Disputed US$214.4M oil expenses: Auditors recommended US$40M for materials be removed from cost bank

…over missing vendor records from General Ledger

The Guyana Government has already said it is going to arbitration with oil giant ExxonMobil, over the US$214.4 million that was flagged as questionable costs by auditors of expenses racked up between 1999 and 2017. One of the expenses that caused auditors to raise their eyebrows was US$40 million worth of well materials that were missing important vendor documentation.
A perusal of the recently-released final report of the 1999-2017 cost oil audit of ExxonMobil done by British firm IHS Markit shows that auditors had recommended the exclusion of the US$40 million sum from the cost bank. The auditors explained that while Exxon subsidiary Esso Exploration and Production Guyana Limited (EEPGL) recorded that this sum was spent, it did not record vendor details.
“During the audit period, EEPGL recorded expenditure of approximately $40.4 million on materials where the vendor details are not recorded in the General Ledger, this means that individual material entries in the General Ledger cannot be traced back to specific material purchase contracts.

Map showing the Liza Phase 1 development. Oil was found in the development in 2015, with production startup in 2019

“These costs relate to material issued from the shore base for use in petroleum operations. Although general material purchase contracts for similar materials were provided and reviewed, no evidence was provided to justify the costs of these materials. This amount should be removed from the cost bank,” IHS Markit said.
Meanwhile, it was explained by the audit firm that during the period under review, a total of US$143.3 million was spent on well materials that were predominantly casing, tubing and other downhole materials that were used to construct the wells. Troublingly, however, IHS noted that representatives of the Government of Guyana were not invited to witness material counts during these audits, even though this was a requirement in the Production Sharing Agreement (PSA).
“EEPGL record materials transactions when materials were taken from the shore base. Any unused materials are credited back to the General Ledger when materials are returned to the shore base. Within the General Ledger, it is not possible to positively link materials return transactions to the materials supplied transactions,” IHS Markit also revealed.
In 2019, IHS Markit had conducted the audit of ExxonMobil’s cost oil expenses incurred between 1999 and 2017 from its operations in Guyana and flagged US$214.4 million as questionable costs.
Following months of review, the Guyana Revenue Authority (GRA) – the technical body tasked with advising the Government on the audited oil expenses – supported the dispute of the US$214.4 million.
Based on the 2016 oil contract that was signed between ExxonMobil and the then A Partnership for National Unity/Alliance For Change (APNU/AFC) Government, Guyana will have to incur the cost of the oil company’s legal fees should the matter go to arbitration.

Chart showing disputed cost bank expenses

Meanwhile, in February, ExxonMobil Guyana Limited (EMGL) President Alistair Routledge had told reporters that the company was in discussions with the GRA on “the next steps and what needs to be done”.

At a previous press conference last October, Routledge had expressed a preference for the figure to be settled on before it reaches the arbitration stage.
ExxonMobil’s pre-contract costs were inherited by the People’s Progressive Party/Civic (PPP/C) Government when it entered office in 2020. In fact, US$460 million in pre-contract costs were already written into the 2016 PSA.
The audit of cost oil claims is critical to ensuring that Guyana does not lose out on millions in oil revenues. Consequently, the Guyana Government had embarked on the second cost oil audit for the period 2018 to 2020. That process is currently ongoing, with an initial report having been released.
That audit was carried out by a consortium of local and international firms. Guyanese firms Ramdihal and Haynes Chartered Accounting and Professional Services Firm, Vitality Accounting and Consultancy Inc, and Eclisar Financial & Professional Services had partnered with Oklahoma-based Martindale Consultants Inc and the Swiss technical company SGS to conduct the audit.
Meanwhile, the contract for the third cost oil auditor for the 2021 to 2023 period was tendered earlier this year and that contract is now being finalised by the Guyana Government. When the bids were opened in March at the National Procurement and Tender Administration Board (NPTAB) in Georgetown, it was revealed that Guyanese companies have again thrown in their hats in the race.
VHE Consulting – the same Guyanese consortium that did the second audit (2018 to 2020) – had submitted a bid to the tune of $229 million. The second bid came from London-based Grant Thorton UK LLP and PFK Barcellos Narine & Co, which did not have a bid price at the time.
Priced at $202.8 million, the third bid is a joint venture of local Guyanese firm N Sookhai & Company and the Nigeria-based Infoworks Solutions Ltd. (G3)