GRA working with British firm to clear up cost-oil audit queries

– assures findings from review of cost oil audit will be made public

The Guyana Revenue Authority (GRA), in whose hands rest the audit done on ExxonMobil’s 1999 to 2017 cost oil claims, say they are working along with operator ExxonMobil to clear up various queries raised in the audit report.
In a statement, GRA Commissioner General Godfrey Statia sought to assure the public that, contrary to reports, it is diligently reviewing Exxon’s cost oil audit. In fact, the agency also promised that once the review of the final report is completed, the findings will be released to the public.
The cost oil audit was done by British firm IHS Markit back in 2019, and according to GRA, there were issues with the report that needed clearing up. According to Statia, IHS did not submit an intermediate report as was required, which would have been submitted to the operator of the Stabroek block for feedback. Instead, IHS submitted a final audit report on July 31, 2020, that had not allowed the operator, Exxon Mobil, the right to reply. This is at variance with the Production Sharing Agreement (PSA) the Government has with Exxon, which explicitly states that when an audit is concluded, a written report must be issued to the contractor within 60 days. When the report is issued, the contractor then has 60 days to reply in writing, either accepting or rejecting the queries with an explanation.
“Through the (Department of Energy), it was related to IHS Markit that a Final Audit Report cannot be compiled until the contractor (or Esso Exploration and Production Guyana Limited, in their capacity as the operator of the Stabroek Block) is issued with a ‘Written Report’ in conformance with Annex C Section 1.5(B) of the PSA),” Statia pointed out.
In the meantime, Exxon was given the audit report to respond to in 2021. Between July 2021 and March 2022, there was ongoing correspondence between the Government, operator and auditor over the report. Subsequently, Statia said, IHS submitted two further reports that were reviewed.
However, he claimed that these reports contained, among other things, inconsistencies. According to Statia, GRA’s issues with the IHS’ subsequent reports included “the lack of recommendations in the report; Failure to refer to Industry Standards and good practices for specific findings; Inaccuracies as it relates to analyzing and reviewing the financials; General inconsistencies and deficiencies; and failure to adopt suggestions and recommendations, as well as address concerns emanating from Government of Guyana representatives.”
As of now, Statia explained, an active review of the final report is still continuing between them and the Ministry of Natural Resources. According to him, GRA will release its findings when that review is completed.
In its final report, IHS Markit had flagged contested expenses of US$214.4 million which ExxonMobil had claimed under cost oil. Vice President Bharrat Jagdeo had said on Tuesday that if Exxon is unable to justify these expenses, they will not be allowed.
“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 had 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.
The audit of cost oil claims is critical to ensuring that Guyana does not lose out on millions in oil revenue. 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 is believed will also come under the rubric of cost oil. The previous Government had received much criticism for agreeing to these costs without an audit being done.