Questions abound about this US$7.3B cost recovery audit report

Details, including the full terms of reference or scope, remain unpublished regarding the 2018-2020 ExxonMobil Guyana US$7.3B cost recovery audit report, leaving Guyanese to speculate on the political, economic, and other influences on Guyanese-led RVHE Consulting and international firms: Martindale Consultants Inc. and SGS.

Kaieteur News released an article on November 12th, titled, “How ExxonMobil brazenly abused Guyana’s oil profits”, summarizing the audit findings. These findings foretell an audit scope that was confined to evaluating indirect and nonrecoverable costs. The results approximated that 1.3% of the US$7.3B contractor recoverable expenses were either incorrectly allocated costs or categorized as nonrecoverable. These amounts are to be refunded to the Stabroek Block Account, a majority of which sit outside the main cost recovery classifications: exploration, development, and operating costs.

Based on analyzing media reports of the audit, there is an assumption that the expenses, dependent on Exxon’s highest-valued upstream assets and production volume, were excluded from the work performed by the auditors. If the scope of the audit was to analyze administrative, service, and non-recoverable costs, then the objective was met.

However, this approach would result in an inadequate assessment of the risks at stake. A 4-month time constraint, imposed by the Government of Guyana (GoG), to complete an audit of this size and complexity is an attempt to avoid compulsory questions needing to be asked by qualified experts.

Costs related to petroleum operations are to be allocated to exploration, development, and production phases and should match the contractor-prepared end-of-year statements that are provided to the Minister Responsible for Petroleum, per the Production Sharing Agreement (PSA) Annex C | 9.1.

Let’s return to exploration and development after addressing ExxonMobil Guyana’s refusal to provide production volume data, stating that “production information was outside the scope of the cost recovery audit.” Operating costs, ultimately incurred in the production phase, are fixed or variable costs, where the variable costs are directly related to production. Materials used in oil recovery, workers’ hourly wages, and fluctuations in repairs and maintenance all move in the direction of production. Additionally, oil recovery methods that rely on reservoir data influence production costs. Production-driven cost depletion is determined by the volume produced in each period. How does an auditor verify related production costs without production data or challenge Exxon’s management in their refusal to furnish the information requested? The graphs of daily production displayed on the Government’s website (https://petroleum.gov.gy/data-visualization/) show considerable day-to-day fluctuations, so it would not be accurate to assume some daily average.

The exploration phase should include depreciation expense, determined by the cost of equipment, preceded by the acquisition phase which includes payments to acquire, renew, or relinquish surface rights per PSA Annex C | 3.1 (a), all recoverable costs. Did these accounts or amounts meet the auditor’s expectations? Development costs are the most capital-intensive of the three phases. Did the auditors identify if there were any weaknesses and deficiencies in intangible drilling and development, costs that were expensed, but should have been capitalized? Were the 2020 asset impairments “fairly valued”? When one does not promote good governance, it opens doors to manipulation of other sectors, such as financial services.

Guyana partnership RVHE Consulting, comprised of Ramdihal & Haynes Inc., Eclisar Financial, and Vitality Accounting & Consultancy Inc., led the local audit team consisting of seven individuals, two of whom traveled to the United States to work alongside Martindale Consultants Inc. This organization had an additional seven people, titles undisclosed, working on the audit. Their website’s (https://www.marticons.com/) About page explicitly states, “Martindale is not a certified accounting firm and does not offer legal advice.” No details have been released about the type of support SGS (formerly known as Société Générale de Surveillance), a Switzerland company, provided to the government of Guyana.

Issues of concealing transactions, inflating costs, and underreporting production can be mitigated by adhering to new PSA guidelines: gross-split model (a percentage of oil extraction, eliminating cost recovery in its entirety), ring-fencing (financially separates assets, matching expenses to revenue on wells within a ring), on-site volume inspection (ensures actual volume is consistent with reported volume), and enforcement of income tax. Implementing policies of this nature force oil companies to operate more efficiently, without financial and environmental violations.

The GoG has agreed to a productionsharing contract with terms that trump the land’s tax law and create loopholes for the oil business. The government will undermine future revenue and will not reduce the country’s financial debt if ring-fencing, cost recovery, and tax breaks continue to be overlooked. It has been several months since the audit report for 20182020 was handed over to the government. If there is no intention to officially release the audit report, then per the PSA Annex C | 9.1, the GoG should release the end-ofyear cost recovery financial statements to the public. The people of Guyana have a right to hold the government accountable. If the current policies in place do not change, Guyana’s people will continue to question the government’s intention of extending contracts that don’t benefit the country.