![\"\"](\"https:\/\/www.chrisram.net\/wp-content\/uploads\/2021\/07\/table-2-1024x562.png\")
<\/figure>\n\n\n\nThe total value of assets is $1,891\nbillion (approximately US$9.1 billion), of which $82.9 billion constitutes current\nassets, while non-current assets account for $1,808.6 billion, (approximately\nUS$8,612 billion). The total \u201cEquity participation\u201d by the oil companies in the\nStabroek Block is $1,128 billion (US$5.4 billion). Put simply, 60% of the\nassets of the three companies is financed directly by the entities. However,\ngiven the nature of branch accounts, this sum can be withdrawn at any time. <\/p>\n\n\n\n
Non-current assets <\/strong><\/p>\n\n\n\n Esso accounts for 51% of non-current\nassets while Hess and CNOOC share the balance almost equally. Exploration and\ndevelopment assets ($1,727 billion) make up 91% of the total assets of the\nthree entities. Of this, assets owned by the entities account for $1,522\nbillion (US$724.8) while $205 billion (US$976 million) is leased from third\nparties, which accounting rules require inclusion on the balance sheet, along\nwith their corresponding liability. Of the owned assets, CNOOC contributes 29%,\nHess 28% and Esso 43%, which also accounts for practically all the leased\nassets. <\/p>\n\n\n\n Of the three companies, only\nEsso has any interest in buildings, its financials disclosing net book value of\n$574 million in buildings and vehicles \u2013 a highly unusual combination of two\nvery different classes of assets. More importantly, in violation of the intent\nof the Companies Act to restrict the ownership of land by external companies, Esso\nhas been awarded a long-term lease of a substantial parcel of land controlled\nby Ogle Airport Inc. which however, is not separately identified in its\nfinancial statements. <\/p>\n\n\n\n CNOOC and Hess show as\nnon-current assets some $450 billion and $469 billion, including, dubiously\nDeferred Tax Asset of $4.7 billion and $10.9 billion respectively. Since the\n2016 Agreement relieves all three companies from any obligation to pay taxes on\nprofits, the concept of deferred tax does not apply and should be disregarded\nfor accounting purposes, as Esso does. <\/p>\n\n\n\n Current assets and liabilities<\/strong><\/p>\n\n\n\n Current assets, comprising\nmainly of cash ($13.7 billion), receivables ($24.7 billion) and inventory of\nunsold crude oil ($36.2 billion) account for 4% of total assets. Of the current\nassets, Esso accounts for 65%, Hess 21% and CNOOC the remaining 14%. Of the\n$53.99 billion of current assets of Esso, 55% was held in inventory and 20% in\naccounts receivable. For Hess, 65% of current assets is held in accounts receivable\nand 35% in inventory. CNOOC holds 77% of its current assets in cash and its\nequivalent and 22% in receivables. <\/p>\n\n\n\n If one side of the balance\nsheet states the assets owned by the companies, the other side is made up of $695.8\nbillion in liabilities, $67 billion in provisions and $1,128 billion in what\nEsso describes as Equity contribution and Hess as Capital contributions, both\nterms being atypical of branches. <\/p>\n\n\n\n Total current liabilities of\nthe three amounted to $535.7 billion (US$2.6 billion) with CNOOC accounting for\n79%, Esso 18% and Hess 3%. The single most significant debt owed by CNOOC is an\namount of $406.2 billion (US$1.9 billion) owed to an affiliate. The amount\npayable during 2021 on leased assets is G$45.0 billion, all by Esso. Other\nliabilities of the three partners amounted to $84.5 billion of which Esso is\nshown as owing $50.6 billion, Hess $14.9 billion and CNOOC $19.0 billion. <\/p>\n\n\n\n The joint-venture partners\nhave a total of $67 billion in provision for decommissioning expenses at the\nend of the project life \u2013 possibly 25 years hence. By contrast, there is no\nprovision for any emergency event, such as an oil spill. In this regard, the\nAgreement provides for the Government to fix any environmental damage if the\ncompanies do not promptly do so and to bill the companies for \u201creasonable costs\nand expenses\u201d – not for all costs incurred. It is truly ironic that\nbanks, insurance companies and airlines have to give bonds or lodge deposits to\nsecure potential claims against them while oil companies, arguably engaged in\nthe riskiest business of all, has no such obligation. <\/p>\n\n\n\n Hess shows $441 billion\n(US$2.1 billion) in Capital contribution or 39% of total capital contributed by\nthe entities while Esso shows Equity contribution of $700.5 billion,\nrepresenting 62% of the value of its assets. Incredibly, CNOOC had negative\nshareholders contribution, its assets being financed by short-term liabilities owed\nto an unnamed affiliate. In its 2020 Annual Report, ExxonMobil reports that \u201cIn\npartnership with the government of Guyana, we are efficiently developing these\nresources while maintaining active exploration to test multiple prospects.\u201d <\/p>\n\n\n\n We recall from Column 91 that\nEsso\u2019s direct exploration expenses of $18,286 billion (24% of its revenue),\nexcluding the portion of General and administrative expenses of $20.8 billion (27%\nof revenue) which would also be allocable to its exploration activities. The claim\nthat this is being done in the name of a partnership, not with Hess and CNOOC, but\nwith the Government of Guyana, needs some explanation. <\/p>\n\n\n\n Conclusion<\/strong><\/p>\n\n\n\n There is clearly an underlying\nagreement among the companies which is not available to the Guyanese public.\nFormer Minister of Natural Resources Raphael Trotman might argue, as he\ninitially did concerning the 2016 Agreement itself, that the confidentiality of\nsuch agreement is protected by law. There is no legal basis for such a\nposition. And in any case, the financial statements of each of the companies\nshould disclose, in sufficient detail, the nature of the relationship and the\ncompany\u2019s rights, responsibilities and obligations. <\/p>\n\n\n\n Both the principles underlying\ntheir preparation and the contents of the financial statements reflect major\ndeficiencies, including non-compliance with accounting Standards, requirements\nof the law and the Petroleum Agreement under which they operate. Reconciling\nthe statements reviewed in this mini-series and the requirements of the\nPetroleum Agreement, or with the tax laws, would be a challenging task for\nthose concerned. <\/p>\n\n\n\n Significantly, the Act\nrequires financial statements of external companies, and not just of their Guyana\nbranch which is what has been presented; the annual returns of these companies\nfiled at the Commercial Registry are similarly non-compliant; and the Registrar\nof Companies was generous, if not careless, in permitting names of external\ncompanies which include the word \u201cGuyana\u201d. <\/p>\n\n\n\n These financial statements\nhave vindicated the initial fears expressed about the limitations and\nweaknesses of the 2016 Petroleum Agreement. Those limitations and weaknesses\nhave been compounded by the multitude of combined fatal deficiencies by the\nthree oil companies in their financial reporting in the first year of oil\nproduction, averaging less than 100,000 barrel of oil per day. The\nopportunities for manipulation will increase correspondingly as production\nincreases by eight and tenfold. It is incumbent on this Administration to separate\nitself as a partner in the financial shenanigans being perpetrated by the\ncompanies, introduce modern petroleum legislation, appoint independent and\ncompetent regulators and ensure that our laws are respected. <\/p>\n\n\n\n The Government should expect\nresolute pushback. The oil companies do not comply with a weak Agreement partly\nwritten by them, let alone a regime of regulation meeting international\nstandards. <\/p>\n\n\n\n Finally, a word of\nappreciation to the several persons who shared their perspective with me on the\nlast four columns. Next week\u2019s column will respond to the IMF\u2019s defence of the\narrangement whereby the Government pays the tax of the oil companies. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":" This Article was Published on July 2, 2021 This final column of this mini-series examining the financial statements of the three Contractors under the 2016 Petroleum Agreement, reviews their balance sheets, sometimes referred to as statement of affairs, as at December 31, 2020. The Table below is designed in a similar fashion as the summary … <\/p>\n