Pre-con­tract costs for Exxon op­er­a­tions over­stated by at least US$92M

– Ram

Stabroek News Sunday - - REGIONAL NEWS -

The US$460 mil­lion pre-con­tract costs claim sub­mit­ted to the Guyana Gov­ern­ment by ExxonMo­bil’s sub­sidiary and its two part­ners do not add up and is over­stated by at least US$92 mil­lion, ac­cord­ing to char­tered ac­coun­tant and busi­ness an­a­lyst, Christo­pher Ram.

In his oil and gas col­umn in Fri­day’s Stabroek News, Ram an­a­lysed the fi­nan­cial state­ments which have been lodged by ExxonMo­bil’s sub­sidiary, Esso Ex­plo­ration and Pro­duc­tion Guyana Lim­ited (EEPGL), CNOOC/Nexen and Hess and says they and the gov­ern­ment must now jus­tify the US$460 mil­lion fig­ure. The anal­y­sis of the fig­ure had been held up as Hess only re­cently filed its fi­nan­cials here.

The US$460 mil­lion in pre-con­tract costs per­tains to the pe­riod lead­ing up to De­cem­ber 31, 2015.

Ram’s com­pu­ta­tion of the three fig­ures supplied by the com­pa­nies shows that even al­low­ing for all ex­penses and ex­pen­di­ture, the to­tal falls well short of the US$460,237,918 claimed by them. (The full col­umn is avail­able at: /fea­tures/the-road-to-first-oil/05/18/ pre-con­tract-cost-num­bers-do-no­tadd-up/)

He said that his com­pu­ta­tions

show that the claim of US$460 mil­lion is over­stated by ap­prox­i­mately US$92 mil­lion.

“I say at least be­cause not all ex­pen­di­ture is re­cov­er­able as pre-con­tract costs. For ex­am­ple, Esso had close to US$5 mil­lion in cur­rent as­sets, mainly in in­ven­tory, which will be ex­pensed as they are placed into use and con­sumed. Only at that point should they be ex­pensed as con­tract cost. There­fore the amount should not be in­cluded as pre-con­tract cost...

“Un­less Esso, Hess and CNOOC/Nexen can come up with an­swers and ex­pla­na­tions to what ap­pears to be a very sig­nif­i­cant dif­fer­ence between the amount claimed and what the fi­nan­cial state­ments at a gross level re­veal, they will en­cour­age sus­pi­cion of grave im­pro­pri­ety in over­stat­ing their claim. It is clearly in their joint and sev­eral in­ter­est that they pro­vide full, com­plete and cred­i­ble ex­pla­na­tions sup­ported by au­then­tic doc­u­men­ta­tion ca­pable of with­stand­ing a rig­or­ous au­dit and that they agree vol­un­tar­ily to sub­mit them­selves to such an au­dit. I will raise those ques­tions next week af­ter first hold­ing our gov­ern­ment ac­count­able”, Ram as­serted.

He posed a se­ries of ques­tions to the gov­ern­ment:

1. Whose idea was it to place a ma­jor mat­ter in­volv­ing nearly one hun­dred bil­lion Guyana Dol­lars in an An­nex rather than in the body of the Agree­ment?

2. Was An­nex C which con­tained the fig­ure avail­able and read si­mul­ta­ne­ously with the Main Agree­ment by the Pres­i­dent, Min­is­ters Trot­man and Greenidge and the rest of the Cabi­net?

3. Was the fig­ure US$460,237,918 set out in the An­nex sup­ported by detailed state­ments by each of the three com­pa­nies?

4. Was any ver­i­fi­ca­tion ex­er­cise done of the pre-con­tract ex­penses fig­ures and in­for­ma­tion pro­vided? If so, by whom?

5. Was the Au­dit Of­fice asked to ver­ify the fig­ure?

6. Who checked to ver­ify that the sum claimed was con­sis­tent with the rest of An­nex C, in terms of cat­e­gories, al­lowed and not al­lowed etc.?

7. If there was no ver­i­fi­ca­tion at that stage, why was pro­vi­sion not made for such ver­i­fi­ca­tion at a later date?

Ram ar­gued that the pre-con­tract cost ranks with the royalty, sta­bil­ity clause, no tax and se­crecy as the more egre­gious fea­tures of the 2016 Agree­ment and said it would be good if at least this one is put to rest to the sat­is­fac­tion of Guyanese.

He warned: “On the other hand, the oil com­pa­nies must know that they ig­nore these ques­tions at the risk of their rep­u­ta­tion. Guyanese are not gullible or with­out op­tions”.

Christo­pher Ram

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