ACCORDING to recent statements from the Department of Energy, Guyana will likely award a contract for a company to audit the expenditure of the Stabroek Block by the end of this month and an audit will commence soon after.

While an “audit” conjures up images of financial wrong-doing, audits of this nature are standard practice in most industries, including the oil and gas industry. Given that we are projected to see three, and possibly more, large-scale offshore development projects which will generate billions of dollars in government revenue, it’s important that we set up a practical and functional audit regime to make sure best practices for things like cost recovery have been followed. The key is to ensure that audit procedures perform their business function without being complex or intrusive enough to discourage or delay companies from working in Guyana.

The process of conducting a cost-recovery audit is complex and time-consuming since so many of the massive costs of oil development run through various contractors and subcontractors. But these arrangements are part and parcel of large production projects, like ours, given the range of technical capabilities needed to bring the project together.
Given the complexity of the expenses and the number of companies involved, it is likely that our audit will find discrepancies and items for further discussion with the Exxon-led consortium. But this is not necessarily a bad thing or indicative of any wilful wrongdoing.

The vast complexity and subjectivity of determining what is cost recoverable and what isn’t, make it relatively standard for audits to find some points of disagreement that have to be worked out. The foremost goal of audits of this type is to achieve a consensus between companies and the government on what is a shared expense and what isn’t, rather than auditing for some specific malicious action.

Oil producing countries that are regarded as well governed, like Norway, conduct routine audits of many aspects of oil and gas production including costs, worker safety, and environmental practices. It is commonplace for these audits to turn up examples of “non-compliance” that the company is then instructed to correct. Audits also find expenses that the government chooses to disagree with and discuss with the contractor.

International organisations recommend having clear legal provisions for auditing costs, clearly defined responsibility for government agencies and the use of third-party external auditors who may possess the specialised technical knowledge that it takes to effectively examine development costs—an option which Guyana is currently pursuing.

Already, five companies have reportedly made the shortlist for the Department of Energy’s audit contract. The 13 firms that originally submitted expressions of interest in bidding for the contract included several with deep experience in the energy sector and strong international credentials for professional auditing.

So far, the consortium drilling for oil in the Stabroek Block has supported these steps and has publicly emphasized that they will readily cooperate with the kind of cost audits provided for in the production- sharing agreement. Experts see that level of cooperation as vital in ensuring solid accountability standards and effective auditing of expenses. By meeting these best practices, we will be more prepared to govern the growing energy industry.