Fmr. AG raises concerns about award of third Exxon oil audit to VHE Consulting

Nov 06, 2024 News

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Kaieteur News- Former Auditor General Anand Goolsarran has voiced concerns about the selection of local consortium, VHE Consulting for the third audit of ExxonMobil Guyana Limited (EMGL’s) recoverable expenses in relation to the Stabroek Block operation.

In his recent column published in Stabroek News, Goolsarran stressed that given the financial implications for Guyana, the audit requires experienced professionals with proven expertise in cost verification.

On October 10, the National Procurement and Tender Administration Board (NPTAB) awarded VHE Consulting (which is a registered partnership between Ramdihal & Haynes Inc; Eclisar Financial; and Vitality Accounting & Consultancy Inc.), a $312 million contract to conduct the third audit of ExxonMobil’s expenses for the period 2021 to 2023.

The project was initially opened back in March and VHE was among Grant Thorton UK LLP and PKF Barcellos Narine & Company; and M. Sukhai & Company (local) in joint venture with Info Works Solutions Ltd who had submitted bids.

Former AG Goolsarran said there is a need for a comprehensive audit to be undertaken.  Firstly, he reminded that the absence of ring-fencing provisions is a key weakness in the 2016 PSA, according to the International Monetary Fund (IMF). It was explained that a ring-fencing arrangement ensures that only costs attributable to a particular field are considered in the computation of profit oil for that field.

“Although the Agreement provides for the sharing of profit oil on a field-by-field basis, it also allows ExxonMobil’s subsidiaries to allocate cost oil to any field within the contract area, thereby defeating the main purpose of ring-fencing…” the former AG underscored.

According to Goolsarran, a thorough audit is crucial to ensure that only legitimate, reasonable expenses are recovered, which impacts Guyana’s profit share. Here’s how, under the 2016 Production Sharing Agreement (PSA), ExxonMobil, the operator of the Stabroek Block, and its partners Hess and CNOOC, are allowed to recover 75% from the sale of oil to cover cost, before the remaining 25% is shared as profit between the oil companies and Guyana.

As such, the audit of the expenses recoverable by oil companies is crucial to ascertain if actual recoverable cost is being billed to the cost bank.

The former AG said, “The audit is necessary to provide the reasonable assurance that expenditures incurred are legitimate recoverable costs in the context of the Agreement and the amounts involved are reasonable and represent good value for money. This is especially so considering the higher the recoverable cost, the less will be the amount of Guyana’s share of the profit that will accrue to it.”

Moreover, two audits had been previously conducted for expenses in relation to the Stabroek Block operations. The first audit was done by a British firm, IHS Markit for the period 1999 to 2017. That audit examined expenses totalling US$1.7 billion. Of this, US$214.4 million (12.8%) was marked as disputed charges. If these disputed charges are excluded, Guyana’s oil revenue could increase by US$107.2 million.

The second audit was done by VHE Consulting bolstered by the international support of SGS and Martindale Consultants. That contract valued US$751,000 (GY$156 million). That audit examined expenses totalling US$7.3B covering the period 2018 to 2020 examined US$7.435 billion in recoverable costs and raised concerns about US$54.471 million, less than 1% of the total.

In relation to the second audit that was done by VHE, Goolsarran noted that concerns including, the lack of basic structure, table of contents, no executive summary, the scope and methodology used, conclusion, recommendations, among other things have been raised in relation to the quality of the original audit report issued by VHE.

He added that Minister of Natural Resources Vickram Bharrat had said a final report would be forthcoming, but its status is currently unknown. Goolsarran also highlighted VHE’s statement that certain issues would be “further examined during the next audit,” suggesting an expectation or assurance of reappointment, which, in his view, reflects an incomplete audit.

Goolsarran said that according to the advertisement, a key requirement is for the bidding firm, along with its partners (local and foreign) combined, to have completed at least three similar assignments during the past seven years. He added that since no auditing firm currently operating in Guyana, including VHE, would have met this requirement, it could not have been the intention for the overseas partner alone to have requisite experience.

 

(Fmr. AG raises concerns about award of third Exxon oil audit to VHE Consulting)

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• Anand Goolsarran, ExxonMobil Guyana Limited (EMGL’s), Former Auditor General, VHE Consulting

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