{"id":2124,"date":"2019-08-02T08:05:15","date_gmt":"2019-08-02T12:05:15","guid":{"rendered":"http:\/\/www.chrisram.net\/?p=2124"},"modified":"2020-04-09T08:30:10","modified_gmt":"2020-04-09T12:30:10","slug":"every-man-woman-and-child-in-guyana-must-become-oil-minded-part-72-august-2-2019-essos-hess-and-cnooc-nexens-recoverable-costs-amount-conti","status":"publish","type":"post","link":"https:\/\/www.chrisram.net\/?p=2124","title":{"rendered":"Every Man, Woman and Child in Guyana Must Become Oil-Minded \u2013 Part 72 \u2013 August 2, 2019: Esso\u2019s, Hess\u2019 and CNOOC\/Nexen\u2019s Recoverable Costs amount \u2013 Continued"},"content":{"rendered":"\n

Introduction<\/p>\n\n\n\n

Column\n71 published last week included a summary table of the Statements of Financial\nPosition (the Balance Sheet) of the three oil companies which will lead Guyana\nto First Oil projected to take place during the first quarter of 2020. Noting that\nthe financial statements audited by the same firm reflect significant\ndifferences in their content and presentation, Column 71 pointed to the value\nof expenditure incurred by the companies \u2013 more than G$500 billion – as at\nDecember 31, 2018, more than one full year before First Oil. As is now well\nknown, the Petroleum Agreement provides for the recovery of costs before sharing\nProfit Oil equally between the oil companies and Guyana, subject only to a 75%\nof revenue limitation. In US Dollar terms, at December 31 the expenditure was approximately\nUS$2.5 billion. <\/p>\n\n\n\n

This\nexpenditure falls into the category of pre-production costs which also includes\npre-contract costs, including the amount of US$460 million stated in the\nPetroleum Agreement as having been expended to December 31, 2015. For\ncompleteness it is worth noting that this Column disputes this amount as being\noverstated by a not insubstantial amount when measured against the financial\nstatements of the three companies. Of course, recoverable contract costs also include\nannual operating costs once production begins, usually measured by reference to\na barrel of oil. The oil companies have not given any indication of what that\ncost is likely to be and one wonders at the basis of projections used by the\nMinistry of Finance and the Guyana Revenue Authority. <\/p>\n\n\n\n

In\nall the Oil and Gas Columns so far, I have used a per barrel cost of production\nfigure of US$35, inclusive of capital costs. However, in a recent presentation\nat Moray House, Dr. Tulsi Singh, a Texan-Guyanese who has been involved in the\nsector for decades, has used a figure of US$35 plus US$7 for capital\nexpenditure. One would have expected that by now, some light would be shed on\nthis important number and inevitably, one wonders whether the Energy Department\nitself has any idea of the likely number and how it has been derived. <\/p>\n\n\n\n

Balance\nSheet<\/p>\n\n\n\n

The\nSummary table published last week did not disclose the Balance Sheet items by\ncompanies, an omission which I will now touch on briefly for two of the more\nsignificant items \u2013 Inventory and Property, Plant and Equipment. The December\n31, 2018 total inventory of $14 billion is made up entirely of inventory held\nby Esso ($10.9 billion) and Hess ($3.1 billion). It is more than passing\nstrange that CNOOC reports no inventory at that date and raises the question of\na real time supply chain one hundred and twenty miles offshore, either directly\nor through its co-contractors which would more than likely be Esso. CNOOC has\nin fact not reported any Inventory over the past three years and Hess has only\ndone so in 2018.  <\/p>\n\n\n\n

As\nexpected Property, Plant and Equipment (PPE) is by far the most significant\nitem in each of the three Balance Sheets. The financials of Hess and CNOOC have\ntwo classes of PPE – Exploration and Evaluation Assets and Development Assets \u2013\nwhile Esso has three classes \u2013 Buildings and Vehicles, Wells, and Plant and\nEquipment (Work in Progress). Combined PPE at year end 2018 mounted in total to\nG$490 billion in 2018, up from G$247 billion in 2017 with the highest growth\nbeing Esso (108.9%), CNOOC (93.9%) and Hess (89%). <\/p>\n\n\n\n

Income\nStatement <\/p>\n\n\n\n

I now turn to the summarised Statement of Profit and Loss and Other Comprehensive Income extracted from the separate financial statements of the three companies.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source: Compiled from audited\nfinancial statements.<\/em><\/p>\n\n\n\n

There\nare three lines to which special attention needs to be paid and these are\nhighlighted: Net Profit\/loss before income taxes, Net profit\/(loss) for the\nyear and the Net Loss and Comprehensive Income, end of the year. I noted last\nweek that both content of and disclosure in the financial statements are\ninconsistent but there is another matter that raises a different question\naltogether which appears in Hess\u2019 books. In this latter case, Hess reports a\ncharge of G$5,685 Million for Operating and exploration expenses from Esso but there\nis no similar item in CNOOC\u2019s financial statements. This raises a few\nquestions: <\/p>\n\n\n\n

  1. Does this mean then that Esso\u2019s\noperating relationship with Hess is different from that with CNOOC? <\/li>
  2. Is CNOOC doing its own exploration while\nHess merely bears part of Esso\u2019s exploration cost? <\/li>
  3. Has the Minister or the person delegated\nby him to carry out his functions aware of and given express or implied\napproval of this arrangement? <\/li>
  4. If Hess\u2019 financial statements reflect\ncosts assigned by Esso, why is there no corresponding transaction in Esso\u2019s\nbooks showing it has recovered that sum and reduced its own expenditure? <\/li><\/ol>\n\n\n\n

    And no surprise that Esso\u2019s\naccounting and disclosure are different from that of CNOOC as the Table shows\nwith Esso reporting items like Dry Hole, Seismic and Geological and Geophysical\nwhile CNOOC has a single block figure for Exploration. <\/p>\n\n\n\n

    Standing out in Esso\u2019s Income\nStatement however, is an $8,085 million charge for Office and General Expenses\nwhich compares with $339 Million by CNOOC. Hess\u2019 statement does not have such a\nline item but its administrative expenses could possibly be found in line Item\nOther Expenses ($19 Million), or in Intercompany charges ($51 Million).  Esso\u2019s 2018 financials also show Legal and\nProfessional expenses incurred in 2017 of $450 million but none in 2018.  <\/p>\n\n\n\n

    Esso\u2019s $8,085 million charge for\nOffice and General Expenses in 2018 and $450 million in Legal and Professional\nexpenses in 2017 are not insignificant sums and these will probably all have to\nbe borne by the Guyana taxpayer, one way or another. <\/p>\n\n\n\n

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

    Not too long ago everyone seems to\nhave been auditing the financial statements of the oil companies for purposes\nof the Petroleum Agreement but months later, nothing is being heard. Oversight\nis not an episodic matter but one of sustained vigilance. <\/p>\n\n\n\n

    There is nothing that the Granger\nAdministration has done in relation to the Stabroek Block that suggests\nanything but the greatest deceit and incompetence that continues to this day.\nIt seems fair to say that the oil companies having been handed a lifetime gift\nin the form of the 2016 post-discovery contract is being fortified by a\ndangerously weak oversight. Let us pray. <\/p>\n\n\n\n

    Next week\u2019s column will consider\nPetroleum Czar\u2019s plans to uplift Guyana\u2019s share of oil every ten days.  <\/p>\n","protected":false},"excerpt":{"rendered":"

    Introduction Column 71 published last week included a summary table of the Statements of Financial Position (the Balance Sheet) of the three oil companies which will lead Guyana to First Oil projected to take place during the first quarter of 2020. Noting that the financial statements audited by the same firm reflect significant differences in … <\/p>\n

    Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded \u2013 Part 72 \u2013 August 2, 2019: Esso\u2019s, Hess\u2019 and CNOOC\/Nexen\u2019s Recoverable Costs amount \u2013 Continued”<\/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-2124","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-yg","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2124","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=2124"}],"version-history":[{"count":1,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2124\/revisions"}],"predecessor-version":[{"id":2126,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=\/wp\/v2\/posts\/2124\/revisions\/2126"}],"wp:attachment":[{"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2124"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2124"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.chrisram.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2124"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}