Oil and the Auditor General 

Feb 04, 2024 Letters

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Dear Editor,

Equity ownership in a business implies that an investor becomes a shareholder; and therefore, has access to complete information; has decision-making authority that is based on the relative size of the funds invested; and receives a share of the total profits, calculated on the shareholder’s ownership of the total invested funds.

In the case of ExxonMobil Guyana Limited (EMGL), there are three shareholders: ExxonMobil Guyana 45 Percent; Hess/ Chevron 30 percent; and CNOOC 25 percent. The important distinction here is that even though Guyana owns the non-renewable oil resource, the ownership of EMGL excludes Guyana as a shareholder. Interestingly, If the 11 billion barrels of oil were discovered on private property owned by any Guyanese, that person would have been a shareholder in EMGL; would have had an equitable ownership share in EMGL; earn a proportionate share of the profits; and would have paid taxes, as would be the case in many countries.

Recognizing that the Government of Guyana is not a shareholder in EMGL, several limitations have been imposed on Guyana at the expense of the Guyanese people. In particular, Guyana is disparagingly identified in the production sharing agreement (PSA) as the Non-Owner Associate (NOA); has no access to complete and timely information; has no decision-making authority; and all disputes have to be settled by arbitration in the USA at Guyana’s expense.

An important objective in a privately owned firm would be to minimize the total cost of the oil extraction operation and maximize profits and returns to the shareholders. What this entails is that if the firm invests US$50.0 Billion dollars, then the objective is to recoup the US$50.0 Billion dollars and ‘much more’ in the shortest possible time; and close shop before the contracted end date arrives. The reason for this early departure is that there is no profitable incentive for them to stay when the remaining quantity of the oil resource in the reservoir is uneconomical for extraction. Recently, Hess sold its stake in the project to Chevron for more than US$50.0 Billion dollars; and Hess has been reporting how profitable their project in Guyana has been. I would contend that EMGL is on track to achieving an outcome that is no different than Hess; and therefore, the government cannot be making excuses about deferring their returns to some future date, when the oil will be depleted.  A fair return is required now, as a dollar today is worth more than a dollar tomorrow, once we acknowledge that current interest rates are not zero.  Additionally, it is hard to believe that given the cost of capital, and the no less than the US$50.0 Billion-dollar investment in EMGL, it is hard to believe that a profit share of 12.5 percent to be proportionately divided between the three owners is really an attractive return on the investment.  This is not credible.

Recently, Guyanese were informed of the inability of the Auditors employed by the GoG to gain access to production data. Likewise, Guyanese were thwarted from seeing the paper work in support of $2 Billion guarantee deposit by EMGL/ Exxon for oil spill disasters (https://kaieteurnewsonline.com/2024/01/29/datadin-must-follow-own-advice-to-not-speak-on-full-liability-coverage-if-he-knows-nothing-about-it/).

Because of these restriction and limitations, it would appear that Guyana’s sovereignty has been compromised by a private foreign company that operates an extraction operation that pays no taxes; that excludes ring-fencing on each project; and captures from every dollar 85.5 cents, while leaving only a meager 14.5 cents for Guyana, an amount that is insufficient for a non-renewable resource. Furthermore, if there is an oil spill, and there is no optimal liability coverage for an ever-increasing number of FPSO vessels, such a disaster will damage many countries in the Caribbean, and bankrupt Guyana.

What is also contentious is the idea that the GOG is paying the taxes of EMGL out of its meager 14.5 cents, yielding a net of only 11 cents out of every dollar after the transfer of the taxes. More disturbing is the fact that Guyana is required to issue a fake tax receipt to EMGL that is taken elsewhere for a tax credit. No Government should be involved in this unwholesome arrangement; for this is fraud and the Auditor General of Guyana has work to do on this troubling issue.

More specifically, the involvement of the Auditor General is required because according to the Audit Act 2004, Functions 4.1, Page 4: ‘The Auditor General shall be the external auditor of the public accounts of Guyana and, in the discharge of his functions, shall have complete discretion in examining and reporting on the receipt, disbursement, and control of public moneys and on the economy, efficiency and effectiveness in the use of such moneys.’ (https://www.audit.org.gy/site/images/Legislation/Audit%20Act%202004.pdf). Dereliction of duty? I hope not!

 Sincerely,

Dr. C. Kenrick Hunte

Professor and Former Ambassador

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• Chevron, Dr. C. Kenrick Hunte, Hess, Professor and Former Ambassador, shareholder

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