Around US$100m of oil expenses disputed in US$7.3b audit
Around US$100m in expenses claimed by ExxonMobil and partners have been classified as disputed in the audit of the massive US$7.3b amount for the period 2017 to 2020, well-placed sources say.
The final report for this audit, conducted by the Ramdihal, Haynes, Vitality Consulting, and Eclisar Financial & Professional (RHVE) consortium was handed over to government last month and the challenged amount works out to around 1.3% of the total – much less than the 12.8% in the first audit of the US$1.67b by UK auditing firm IHS Markit.
With ExxonMobil given time for its feedback on the findings, government now awaits advice from the Guyana Revenue Authority (GRA) on the way forward and to decide on when it will make the report public.
“We submitted the first report on December 5th [2022]. The most recent and final submission was done on September 11th, that is the final report to the Government of Guyana and we are awaiting feedback,” RHVE Lead Representative Floyd Haynes told the Sunday Stabroek.
“…So the report is done. It is very thorough and I’m hoping they make it public,” he added.
He explained that when he referred to the government he meant the Ministry of Natural Resources and the GRA.
Haynes had been pointed to by the GRA after this newspaper contacted GRA CommissionerGeneral Godfrey Statia for an update on the US$7.3b audit.
The RHVE representative explained that he could not go into details of the audit as he was government’s client and could only speak in detail when government “authorizes” him to.
Coming in the wake of the expanding scandal over the illicit bid to reduce the US$214m disputed figure in the IHS Markit audit, there will be intense interest in determining whether the claimed expenses of ExxonMobil and partners were properly scrutinised in the RHVE audit.
The GRA - as distinct from its functions of examining the tax returns of ExxonMobil and its partners had declined to participate in a review of the disputed IHS figure as it had not been involved in the process from the start. It is unclear what the GRA’s role will be in relation to the RHVE report on the US$7.3b audit.
Cost bank
The 100-plus pages RHVE audit should reflect that ExxonMobil credited the cost bank by $263,899 for a number of charges including its public relations work, since the IHS Markit audit had revealed that the company promised to do so in 2020, as those expenses were not recoverable.
“Charges coded to ‘InternlChrg, Serv, Staff, Public Affairs’ are not cost recoverable. EEPGL [Esso Exploration and Production Guyana Limited] have stated that they will apply a credit of $263,899 to the Cost Bank in 2020,” the IHS Markit audit report had stated.
On January 31 this year, Minister of Natural Resources Vickram Bharrat had said that a preliminary report on the audit had been completed.
Then in late May of this year, ExxonMobil informed that it had submitted its responses to the findings of the US$7.3 billion audit and had hinted that disagreements over revenue for blocks might be a hiccup, but stated that it expected negotiations on the queries to be completed in a few months.
“So we provided comments back this week to the government and they’ll be reviewing those and then there’ll be subsequent back and forth, as we move towards finalization. As I reflect on the process, I think the processes have gone quite well. There’s been really good collaboration between our company, the auditors, the government, a lot of transparency,” ExxonMobil Chief Financial Officer, Phil Rietema, had said in response to questions on the audit by the Sunday Stabroek.
“And so this is a typical natural process, and there’s always going to be little differences of opinion and, you know, some of those we agree with. You know, we are talking, as you noted, about 7 billion US dollars. So there’s an expectation that through the audit process, there will be some areas where maybe they work solely for Stabroek operations [or] they belonged in one of our other blocks, and so we discuss that and align. So I think this one will continue to progress over the coming months and I expect that it will get into alignment with the government at that time,” he added.
Rietema said that it was expected, because of the large sums being up for scrutiny, that there would be discussions with the government-contracted auditors.
“The audit process is in steps, is going to have some back and forth. So you know an audit kicks off and the auditors come in. There’s you know, a meeting and we talked about a scope of work. It takes a number of months. We provide a lot of information. They work through that. There’s clarifications, they then take the findings to the government here. GRA is involved, Ministry of Natural Resources is involved and then they have a draft report. Further requirements are then shared with us. They then take the information they’ve seen and say, ‘Hey, we have a few areas where we think there’s concerns. There’s then another 60-day period where there can be comments back and forth on that and that’s the period we’re in now,” he explained.
The company had asked for a one week extension.
When the Sunday Stabroek had asked the Minister of Natural Resources about the audit in May, he had referred it to Guyana Revenue Authority Commissioner-General, as he noted that that agency is the technical body which has to sign off on the report.
“Once Exxon submits their responses, it is given back to the external auditors and they decide on the net response. It will then be sent back to me and I decide if it will be signed off,” was all Statia had said.
But sources since then had hold this newspaper that the audit had found “minimal anomalies relating to expenses.”
If the roughly US$100m in disputed costs is upheld at the end of the audit process, it would mean that Guyana would have to be credited with around US$50m more in profits for the period under examination.
The contract for the audit was signed in May last year – 22 months after the change in government at a cost pegged at US$750,000 ($161.2 million).
Auditing of oil expenses has been overshadowed by the IHS audit report in two respects. First, the IHS audit flagged a high figure of disputed costs and then there was a scandalous, unauthorised attempt between persons in the Ministry of Natural Resources and ExxonMobil to slash the figure from US$214m to US$3m. This would have severely cut additional profits due to this country. The scandal has now seen the Minister of Natural Resources blaming the Head of the Petroleum Unit, Gopnauth `Bobby’ Gossai for this fiasco and he is to be disciplined. The reduction of the disputed IHS figure was believed to have occurred under the guidance of the GRA but this was found not to be the case as reported by Stabroek News. The developments have resulted in calls for an independent investigation of the unauthorised discussions between the ministry and ExxonMobil and a referral of the matter to law enforcement for a determination of whether corruption was at the centre of the bid to minimise the disputed costs. The stakes have therefore been raised as it relates to the RHVE audit. The IHS Markit audit report was kept from public view for two years until its contents were published by the Sunday Stabroek in April this year. The report has still not been released.
Triggered
Annex ‘C’ of the 2016 Production Sharing Agreement (PSA) deals with audits and the processes triggered during and after. “At the conclusion of each audit, the parties shall endeavour to settle outstanding matters and a written report will be issued to the contractor within sixty days of the conclusion of such audit. The report shall include all claims arising from such audit. The contractor shall reply to the report in writing as soon as possible and in any event not later than sixty days following receipt of the report indicating acceptance or rejection of the audit claim and in the case of a rejection showing explanations thereof,” the PSA states.
“Should the minister consider that the report or reply requires further investigation on any item therein, the minister shall have the right to conduct further investigations in such matter within sixty days of its receipt of contractor’s reply. If within sixty days of the minister’s further investigation the parties are unable to agree to the disposition of the minister’s audit claim, the claim shall be submitted to the sole expert in accordance with Article 26 of the agreement.”
According to the PSA, all adjustments resulting from an audit agreed to by the contractor and the minister conducting the audit shall be reflected promptly in the account by the contractor and any consequential adjustments in crude oil entitlements shall also be made promptly.
“In the event that an audit claim by the minister is not settled to the minister’s satisfaction by the contractor’s reply as provided for… the contractor shall be entitled to recover any disputed accounts pending final resolution of the claim. However, any subsequent adjustments in the minister’s share of profit oil following resolution of the claim shall be repaid with interest, at the agreed interest rate as a first claim from the contractor’s share of future profit oil. In the event that the contractor’s share of profit oil is insufficient to provide for the minister’s extra entitlement including interest, the contractor shall promptly make an equivalent payment in United States dollars to the minister,” the PSA adds.
Rietema said that while the PSA has a specific timeframe, the company will not be inflexible.
“As we’ve said, we welcome the scrutiny on the expenses, you know, our company, we pride ourselves on driving value and trying to find the best value for our dollars. And we’ve said to the government, I think the Vice President has mentioned as well, that we are going to be audited,” he said.
“I mean there’s certain parts of our agreements that would suggest that there’s perhaps a time limit but we continue to work with the government on the audit you know, we’re not you know, we’re cognitive and those time limits, but we what we really want to drive to is the right outcome where everything has been has been reviewed and agreed upon,” he added.