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ExxonMobil billed Guyana over $204M for expenses it racked up before 2016 PSA was signed
…auditors flag cost as unrecoverable
Kaieteur News – ExxonMobil Guyana Limited (EMGL), the operator of the Stabroek Block has billed Guyana over US$1 million for costs incurred before the Stabroek Block Production Sharing Agreement (PSA) of 2016 came into effect.
President of ExxonMobil Guyana Limited, Alistair Routledge
This was exposed in the Audit Report completed by VHE Consulting (Ramdihal & Haynes Inc; Eclisar Financial; and Vitality Accounting & Consultancy Inc) and SGS and Martindale Consultants. The team was contracted by the Government of Guyana (GoG) back in May 2022 to review the US$7.3 billion expenses of EMGL – formerly Esso Exploration and Production Guyana Limited (EMGL), that were incurred between 2018 and 2020.
In the report, auditors noted that the oil company submitted cost recovery statements to the tune of US$1,019,945.58 or approximately $204 million for pipe racks and shore base operations. According to the Report, “Guyana Energy Support Services provided labour for loading and offloading boats and transporting equipment to various locations.”
While the invoices were booked in February, April, and May 2018 and January and February 2019, auditors determined that the costs were incurred prior to October 7, 2016. Notably, costs incurred prior to October 7, 2016, are not Recoverable Costs.
The auditor pointed out, “Section 3.3 of Annex C to the June 27, 2016, Petroleum Agreement (PA) stipulates costs incurred before the Effective Date are not recoverable.” The contract also provides for specific costs, already settled, to be recovered as Pre-Contract costs.
Consequently, the audit team noted that since the Effective Date of the Licence is October 7, 2016, costs incurred prior to that time are not Recoverable Contract Costs.
Exxon responds
In response to the alarming findings of the auditors, ExxonMobil wholeheartedly disagreed that the sum should not be recovered.
The company explained, “Invoiced amounts and activities identified by the Auditors were accrued in the pre-contract costs outlined in section 3.1(k) of Annex C. The delay between the activity occurring and the invoice being finalized and paid was caused by the lengthy process for EEPGL to receive VAT exemptions (per Article 15.1) from the GRA. Prior to first oil (December 2019), EEPGL was not VAT registered as had not VAT Output, this prevented EEPGL from reclaiming VAT Input through a VAT refund claim.”
It added, “To ensure compliance with Article 15 of the Petroleum Agreement, EEPGL was unable to pay any invoices from local suppliers containing Guyana VAT and such payments could only be made once the GRA had granted VAT exemptions in accordance with Article 15.1. In any case, given the ongoing accruals of the identified exploration and appraisal wells, the delay in the invoices being finalized / paid had no overall net impact to the pre-contract amount.”
Costs flagged by the auditors that were incurred prior to the 2016 PSA
Meanwhile, the auditors have since advised that irrespective of the date and time submitted of the invoices submitted for the “recoverable costs” any sum incurred prior to the effective date of the agreement would not be considered. They explained, “These statements (from the contractor) suggest the costs in question are already contained in the Pre-Contract Costs; as a result, in addition to the current claim being improper, including the costs in the Cost Recovery Statement would constitute double-counting.” The report said that the Contractor’s response will be evaluated “but any cost incurred prior to October 7, 2016, no matter when booked, is a non-recoverable cost.”
It would be prudent to note that Guyana’s first oil audit of the company uncovered similar findings. That audit was conducted by a British firm, IHS-Markit for the period 1999-2017. The audit team was tasked with reviewing some US$1.6 billion in costs.
Kaieteur News had reported that before Hess Corporation or CNOOC Petroleum Guyana Limited signed on as partners with ExxonMobil to the 2016 Production Sharing Agreement for the Stabroek block, they apparently racked up US$31.4M in certain expenses which they claim Guyana must pay.
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Why don’t the government increase the royalties on future bidding for future oil block so that they would be able to offset some of their previous losses and negligence