US$40M in materials bought by ExxonMobil could not be verified, Govt. kept in the dark – Audit Report Reveals

Apr 11, 2024 ExxonMobil, News, Oil & Gas

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Kaieteur News – Prior to the production of oil and gas in the Stabroek Block, ExxonMobil Guyana Limited (EMGL) spent over US$40M on materials for the purpose of drilling and constructing exploration and appraisal wells; however, these purchases could not be verified as the oil company did not attach the names of the vendors nor did they invite government for material counts.

This stark revelation was made by IHS Markit, a British Consultant that was hired by the government in 2019 to review Exxon’s expenses between the period 1999 and 2017.

The document, which government has not made public, found over US$214M in questionable costs being claimed by the operator of the Stabroek Block. IHS has advised government in the Final Report, revised in February 2021, to pursue those unjustifiable costs.

Among those is US$40M in materials costs. The Consultant in the report explained, “During the audit period EEPGL (now EMGL) recorded spending of approximately $40.4 million of materials without any Vendor details within the General Ledger. These costs have been identified as material issued from the shore base for use in Petroleum Operations.”

The auditors said that justification for the cost of these materials were not provided and recommended that they be removed from the Cost Bank. This means that the total of US$40.4M should be shared as profits between Guyana and with US$20.2M owed to each party, in accordance with the 2016 Petroleum Agreement (50/ 50 profit share).

According to the audit team, “The identification of materials in the General Ledger is not clear and requires considerable analytic effort. Transparency in the records submitted by EEPGL should be improved.” IHS recommended that Exxon provides samples of typical global contracts to justify the charges applied to materials, including the vendor name, contract (s), award recommendation and invoices.

Meanwhile, the auditors also flagged the lack of transparency by ExxonMobil with regard to changes to the list of items bought by the company. “There is no transparency for inventory adjustments with no evidence provided of the reasons why the adjustments are necessary,” the auditors noted.

Furthermore, IHS Markit pointed out that the government of Guyana (GoG) was not invited to material counts during this period, as required by the Production Sharing Agreement (PSA). As the ultimate financier of the materials and petroleum operations by extension, the government is required to ensure it received what was paid for.

According to the report, “The GoG were not invited to material counts during this period, a requirement in the PSA, and applying inventory adjustments to the General Ledger is not consistent with method of only applying material costs when materials leaves the shorebase.” To this end, the Audit Team recommended that a total of $349,098 related to inventory adjustments be removed from the Cost Bank as adequate justification for these charges were not provided by ExxonMobil.

It must be noted that while the Guyana Revenue Authority (GRA), assigned by the Government of Guyana to provide key oversight on the audit has signalled its approval of the report submitted by IHS-Markit and recommended that the audit findings be accepted, there has been no progress in the pursuit of the disputed costs flagged by IHS-Markit.

Commissioner General of the GRA, Godfrey Statia in a public missive said on October 18, 2023 that “The Authority wishes to categorically re-iterate that it stands by its advice to the Ministry of Natural Resources and the Government of Guyana that the Cost Bank Adjustment of US$214.4M as reported in the ‘Audit Report Recommendation Final’ by IHS Markit is the accepted final figure.”

Although the government had said it will not be engaging in a settlement of the US$214M dispute with Exxon but is prepared to head to arbitration, there has been no further action to that end.

Vice President Bharrat Jagdeo was asked by this newspaper whether government has considered settling the dispute with the oil giant given how tedious the process has been and the fact that Guyana will be required to cover the costs of Exxon’s legal defence.

To this end, Jagdeo informed that the GoG has been guided by two sets of advisors on the matter that have both recommended that the US$214M sum be returned to the cost bank. This means that the US$214M will be split as profits, which will allow Guyana to receive US$107M while Exxon will enjoy the other US$107M.

Consequently, Jagdeo asserted, “I don’t believe there is scope at this stage for settlement especially given the magnitude of reduction.” He explained, “Exxon is talking about moving from US$214M to US$3M and if we settle with that, then it’s only half of that we get and so those figures are not palatable at all.”

As such, the former Head of Stated noted, “We may have to go to arbitration.”

Meanwhile, he told reporters that government has not done an assessment of what the arbitration process would cost. He however pointed out that he believes this is the fittest method.

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• Audit, count, materials, vendors ExxonMobil, verify

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