Revisiting the audit of Exxon’s post-contract recoverable costs for 2018-2020
In our last three columns, we discussed the contents of the audit report on Exxon’s post contract costs for 2018-2020. We had stated that we were unsure whether the 55-page document constitutes the full report, and that in the absence of any information to this effect we based our analysis on the document that we have in our possession.
The report is in fact a five-page letter addressed to the Permanent Secretary of the Ministry of Natural Resources, with two appendices covering the rest of the 55 pages. Appendix A, comprising 29 pages, contains eleven items, namely: accounting overview of Exxon’s main subsidiary Esso Exploration and Production (Guyana) Ltd.; drilling and rig overview; labour; allocation methodologies; COVID-19 costs; benchmarking and contracts; capital expenditures (shared costs); taxes; coding; inventory and materials; and Liza FPSO. Also, included in this appendix is an eight-page report on “Stock Verification and Inventory Site Visit”. Appendix B, containing 13 pages, sets out the auditors’ response to 30 sets of questions posed by the Government.
The overall conclusion of the auditors is contained on page 2 of the letter in which they stated that in their opinion the amount shown as recoverable costs were in accordance with the Petroleum Sharing Agreement (PSA), except for items discussed in the report.
The Ministry of Natural Resources has since uploaded on its website what it described as “VHE’s ‘Initial’ Audit Report for the Stabroek Block Cost Recovery Audit – 2018 to 2020”. It is, however, unclear when the final report will be issued. The Ministry has also uploaded the audit report on the pre-contract costs undertaken by IHS Markit. One would have thought that an announcement would have been made about the availability of these two reports and where they can be located. However, this was not done.
In addition to the 55-page document that was the subject of our analysis, there is now a 135-document, 132 pages of which were an elaboration of the contents contained in Appendix A of the 55-page report. There were 51 queries raised by the auditors in relation to the amounts shown in the Cost Recovery Statement.
The remaining three pages deal with oil and gas produced from the Destiny Liza wells and associated cost oil, cost gas, profit oil and profit gas, as well as the average fair market price determined according to the PSA.
Amounts queried
The amounts queried by the auditors totalled US$65.194 million, representing 0.88 percent of the total expenditure of US$7.435 billion shown in the Cost Recovery Statement. However, EEPGL accepted only US$10.319 million which was credited back to the Statement, leaving an amount of US$54.874 million unresolved.
Table I gives a summary of the major items that the auditors queried.