Contract to be signed this week for cost recovery audit-Dr Bynoe

The over US$460M in pre-contract cost racked up ExxonMobil while searching for oil in Guyana will soon be audited following the signing of a contract with an international audit firm expected this week.

Director of Energy at the Department of Energy (DoE), Dr. Mark Bynoe, on Wednesday, made the announcement at a news conference. Esso Exploration and Production Guyana Limited (EEPGL), a subsidiary of ExxonMobil, has stated that pre-contract cost incurred under the 1999 Petroleum Agreement prior to the year ended 2015 amounted to US$460,237,918. They broke this down stating that the drilling of the Liza 1 well cost US$230M; seismic surveys on 20,000 km of ocean floor cost US$140M; US$25M on overhead costs and the payment of critical persons such as geo-scientists, engineers and geologists amounted to over $65M.

According to the Production Sharing Agreement (PSA) signed, with the successful discovery of oil, these expenses will form part of cost-recovery which will allow for the redeeming of operating costs. International lawyer, Melinda Janki had speculated that cost incurred for 2016 stood at over US$500M which would bring the total owed in exploration costs to some US$960M.

Since 2018, several persons in Guyana’s private sector raised the question of whether ExxonMobil could have overstated its pre-contract costs. Just recently, Stabroek News reported that Dr. Bynoe said that an international firm will be hired to assist the State audit office and the Guyana Revenue Authority (GRA) with an audit of the pre-contract costs.

On Wednesday he expounded: “The contract for the firm to complete the cost recovery audit for the historical costs is expected to be signed by the ending of this week. The Department and the GGMC will be working along with the Guyana Revenue Authority on this project.”

The Energy Director said that the department will also secure legal expertise to assist in the auditing process. ExxonMobil has welcomed the audit stating that it would help to demonstrate transparency and build trust. Compared to what the more than US$7B in royalty and profit oil revenues expected to be generated by the Liza Phase 1 project alone, it does not make it impossible for Guyana to repay the aforementioned costs. However, determinations must be made on how much at one time and how soon these costs are recovered.

Ways in which this can be done include tax allowances, a share of production and ring fencing. Conscious that the lower the recoverable costs the greater will be Guyana’s profit oil, the department has been actively pursuing with CGX Energy Inc. (CGX) already taking the lead. Rig sharing involves an agreement between operators for the sharing of an oil rig over a specific period of time or for an agreed number of well to increase efficiency and flexibility in drilling operations.

“It’s something that the department has been looking at not only based on what I mentioned here but even prior because anywhere where we can share or consolidate resources is what we’re aiming for so that we’re not driving additional costs into the pool,” De. Bynoe said. “We have encouraged — and it has happened since — the operators the operators to be able to form a grouping amongst themselves where they can discuss not only matters of rig sharing but how do you deal with potential oil spills; how are you going to share assets amongst yourself.”

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