The Guyana Revenue Authority (GRA) says the audit into the expenses incurred by ExxonMobil’s local subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), from 1999 to 2017 has not yet been finalised.
This audit is the first ever one conducted on cost claims by EEPGL for the pre-production period.
GRA, in a release issued on Tuesday night, said the final audit report has not yet been finalised because of several procedural issues raised with the United Kingdom (UK) company that executed the audit, IHS Markit.
Once finalised, the GRA said the audit report would be made public.
Even so, in light of media reports that the preliminary audit flagged several questionable expenses, Vice President Dr. Bharrat Jagdeo told reporters the government will take back any money that is unaccounted for.
“…. You have to get the company to respond, they respond, they have to submit additional documentation. If they can’t submit additional documentation, then the cost is disallowed.
“It comes out of the cost bank and goes towards profit oil; so a greater share of the adjustments have to go to profit oil,” Jagdeo told reporters at the sidelines of an event on Tuesday.
He could not say when that audit would be finalised so that it can be discerned whether Guyana would indeed take back money from EEPGL. According to him, the auditing process involves much “back and forth”.
The GRA statement detailed what steps have been followed thus far.
See below the full release from the Guyana Revenue Authority (GRA):
Reference is made to the article titled ‘First Audit of Oil expenses found $214m in questionable claims by Exxon and partners’ which was featured in the Sunday edition of the Stabroek News dated April 02, 2023, and continued in the Monday edition of April 03, 2023.
In view of the assertions made by the writer, foremost among which is that “the Guyana Government has kept the report hidden for two years”, it is behooving of the Revenue Authority to apprise the Public of the efforts made and progress realized to date, in substantiating the contractors’ expenditure claims for the Stabroek Block pursuant to the provisions of Article 23 and Annex C, Section 1.5 of the 1999 and 2016 Petroleum Agreements, while at the same time putting to rest, any claim that the intention is to keep the report hidden.
In November, 2019, the Government of Guyana entered into a contractual arrangement with IHS Markit (IHSM) for the provision of Consultancy Services to execute the country’s inaugural Cost Recovery Audit. The Audit scope entailed the examination all Pre-Contract Costs, as stated in Annex C Section 3.1 (k) and all Exploration and Development Costs as at 31st December, 2017.
Given the paucity of resources nationally, several agencies collaborated to form Guyana’s Audit team, namely, the Guyana Revenue Authority (GRA), Guyana Geology and Mines and Commission (GGMC) and the former Department of Energy (DE) now a technical Department within the Ministry of Natural Resources (MNR). The Auditor General’s Office was also requested to have its team be a part of the said audit, but declined to do so.
The Guyanese representatives were expected to shadow and understudy the IHSM Experts during the course of the Audit in an effort to facilitate transfer of knowledge and technical ‘know-how’ and generally, to build capacity to conduct cost oil audits locally. They were also expected to jointly execute the audit with IHSM.
As per the Agreement with IHSM, there were three distinct reports which were delineated as deliverables, these were, the Initial Audit Report, the Intermediate Audit Report and the Final Audit Report.
Subsequent to a period of preliminary analyses undertaken by the Consultants and Guyanese team, IHSM submitted the Initial Audit Report to the Heads of GRA, DE and GGMC on March 20, 2020. The Initial Audit Report was reviewed by the GRA team, based on their work assignments and a report was submitted to DE for transmittal to IHSM.
Key work streams were established by the Cost Audit Team in devising a methodical and cogent approach to executing the Cost Recovery Audit and producing the Intermediate and Final Audit Reports.
A period of intense auditing followed which led to the development of various detailed Audit reports for each key work stream. On July 31, 2020, IHSM submitted a compiled report which they referred to as the ‘Final Audit Report’, along with the reports for each work stream. The Fiscal Impact Assessment was also submitted by IHSM.
However, the Guyana Revenue Authority noted that there was a breach of contractual terms, as well as, Audit Standards and good practices when IHSM attempted to by-pass the Interim Audit Report requirement. Through the DE, it was related to IHSM that a Final Audit Report cannot be compiled until the Contractor (or Esso Exploration and Production Guyana Limited, in their capacity as the Operator, of the Stabroek Block) is issued with a ‘Written Report’ in conformance with Annex C Section 1.5(B) of the Production Sharing Agreement (PSA), which states inter alia:
“At the conclusion of each audit, the Parties shall endeavour to settle outstanding matters and a written report will be issued to the Contractor within sixty (60) days of the conclusion of such audit.
The report shall include all claims arising from such audit. The Contractor shall reply to the report in writing as soon as possible and in any event not later than sixty (60) days following receipt of the report indicating acceptance or rejection of the audit claim and in the case of a rejection showing explanations thereof.”
This means that the contractor, in accordance with the stipulations of the PSA and Audit standards, must be allowed to respond to the ‘Written Report’ or Draft Audit Report. The response of the Auditee, along with the additional evidential material provided, must be taken into consideration whilst compiling the Final Audit Report.
The GRA pointed out that it was its firm opinion that a Final Audit Report should only be issued after the Auditee is given an opportunity to officially respond to the initial findings of the draft report. Thereafter their response(s) along with the evidential material submitted should be considered prior to drafting a Final Audit Report. As in the law of equity where “he who asserts must prove”, similarly the auditee has a “right to be heard”.
Thereafter, two iterations of the ‘Audit Report’ were issued by IHSM between July, 2020 and November, 2020 (June, 2021). It should be noted that in each instance, the Guyana Revenue
Authority reviewed the respective reports and conveyed official comments. In depth reports were compiled and submitted to IHSM. In particular, in early 2021, the GRA penned its concerns to IHSM of the following major deficiencies that recurred throughout its report, namely:
1.The Lack of recommendations in the report;
2.Failure to refer to Industry standards and good practises for specific findings
3.Inaccuracies as it relates to analysing and reviewing the financials
4.General inconsistencies and deficiencies
5.Failure to adopt suggestions and recommendations, as well as, address concerns emanating from Government of Guyana Representatives
The GRA further advised that the foregoing, in its opinion had significant adverse effects on the quality of the report and its ability to attain the desired outcomes of arresting unsound financial practises on the part of the contractor and improving Governmental controls.
Lastly the GRA further requested IHSM to revise the Draft Audit Report, once again, to take account of the issues highlighted in and attached GoG report which spanned 31 pages. It also instructed IHSM that in view of the urgency of the long outstanding matter, that the Government expected this request to be addressed with the celerity it warrants and that IHSM would submit the resultant ‘Draft Audit Report’ on or before Wednesday, February 3, 2021 for onward transmittal to the Contractors.
During 2020 and 2021, legal advice was also solicited by the Government and obtained as it relates to significant issues arising during the audit and the forms of recourse available to the Government of Guyana.
Premised on the advice of the Guyana Revenue Authority, the Ministry of Natural Resources presented the Audit Report to the Esso Exploration and Production Limited (EEPGL) on July 2, 2021, in its official capacity as Operator of the Stabroek Block to facilitate the Contracyor’s response.
During the period July 19, 2021 to March 4, 2022, there were ongoing correspondences between EEPGL, the Ministry of Natural Resources and IHSM.
In an effort to conclude the Audit, in November, 2022, the Ministry of Natural Resources reached out to GRA to obtain its no objection to the Cost Audit Report. Nonetheless, there were legal, procedural and accounting concerns which deterred the Authority from granting its No Objection.
The GRA and the MNR continue to actively liaise and review the “Final” Audit Report and all Subsidiary Reports for the period 1999 to 2017. Upon completion of its review, its findings shall be made public.
It is therefore mischievous and misleading to intimate that the Government of Guyana has not been actively pursuing closure of the audit and by extension the necessary adjustments to the Cost Bank. It is also reckless and unnecessarily inciting for a known and reputable news outlet to feature and quote a leaked and unvalidated document, without seeking a response from the responsible parties.
The Guyana Revenue Authority urges responsible journalism and pledges to continue to play its role (in spite of its scarce resources) in ensuring that Guyana receives its fair share of profit petroleum and taxes.
Godfrey Statia
Commissioner General
