Introduction\n<\/p>\n\n\n\n
With\nappreciation to the editor-in-chief of Stabroek News, this column which last\nappeared on April 17, 2020, is returning for a short series. It will feature the\n2020 financial performance of the three companies which signed a petroleum\nagreement with the Government of Guyana for the Stabroek Block. The three\ncompanies are Esso, Hess and CNOOC which hold 45%, 30% and 25% respectively of\nthe Block which has so far been hugely successful with a twentieth discovery \u2013\nLongtail 3 – announced earlier this week. Each of the columns over the next\nthree weeks will feature one of the companies, followed by a wrap-up synthesis\nof the three.<\/p>\n\n\n\n
The\nPetroleum Agreement is largely silent on accounting rules except in relation to\nthe documentation to be submitted to the Government in relation to the\npetroleum operations. Expanding only slightly, the Agreement requires the companies\nto keep accounts, operating records, reports and statements relating to the\noperations in accordance with the Agreement and the Accounting Procedure set\nout in Annex C to the Agreement. The substantial part of the Annex deals with\nthe various categories of costs and whether certain specified costs are\nrecoverable without any approval by the Minister, recoverable with the consent\nof the Minister, not recoverable, and finally, costs not otherwise specified.\nThese would require the approval of the Minister. <\/p>\n\n\n\n
In\nthe absence of and prescribed rules, it is left to the Institute of Chartered\nAccountants of Guyana to set the accounting rules for petroleum operations.\nThis the Institute has done by way of the adoption of International Financial\nReporting Standards, generally referred to by the abbreviation IFRS. Given the\nnature of the operations involved, the rules are extremely complex and their application\nopen to interpretation. This is just another area in which the country suffers\nas a result of the failure by the Government to have a Petroleum Commission by\nwhatever name to regulate the sector. This Column will address some of these\nissues after a review of the financial statements of the individual\ncompanies. <\/p>\n\n\n\n
CNOOC\n<\/p>\n\n\n\n
This\ncompany has changed its name from CNOOC\/Nexen which was originally a\nCanadian\/Chinese jointly held company but the Canadians are no longer involved.\nNote 2 to the financial statements states that certain of the Branch’s\nactivities are conducted through joint arrangements, raising the question\nwhether it has other activities which is carries on independently.<\/p>\n\n\n\n
The\nCompany appears to be a shell within a shell. CNOOC operates as an offshore\ncompany in Barbados which up to now has provided a haven for sheltering taxes. So\ninstead of the Board having directors from the parent company, three of the\nfour directors of the company are Bajans! It is therefore not ironic that the\nnote to the financial statements carry a long statement on the regulatory\nchanges in Barbados but nothing about the regulatory petroleum environment in\nGuyana which is the only country in which CNOOC Petroleum Guyana carries out\nits only operation. <\/p>\n\n\n\n
In\nits first full year of production, the Company has reported a profit of $9,298\nmillion on income of $41,419 million, a net margin of 22.4%. The financial\nstatements also fail to disclose how it accounts for pre-contract costs\nrecovered in the current year and what is left to be recovered. <\/p>\n\n\n\n
Of\nthe expenditure of $32,121 million, Depreciation, depletion and amortization\naccounts for $14,782 million and refers the reader to Note 3 but that number is\nnot evident in the Note. Operating costs amount to $16,875 million, but that number\ndoes not even carry a note or any other information to support the figure. <\/p>\n\n\n\n
Taxation<\/p>\n\n\n\n
The\nmost interesting bit on the income statement is the element of taxation. Nowhere\nin the financial statements or in the extensive, copious notes is there any\nindication that the branch pays no taxes in Guyana. Indeed, it is surely guilty\nof a half truth when in Note 8 it states that the Branch is subject to the\nGuyana Income Tax Act and the terms and conditions of the 2016 Petroleum\nAgreement. At first glance, this appears to suggest a cumulative impact when\nthe reality is the direct opposite. <\/p>\n\n\n\n
The\nfmancial statements make good use of what is called deferred tax and so the\nfinancial statements have a charge of $2,324 million for deferred tax, one that\nis paid to no one but rather to recover losses claimed to have been made in\npast years. <\/p>\n\n\n\n
The\nCompany sells all its share of oil production to an affiliate in Singapore\nwhich on sells on a cargo-by-cargo basis. Despite this arrangement the Company\nowes its related parties more than $400,000 million, the terms and conditions\nof which, including interest, are not stated. \n<\/p>\n\n\n\n
Note\n5 states that the company has a $2.5 billion credit facility provided by CNOOC\nInternational Limited and one wonders whether this is a USD facility, or\nunlikely, a G$ facility. The note also states that the Company has received a\nletter of support from BVI (sic) to sustain the business at its current level of\nactivity. The financial statements show that the company is already making\ncommitment for Liza Phase 2 and the Payara Projects to the tune of $297,000\nmillion. \n\nA final matter of note is the Decommissioning\nand restoration provisions at $39,365 million as funds to reclaim and abandon\nwells and facilities.\n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"
Introduction With appreciation to the editor-in-chief of Stabroek News, this column which last appeared on April 17, 2020, is returning for a short series. It will feature the 2020 financial performance of the three companies which signed a petroleum agreement with the Government of Guyana for the Stabroek Block. The three companies are Esso, Hess … <\/p>\n