ExxonMobil must justify US$214M as Govt reviewing cost oil claims – VP Jagdeo

…says inability to justify claims will see them being disallowed

The Government is carefully reviewing all contested cost oil claims made by ExxonMobil, which were flagged by British firm IHS Markit in its audit of pre-contract costs, and according to Vice President Bharrat Jagdeo, such costs will not be allowed if Exxon cannot justify them.

In 2019, IHS Markit did an audit of Exxon’s cost oil expenses racked up between 1999 and 2017. As much as US$214.4 million ended up being disputed, as IHS Markit flagged these cost oil claims.
The Vice President, on the sidelines of an event on Tuesday, was adamant that these expenses are being carefully reviewed. Jagdeo said that the report is with the Guyana Revenue Authority (GRA) and if these expenses cannot be justified, they will not be approved.
“It has to go through a procedure. In the preliminary [audit] finding you have the contested costs. You have to get the company to respond. You have to send it over and the company is required to submit additional documentation.”
“If they can’t submit additional documentation, then the cost is disallowed. So, it comes out of the cost bank and goes towards profit oil. So, a greater share… the adjustments would have to be made to profit oil,” Jagdeo said.
The Vice President noted that they hire the technical expertise necessary to review these cost oil claims. And noting the back-and-forth nature of these matters, Jagdeo could not give a timeline for completing the audit and review process.

Nothing to hide
Meanwhile, Jagdeo reaffirmed during the course of the Local Content Summit launched at the Pegasus Suites and Corporate Centre that the People’s Progressive Party/Civic (PPP/C) Government has nothing to hide when it comes to the cost oil audits.
“It’s almost about making a headline without thinking things through clearly. I saw a couple days ago… some report that the audit that was done by IHS Markit has been with us for a while. And somehow, because it identified over $200 million of areas that we didn’t agree with, that the Government of Guyana or somehow the political directorate, kept the report hidden.”
“Now that report has been with the staff of the Ministry and with the GRA and all their technical people, for the last several years. Nobody’s hiding the report. In fact, we tried to localise that. That was the first audit done by HIS Markit.”
“We delayed the second audit, because we wanted local people to participate in the audit. We worked to put together a consortium of four Guyanese companies… because we wanted local content in the audit. It’s not a cover-up. But it becomes a headline that is sometimes misleading,” Jagdeo said.
The audit of cost oil claims is critical to ensuring that Guyana does not lose out on millions in oil revenues. ExxonMobil’s pre-contract costs were inherited by the current Government when it entered office in 2020. US$460 million in pre-contract costs were already written into the 2016 Production Sharing Agreement.
According to the contract, the pre-contract cost “shall include four hundred and sixty million, two hundred and thirty-seven hundred thousand and nine hundred and eighteen United States Dollars in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015.”
There is an additional sum of approximately US$400 million from 2016 to 2017, which it is believed will also come under the rubric of cost oil. The former Government has received much criticism for agreeing to these costs without an audit being done.
The former Government had contracted IHS Markit, at a cost of US$300,000 ($62.6 million) in 2019. The contract had to be extended in May of 2020 without cost, owing to the COVID-19 pandemic. At the time, former Energy Department Head, Dr Mark Bynoe had said that this was due primarily to flight restrictions.
IHS Markit is the product of a 2016 merger between two companies, United States (US)-based IHS and London-based Markit. Its data and information services business caters to industries such as automotive, energy, financial services, defence and maritime.
The company is no stranger to Guyana’s oil sector, having published a number of write-ups and analyses on Guyana’s efforts to develop its capacity. This includes “Guyana’s deepwater areas will remain competitive, despite changes to fiscal terms (IHS Markit, 2018)” and “How activity in the Guyana mini basin is booming with five exciting discoveries since 2015 (IHS Markit, 2017)”. (G3)