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No penalty for Exxon for unauthorised oil expenses under lopsided contract
ExxonMobil Country Manager to Guyana Alistair Routledge. (No penalty for Exxon)
Kaieteur News- With local consortium VHE Consulting instructed to release the finalised second audit of ExxonMobil’s Stabroek Block expense this week – citizens should remember that under the 2016 Production Sharing Agreement (PSA), the oil company faces no penalty for adding unauthorised expenses to be recovered.
For the second audit which covers the period 2018 to 2020, Exxon submitted US$7.3 billion as recoverable expenses. Under the 2016 deal signed by the former Coalition government with ExxonMobil, a cost recovery provision is included. This allows Exxon to recover 75% from the revenues generated from the sale of oil before the remaining 25% is spilt 50-50 with Exxon and its Stabroek Block partners and Guyana. However, the Government of Guyana retains the right to audit all records related to the contractor’s cost recovery claims.
Notably, while the contract includes a cost recovery provision it does not impose penalties on the oil company for submitting unauthorised expenses to be recovered. This means that, while unapproved costs cannot be reimbursed from oil revenues, ExxonMobil faces no additional sanctions for attempting to recover ineligible expenses.
The second audit had revealed that ExxonMobil use profits generated from the Stabroek Block to finance work for the Kaieteur and Canje blocks. Vice President (VP) Bharrat Jagdeo had previously addressed the cost recovery aspect of the agreement. When asked to expound on the consequences, Jagdeo only said that the contract that 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…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 had said.
According to Article 11 of the Petroleum Agreement, the contractor (ExxonMobil) “shall recover Contract Costs as Recoverable Contract Costs only from Cost Oil and/or Cost Gas as herein provided.” Notably, a perusal of the PSA shows that it makes no provision for penalties or sanctions if unauthorized costs are submitted, underscoring Vice President Jagdeo’s explanation that such expenses are merely excluded from recovery.
The initial report published on the second audit flagged several charges as improper charges. It is important to note that costs recovered by Exxon have to be directly related to oil production in the Stabroek Block offshore Guyana.
(No penalty for Exxon for unauthorised oil expenses under lopsided contract)
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