EARLIER this year, the Ministry of Natural Resources signed a contract valued at US$751,000 with a consortium of local firms led by Ramdihal and Haynes Chartered Accounting and Professional Services Firm, Vitality Accounting and Consultancy and Eclisar Financial & Professional Services.
The local consortium partnered with the Oklahoma-based Martindale Consultants and the Swiss technical company, SGS, to execute a cost recovery audit of ExxonMobil Guyana’s 2018 to 2020 expenses.

The audit process began in earnest this summer and will soon provide a detailed look at the expenses that ExxonMobil Guyana has claimed and recovered against revenues generated in the oil and gas sector. Recently, it was announced by Guyana’s Auditor General, Deodat Sharma, that the audit is nearing completion and a preliminary report could be submitted to the government as soon as next month.

Audits like these are a routine and necessary part of production contracts globally, and help to verify costs and ensure that governments and companies are aligned in the best way to categorise expenses.

Floyd Haynes, head of the consortium undertaking the review, noted in August that the process will be carried out with professionalism and transparency and cautioned against jumping to conclusions.

“The purpose of this audit is to verify the validity and the allowability of claimed costs. We look at what Exxon [sic] submitted and ask the questions: ‘Is it valid and is it allowable under the production sharing agreement?” Haynes told Stabroek News.

Identifying many small areas of disagreement or differing accounting practices is common with large and complex audits and is not a sign of malfeasance. Accountants observe many different ways of classifying various costs and so this kind of routine audit will form a starting point for negotiations between companies and government officials that will eventually decide on a solution acceptable to both.

The audit process is a good-faith arrangement between the government and companies and an important pillar of transparency and governmental oversight of the oil and gas industry. It is just one of many activities taking place under the Ministry of Natural Resources Guyana Oil and Gas Capacity-Building Project.

An important component of the audit process has also been knowledge transfer where local accounting firms can learn auditing best practices from international partners about the complex cost recovery audit process. The Guyana Revenue Authority (GRA) is also steadily improving its own capacity to conduct cost audits internally for the oil sector.

The American-Guyanese consortium of auditors is examining approximately US$7.2 billion in expenses related to petroleum operations in 2018, 2019 and 2020. Under the 2016 Production Sharing Agreement (PSA), up to 75 per cent of annual oil revenues can be assigned to production costs while the remainder comprises profit oil to be split evenly between Guyana and the Stabroek Block co-venturers.

The up-front costs of exploration and development are the largest capital outlays for oil production while day-to-day production, once wells are in place, is relatively inexpensive. As more projects become operational and production increases, the rate that these initial investments are paid off rapidly increases. That means that a higher and higher share of oil will be profit that the government is entitled to. These costs are audited to ensure that only eligible expenses are recovered and to deter frivolous spending.

The 2022 Article IV Consultation report on Guyana from the International Monetary Fund (IMF) explored the legal and regulatory groundwork in the country. Between the initial 2019 report and now, it found that the government has made progress in strengthening its framework and transparency of the governance of oil receipts.

Publishing audit reports is another way in which the government is working to improve its anti-corruption framework and fiscal transparency. As the audit nears completion, a preliminary report will be presented to the government followed by a final audit report.

These developments underscore the importance of fiscal transparency and strong regulation as it relates to the oil and gas sector. Co-operation between the auditors and ExxonMobil Guyana is crucial to fulfilling the duty of the government to be a prudent steward of Guyana’s resources. The greater transparency in the auditing process emphasises the steps being taken to protect the long-term interests of Guyanese.