects, 100 percent of the renovation costs for Exxon’s Duke Street office, including upgrades, furniture, and setup costs. Auditors reasoned that Exxon operates all of its Guyana operations out of the Duke Street office, so charging 100% of the more than US$6 million of renovation costs entirely to the Stabroek Block’s account “is patently inequitable.” In the fifth case, auditors found that Exxon charged the account of producing Stabroek Block projects 100% of the costs from Environmental Resources Management, ERM Guyana, and RPS Group for various studies on the impact of oil and gas operations on fish, bird, and turtle migrations, habitats, and survival. Auditors urged Exxon to return US$1,391,902 to the Stabroek Block account.

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• Bharrat Jagdeo, Former Ambassador, Kenrick Hunte, Professor, Vice President

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