Latest update August 31st, 2024 12:59 AM
May 30, 2024 News
Kaieteur News – Continued perusal of an audit conducted on the expenses of ExxonMobil’s Guyana-led consortium operating in the Stabroek Block reveals persistent, significant breaches in the adherence to the Production Sharing Agreement (PSA) with the Guyanese government.
The audit, spearheaded by VHE Consulting, found one such case being the costs associated with the Enterprise Development Center (EDC) established by ExxonMobil Guyana Limited (EMGL), which the auditors determined do not meet the PSA’s criteria for cost recoverable expenses.
The EDC, launched in 2017 and managed by DAI Global, was intended to serve as a center for local business development across various sectors, including catering, safety equipment, marine operations, and warehousing. It also operates as the portal through which all local suppliers are sourced.
The auditors in their report found however, that the establishment and operation of the EDC do not qualify as “Petroleum Operations,” and as such, its associated costs are not recoverable under the terms of the PSA.
The EDC, the report said, was designed to provide training and business opportunities for local entities in various sectors, including catering, safety equipment, marine operations, and warehousing.
It aimed to serve as a center for local business development across multiple industries, not exclusively for the oil and gas sector and this broader focus was emphasized and noted by the auditors, pointing to a 2017 article by the Guyana Chronicle, in which it had described the center’s role in supporting sectors such as information communication technology, mining, forestry, and agriculture.
That PSA, the auditors reminded, outlines specific categories of expenses that can be recovered by the contractor and according to the auditors the costs for the EDC were neither listed under “Costs Recoverable Without Further Approval of the Minister” nor “Costs Recoverable Only with Approval of the Minister,” making them ineligible for recovery, the auditors reaffirmed. Despite this, EMGL included EDC-related expenses in its Cost Recovery Statement.
According to the PSA’s definition of “Petroleum Operations,” it is limited to activities directly related to the exploration, development, and production of petroleum.
As such, the auditors found that by contrast, the EDC’s services extended to general business development throughout Guyana, which disqualifies these expenses from being recoverable and in fact further invalidated its classification as a recoverable cost under the PSA.
This conclusion, the auditors re-affirmed was supported by ExxonMobil’s own declarations, stating that the EDC was aimed at general business development for the broader Guyanese economy.
The auditors found too in a notable parallel, that the Greater Guyana Initiative (GGI), launched by ExxonMobil in 2021, to fund the operation of the Center for Local Business Development (CLBD), explicitly stated that its costs would not be included in the cost recovery process.
This, the auditors affirmed, aligns with the audit’s findings and suggests a precedent for distinguishing non-recoverable community and business development expenses from recoverable petroleum operation costs.
ExxonMobil nonetheless, contested the auditors’ findings, arguing that the EDC was established to meet local content and training requirements under Articles 18 and 19 of the Petroleum Agreement.
According to the now public report, EMGL claimed the initial costs were for startup activities necessary for supporting operations related to the Stabroek Block. The auditors however, maintained that the Accounting Procedures outlined in Annex C—which spells out the classifications of categories of expenditure that can be recovered—of the PSA, do not provide for recovery of such costs without specific Ministerial approval, which was not obtained. The audit has since called for EMGL, to credit the Cost Recovery Statement for these non-recoverable costs, pointing to the need for stricter adherence to the PSA’s provisions to ensure transparency and accountability in the management of Guyana’s oil resources. It was noted too that ExxonMobil’s internal documentation and public statements further supported the audit’s findings, and outlined that in a 2021 interview, Alistair Routledge, President of ExxonMobil Guyana, clarified that initiatives like GGI would not be part of the cost recovery process, despite their alignment with broader development goals.
Thus, since the initiative was intended to support the EDC’s mission of enhancing local business capabilities but explicitly excluded its costs from recovery claims, setting a precedent for handling such expenses.
Despite these clear delineations, the auditors said ExxonMobil disputed the audit’s conclusions, asserting that the EDC was established to fulfill local content requirements since the startup activities of the EDC were necessary for supporting Stabroek Block operations.
However, the auditors noted that while Article 18 of the PSA requires efforts to train local suppliers and contractors, it does not authorize recovery of these training costs. Only specific training costs under Article 19, which require ministerial approval, are recoverable. The auditors poignantly noted too that ExxonMobil had already credited some EDC costs out of the Cost Recovery Account, implicitly “acknowledging their non-recoverable nature” and as such called for the remaining non-recoverable costs to be similarly credited.
Mineral and oil rich country borrowing to feed, clothe and house its citizens.
Aug 31, 2024
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