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Guyana should conduct audit of Exxon's Liza project costs before the approval of the production licence -Dr. Mangal


By Kiana Wilburg


Petroleumworld 09 13 2018

USA oil giant, ExxonMobil projects that it will cost some US$4.4B to develop the Liza Phase One Project.

But former Petroleum Advisor, Dr. Jan Mangal is advising the Government of Guyana to conduct a rigourous audit of this figure.

The Oil and Gas Consultant says that this should be done prior to the approval of the production licence for the Liza Phase Two Project which is projected to cost US$10B.
In a letter to the press, Dr. Mangal said Guyana could save US$880M even if the capital cost for the Liza Phase One project could be reduced by only 20 percent.

Dr. Mangal alluded to the significance of the sum by highlighting that this is more than the cost to construct four Skeldon Sugar Estates.

Significantly, the Oil and Gas Consultant said that the failure of an audit could see Guyana giving away money to ExxonMobil for no reason.

Commissioner General of the Guyana Geology and Mines Commission (GGMC), Newell Dennison confirmed with Kaieteur News that there was no audit or review of the estimated costs submitted by ExxonMobil. In the absence of a review, Dennison still believes that the costs “seem reasonable.” He said that while the costs for the Liza Phase One are being incurred, one must bear in mind that the US$4.4B is a mere “projection” or “estimate.” Dennison also said that while GGMC is still building capacity to conduct audits via its Petroleum Division, the burden should not rest alone with his agency. He said that there are other sister agencies which have to pull their weight.

When questioned to say if the Commission has the funds to effectively build the capacity it needs for the sector, Dennison said he would prefer not to comment on that matter. He maintained this position in spite of concerns that the Commission is low on cash to tackle the area of improvements in its Division.

The GMMC Commissioner was keen to note however, that there is a need for expertise in the sector, “but we just don't have the human resources.”


The Guyana Revenue Authority (GRA) is one of GGMC's sister agencies in monitoring the oil sector. Another agency that is expected to come on stream is the Petroleum Commission. In the absence of this body, GRA has taken on the role of auditing all contract costs imposed by ExxonMobil.

It is currently tackling the controversial US$900M pre-contract costs.

GRA's Commissioner General, Godfrey Statia has already issued a letter to ExxonMobil requesting a series of financial documents which would show costs incurred from 1999 to 2016. ExxonMobil has up to September 21 to submit these documents.

Statia had told Kaieteur News that, “pre-contract costs are not unusual to the oil industry. These are costs which were incurred and our Production Sharing Agreement (PSA) would have allowed for the operator to recover it. I am confident in the ability of our agency to get this job done. Our audit will help to determine if costs were inflated, among other things.”


International lawyer, Melinda Janki, was one of the first persons to note that the country is neck-deep in US$900M worth of pre-contract costs.

During a panel discussion on Guyana's oil contract with ExxonMobil at Moray House, Janki reminded that the country has to pay US$460M in pre-contract costs. This covers the period 1999 to 2015. But there is a second lot.

Janki noted that the contract specifically states that Guyana is to pay contract costs from January 2016 to when the deal was signed on October 7, 2016.

The international lawyer said, “The costs for the whole of 2016 were about US$583M and if you apportion it to October, you get roughly US$400M. Again, Minister of Natural Resources, Raphael Trotman has agreed for Guyana to pay this. As at October 7, 2016, Government's attempt to sell our oil costs US$900M. I have found no law which gives the minister the authority to burden the nation with this, so it is quite possible that he acted illegally.” (See link for more details:

| In his earlier writings on the petroleum sector, Chartered Accountant Christopher Ram had also pointed out that there was a second set of pre-contract costs specified
in the 2016 Agreement signed by Minister Trotman.

Speaking with Kaieteur News on the matter, Ram said his examination of the financial statements of ExxonMobil's partners (Esso and CNOOC/NEXEN and Hess), the second element of pre-contract cost for the period January 1, 2016 to the execution date of the 2016 Contract – sometime in October 2016 – could range anywhere between G$75B to G$100B or roughly US$375 to US$500M. He noted therefore that Janki's estimates are within reason and that it is up to Exxon as the Operator to disprove these amounts.

Significantly, Ram pointed out that the Government ought to have been aware of the exact amount for the second set of pre-contract costs since Annex C to the 2016 Agreement required that those costs be provided to Trotman before October 31, 2016 and agreed on or before April 30, 2017.

Ram expressed fear that neither the US$460 million – which in his opinion is substantially and improperly inflated – nor the additional US$375M to US$500 M, has been subject to any verification, let alone audit.


Story from Kaieteur News
09 13 2018


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