Transparency group backs verification of US$460m pre-contract bill from Exxon subsidiary

Transparency Institute Guyana Incorporated (TIGI) has added its voice to calls for government to provide evidence that a US$450 million claim in pre-contract costs by ExxonMobil’s subsidiary and its two partners is accurate.

“We would like to be sure that evidence was provided to substantiate the claim made. That is the main question to be answered,” TIGI President Dr. Troy Thomas told Stabroek News yesterday.

Thomas was providing an invited comment in response to a claim by chartered accountant and business analyst, Christopher Ram that the cost is overstated by at least US$92m.

Thomas added that while he is not an accountant he is happy that persons are paying attention to this issue and congratulated Ram on having taken the time to conduct the analysis. According to Thomas while the US$18 million signing bonus remains an area of concern this alleged US$92 million miscalculation makes the bonus seem “paltry” in comparison.

In his oil and gas column in the May 18 edition of 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 said they and the government must now justify the US$460m figure. 

The US$460m in pre-contract costs pertains to the period from 1999 leading up to December 31, 2015 but the analysis of the figure had been held up as Hess only recently filed its financials here.

 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: https://www.stabroeknews.com/2018/features/the-road-to-first-oil/05/18/pre-contract-cost-numbers-do-not-add-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,” Ram stated. 

He further argued that “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.”

He levelled several questions at the government including  a request of whether the US$460,237,918 set out in Annex C was supported by detailed statements by each of the three companies, whether any verification exercise was done of the pre-contract expenses figures and information provided; If so, by whom and whether the Audit Office was asked to verify the figure.

Additionally, Ram has asked who checked to verify that the sum claimed was consistent with the rest of Annex C, in terms of categories, allowed and not allowed.

Stabroek News reached out to Minister of Natural Resource Raphael Trotman yesterday for a response and was referred to previous statements he has made on the issue.

“I have said all I intend to say on pre-contract costs. Please check with GGMC on these matters,” Trotman said.

The Minister has previously said that he has no basis for recommending an audit of the pre-contract cost.

“You don’t do an audit just because somebody says do an audit or you find yourself every month auditing… It is not a bad exercise, but I can assure you, I have no basis for recommending an audit,” he told Stabroek News in an interview in April.

He added that if an agency independent of the GGMC or the Ministry of Natural Resources such as the Guyana Revenue Authority or the Auditor General’s Department were to conduct such an audit government would not stand in their way.

According to Trotman it could even serve as practice so that the agencies could become familiar with the industry.

“It is a good exercise (the US$460M audit) if we are first to look at how did we go through our cost recovery… Not from a point of view of suspicion but gaining experience of how in the future we can improve our sector in terms of cost management. We work in conjunction with the GRA and both agencies could deal with strengthening their capabilities. This could be a place where we want to go and do some exercises on,” he said at the time.

Trotman had also expressed confidence in feedback received from the Guyana Geology and Mines Commission (GGMC) on the US$460M that it was not excessive and is in keeping within the estimated margins of the company’s proposed scope of works over the 17 years of exploratory and  seismic works.

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