{"id":2119,"date":"2019-07-26T17:32:25","date_gmt":"2019-07-26T21:32:25","guid":{"rendered":"http:\/\/www.chrisram.net\/?p=2119"},"modified":"2020-04-08T17:38:38","modified_gmt":"2020-04-08T21:38:38","slug":"every-man-woman-and-child-in-guyana-must-become-oil-minded-part-71-july-26-2019-essos-hess-and-cnooc-nexens-recoverable-costs-mount","status":"publish","type":"post","link":"https:\/\/www.chrisram.net\/?p=2119","title":{"rendered":"Every Man, Woman and Child in Guyana Must Become Oil-Minded \u2013 Part 71 \u2013 July 26, 2019: Esso\u2019s, Hess\u2019 and CNOOC\/Nexen\u2019s Recoverable Costs mount."},"content":{"rendered":"\n
Introduction \u00a0
Today\u2019s column summarises some of the principal information extracted from the audited financial statements of the three Contractors to the Petroleum Agreement signed on June 27, 2016. The financial statements are filed with the Commercial Registry and are public records available to any person on the payment of a small fee. \u00a0 Before looking at the figures themselves it is probably worth pointing out that while the financial statements are audited by the same local auditing firm, there are significant differences in their content and presentation. One standout difference is that while the currency of the financial statements of Esso and Hess, both with American roots, is the Guyana Dollar, the currency used in CNOOC\/Nexen\u2019s financial statements is the US$. \u00a0 The summary below is stated in millions of Guyana Dollars. \u00a0\u00a0

Combined Statement of Financial Position of Esso\/CNOOC and Hess for the Years ended 31 December 2015 to 2018<\/strong> <\/td><\/tr>
(G’$M)<\/strong> <\/td><\/td> <\/td><\/tr><\/tbody><\/table>\n\n\n\n
\"\"\/<\/figure>\n\n\n\n

Source:\nCompanies Audited Financial Statements <\/p>\n\n\n\n

Another major difference is how the\nthree companies account for the most significant item in their financial\nstatements \u2013 exploration cost. Let us see how each of these companies, all\nenjoying the status of Contractors account for and describe those critical\ncosts. <\/p>\n\n\n\n

Esso<\/p>\n\n\n\n

Esso which has a 45% interest in the\nAgreement, is the only company that uses the label \u201cintangible assets and\nwells\u201d in the notes to its financial statements, although confusingly, the\nexact term does not appear on the face of the financial statements. It notes\nthat the Branch uses the \u201csuccessful efforts\u201d method to account for its\nexploration and production activities and goes on to state that the Branch carries\nas asset explorations well cost when the well has found a sufficient quantity\nto justify its completion as a producing well and where the Branch is making\nsufficient progress assessing the reserves and the economic and operating\nviability of the project. Exploratory well cost not meeting these criteria are\ncharged to expenses. Other Exploratory expenditures, including geophysical cost\nand annual lease rental, are expensed as incurred.<\/p>\n\n\n\n

And under the heading Deferred\nExpenditure, the note states that \u201cExpenditures incurred during the exploration\nstage and pre-full funding expenditures are written off in the year they are\nincurred.\u201d<\/p>\n\n\n\n

CNOOC<\/p>\n\n\n\n

The financial\nstatements of CNOOC on the other hand disclose that it carries exploratory well\ncosts as an asset when the well has found a sufficient quantity of reserves to\njustify its completion as a producing well and where the branch is making\nsufficient progress assessing the reserves and the economic and operating\nviability of the project. Exploratory well costs not meeting these criteria are\ncharged to expenses. Exploratory wells that potentially economic reserves in\nareas where major capital expenditure will be required before production would\nbegin and when the major capital expenditure depends upon the successful\ncompletion of further exploratory work remain capitalized and are reviewed periodically\nfor impairment. <\/p>\n\n\n\n

This 30% interest\nholder discloses that Oil exploration and evaluation expenditures are accounted\nfor using the \u2018successful efforts\u2019 method of accounting. Costs of acquiring\nrights to explore, develop and produce oil and gas (leasehold costs) are\ncapitalized. Geological and geophysical costs are expensed as incurred. The\ncost of exploratory wells that find oil and gas reserves are capitalised\npending determination of whether proved reserves have been found.<\/p>\n\n\n\n

The extract from Hess\nseems to lend support to the widely-held view that it paid Esso for the\nopportunity to get in on the deal of the century and my own contention that\nEsso\u2019s pre-contract cost should have been reduced by whatever payment it\nreceived from Hess and CNOON\/Nexen. <\/p>\n\n\n\n

Other differences<\/p>\n\n\n\n

Another difference of\nsome significance is that of the three companies only CNOOC\/Nexen actually\nrecognises Deferred Taxation as a credit in its Income Statement and a\nReceivable in its Balance Sheet. Hess has taken a more conservative approach,\npreferring to recognise a deferred tax asset only to the extent that future\nprofits will be available to utilise any temporary differences can be\nutilised.  <\/p>\n\n\n\n

CNOOC is also the only\none of the three companies which has provided for Decommissioning and\nRestoration Provision. Such figures are not likely to be insignificant with\nCNOOC already providing some $7,567 million. <\/p>\n\n\n\n

Conclusion <\/p>\n\n\n\n

It is at the minimum\nmystifying that three companies which have joined to sign a single agreement,\noperate in the same Contract Area and which no doubt share some common\nreporting responsibility can have financial statements with such differences. I\nbelieve that there will be more that a fair share of confusion when the time\ncomes for computing cost oil and profit oil.\n\nIn next week\u2019s column\nI will review and comment on the combined balance sheets of the three companies\nwhich show total assets of G$516,111 million dollars at December 31, 2018.\nConverted to US$, that amounts to roughly US$2,500 million or US$2.5 billion. This\nmeans that it will be a few years before such costs are fully recovered. Effectively\ntherefore, for those years, Guyana will have to be content with receiving a\nmere 14.25% of gross petroleum revenue. \n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"

Introduction \u00a0 Today\u2019s column summarises some of the principal information extracted from the audited financial statements of the three Contractors to the Petroleum Agreement signed on June 27, 2016. The financial statements are filed with the Commercial Registry and are public records available to any person on the payment of a small fee. \u00a0 Before … <\/p>\n

Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded \u2013 Part 71 \u2013 July 26, 2019: Esso\u2019s, Hess\u2019 and CNOOC\/Nexen\u2019s Recoverable Costs mount.”<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[288],"tags":[],"class_list":["post-2119","post","type-post","status-publish","format-standard","hentry","category-the-road-to-first-oil"],"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","wps_subtitle":"","jetpack_shortlink":"https:\/\/wp.me\/p3L0nt-yb","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2119","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2119"}],"version-history":[{"count":2,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2119\/revisions"}],"predecessor-version":[{"id":2122,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2119\/revisions\/2122"}],"wp:attachment":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}