Disaggregate, audit every cent before paying — financial consultant

first_imgUS$460M pre-contract costThe US$460 million which has been quoted as pre-contract sums the Guyana Government has to pay to ExxonMobil should be thoroughly disaggregated and audited before being paid to the oil giant.This is the view of financial consultant John Seeram, who, in a recent interview with this publication, noted the importance of Guyana knowing exactly what it is paying for under the heading ‘pre-contract cost’.“The latest I have read is that there is an invoice for US$460 million. And it is obvious that before the Government of Guyana makes any payment those accounts should be audited. That is where the role of the internal auditor comes in, and it is a very important role,” he said.The pre-contract costs contained in the Production Sharing AgreementHe noted: “Because you have to be very much aware of what you are auditing, and what is acceptable in the accounts and what is not acceptable by the Guyana Government in the determination of the $460 million. We have to audit that account, and I would personally advise: ‘do not pay until it is fully audited and a dollar amount determined’.”Seeram, Chairman of the Institute of Internal Auditors (IIA) Guyana chapter, also noted that it is important to get the disaggregated sums before any payment can be made. This, he noted, would provide detailed quotations, and persons would be able to judge whether the sums incurred should be paid by the Guyana Government, and not Exxon.In a report done on the oil sector last year, the International Monetary Fund (IMF) had urged the Guyana Government to start, as soon as possible, auditing all exploration and development costs being racked up by the oil company.When he presented the 2018 budget last year, Finance Minister Winston Jordan had alluded to the impending establishment of an Oil and Gas Unit at the GRA. The IMF had said establishment of this unit should become a priority of the Government.“It will be important for this unit to start verifying and undertaking audits of costs incurred during the exploration and development phase, which is getting underway now. It would be advantageous to establish close working relations between the GRA and the sector regulators, to ensure that the limited petroleum sector expertise in Government is applied most efficiently,” the IMF had stated in its report.The Stabroek Block is 6.6 million acres. Esso Exploration and Production Guyana Limited is the operator, and holds a 45 per cent interest in the Stabroek Block. Hess Guyana Exploration Ltd holds a 30 per cent interest, and CNOOC Nexen Petroleum Guyana Limited holds a 25 per cent interest.Since ExxonMobil’s 2015 oil find in Guyana, the country has attracted international attention, and this has precipitated intense sensitization exercises.In May 2015, Exxon confirmed that more than 295 feet of high-quality, oil-bearing sandstone reservoirs were encountered at its Liza 1 exploration well.To give an idea of the company’s total investment, Exxon has put the Liza Phase 1 project costs at over US$4 billion. It is estimated that the lease capitalization cost alone for the Floating Production Storage and Offloading (FPSO) vessel is US$1.2 billion.The company subsequently found oil in the Liza 2, Liza 3, Payara, Turbot 1 and Ranger 1 wells. It has also started drilling in its Pacora well, with additional drilling planned for this year.Guyana will have to audit and verify cost oil claims Exxon will make on its revenue. Exxon is expected to use revenue from its production in order to recoup its capital investment. Whatever remains of this is the ‘profit oil’ Guyana will have to split with the oil company and its associates.According to Annex C of the Production Sharing Agreement (PSA) Guyana signed with Exxon, pre-contract cost “shall include four hundred and sixty million, two hundred and thirty-seven thousand and nine hundred and eighteen United States Dollars (USS 460,237,918) in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015.”last_img read more