Every Man, Woman and Child in Guyana Must...

What this means is that costs, including travel, administration, etc. incurred other than in petroleum operations, are not recoverable costs and Minister Trotman and his team should have been alert to the separation of such costs. There is no indication that Mr. Trotman exercised any such diligence, opening the real possibility of costs being imposed on Guyana that are way outside of both the 1999 and the 2016 Contracts. In fact, if Mr. Trotman had consulted with the Commissioner General he would have realised that the Income Tax Act sets out the principle of recovery of petroleum production capital expenditure.

Numbers not adding up Here is a summary of the financial statements of the three contractors:

As the Table shows at December 31, 2015, Esso had property, plant and equipment (PPE) of G$10,208 million and losses of G$12,971 of which $9,617 million, or 75% was incurred in 2015. There is an amount of $1,133 million under Exploration costs in 2015 being an unexplained credit. Now, even if we were to make the unlikely assumption that all of Esso’s expenditure constituted legitimate pre-contract cost to December 31, 2015, at its highest, Esso’s portion of the G$92 billion (US$460 million) would be G$23,179 million.

CNOOC at the same date had PPE of G$16,142 million and losses of $8,500 million, making a total of G$24,642 million. The financials of CNOOC describe the G$16,142 million as expenditure on “Exploration and Evaluation assets consisting of exploration projects which are pending the determination of proven or probable reserves.” Forget for a moment that this is another clear violation of the ring-fencing principle which seeks to match expenditure to projects. It means that the burden and risk of exploration has been shifted from the oil companies to the taxpayers of Guyana. As the fired US FBI Director, James Comey would say, Oh, Lordy!

The combined expenditure of Esso and CNOOC at December 31, 2015 was PPE of G$26,350 million and reported losses of G$21,471 million, giving a total of G$47,821 million. In United States Dollars using a $200 rate gives a total US$245 million, well short of the $460 million that the Government has accepted in the Agreement.

To make up the total of US$460 million, Hess alone would have had to spend, in contract costs some US$215 million or approximately G$46,000 million! That defies logic and credulity. But there is more. It must be a stretch that the pre-contract cost of CNOOC which only entered the sector in Guyana in late 2014 would have incurred greater contract cost than Esso. And an even greater stretch that Hess which signed with Esso in late 2014 would have spent nearly as much as Esso and CNOOC combined!

Recall that Esso signed its first Petroleum Agreement in 1999, fifteen years earlier, and it is the company which has been reporting all the oil discoveries. That either CNOOC or Hess which entered the sector in late 2014 would be outspending Esso arouses particular interest. And in so far as Hess is concerned, any claim for pre-contract cost is weakened by its failure to file annual returns and audited financial statements. Special Audit required This whole business of US$460 million of pre-2016 contract cost has become too much of a public matter to leave to rest. Or to the fact that the Minister signed as agreeing the amount without any thought of its significance or implication. Having looked at the available information, it is hard to avoid the conclusion that the US$460 million cannot be explained on any rational basis.

The only satisfactory and acceptable resolution of this matter is a SPECIAL AUDIT independently undertaken, and including a review of the farm-in and farm-out agreements with Shell, Hess and CNOOC.

I will wrap up this segment on the comparison of the 1999 and 2016 contracts in Column 39.