Guyana risks losing hundreds of US$ millions with delayed audits of Exxon expenses – Opposition

Apr 23, 2023 News

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…as oil contract allows for records to be deleted after two years

Kaieteur News – The 2016 Production Sharing Agreement (PSA) Guyana inked with oil major, ExxonMobil, and its partners allows for an audit of its yearly expenses to be conducted within two years, at the end of that calendar year.

If the country fails to conduct its duty of carrying out these critical reviews within the stipulated period, the oil company can discard its financial records, as stated in the contract.

Annex ‘C’ of the PSA, specifically at Section 1.5 (C) notes: “Without prejudice to the finality of matters as described in sub-sections 1.5 (a) and 1.5 (b) all documents referred to in those sub-sections shall be maintained and made available for inspection by the Minister for two (2) years following their date of issue providing, however, that where issues are outstanding with respect to an audit, the Contractor shall maintain documents for a longer period until the issues are resolved.”

This loophole in the contract, according to Economic Advisor to the Leader of the Opposition, Elson Low leaves the country at risk of losing hundreds of millions of US dollars, as failure to conduct timely audits can result in the data being removed by the oil companies.

Explaining his perspective in an exclusive interview with Kaieteur News earlier this week, Low pointed out that “the government’s negligence in missing the audit deadline for Guyana’s second audit has put hundreds of millions of dollars, the country may look to recover from that audit, at risk.”

He said that provisions in the PSA clearly note that documentation that should be available for this audit may have been discarded.

As such, he cautioned, “If there is any dispute, the government may be unable to demonstrate the validity of its claims.”

Low was keen to note, “While the PSA makes provision for the preservation of data after the two-year deadline, this provision can only be activated if issues arise relating to an audit. If Guyana never even audited the contractor before the deadline, how then how can we activate this provision? The contractor may have already discarded data by the time we begin to audit.”

The Economist said the government has put Guyana at a significant disadvantage by failing to conduct timely reviews of Exxon’s expenses. He reasoned that even if an audit flags discrepancies and the country heads to arbitration to challenge and reclaim these costs, this process may bear little fruit as any impartial panel would rule that the country had a statutory duty to ensure the audit is conducted within the stipulated timeframe, in order for the relevant documents to be available.

Low said, “The operator can claim it had discarded the data required to prove Guyana’s case before the two-year deadline and we would have no basis for proving why those costs are illegitimate.”

A similar instance was brought to the fore in the preliminary audit report prepared by a British firm, HIS Markit. The audit was conducted of Exxon’s US$1.6 billion expenses, incurred between the years 1999 and 2017.

ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) informed the team of auditors representing the interest of the State that it would not be able to present all of its financial data/statements covering the period 1999 to 2004. The affiliate explained that the main reason for this dilemma is that its accounting system was purged during that time, in an effort to accommodate a switch to its parent company’s accounting system.

According to the report, seen by Kaieteur News, IHS said the accounting/finance systems deployed by EEPGL have evolved over the years as the complexity of the operations has grown. It said, between 1999 and 2016 EEPGL utilized a standalone version of P2 Energy Solution’s IDEAS Oil and Gas accounting software – a common tool used for new exploration areas, thereby offering rapid deployment.

As of 2017, the auditor said EEPGL migrated over to the ExxonMobil worldwide corporate which runs on IPES an SAP-based accounting and financial management platform. IHS explained that this platform is used worldwide for all ExxonMobil-operated assets and offers additional sophistication as required for development and production assets.

The auditor’s report said, “Therefore, during the period being audited, the costs have been spread across two different systems. EEPGL confirmed that data prior to 2004 is not available in IDEAS as it has been purged in accordance to their internal data retention policies, and data they held manually was requested and limited data received).”

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• Audit, losing, records deleted, risk

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