The Government of Guyana said on Thursday that it is preparing to take the next step in the dispute resolution process with ExxonMobil and its partners, Hess and CNOOC, over the disallowance of approximately US$214.4 million in expenses claimed by the companies for the period 1999-2017.
The dispute arose from an audit conducted by IHS Markit, which identified these costs as ineligible for recovery under the Petroleum Agreement governing Exxon’s operations in the Stabroek Block. The Guyana Revenue Authority (GRA), a tax and revenue management agency, reviewed the audit findings and raised no objections.
The Ministry of Natural Resources stated that under the Stabroek Block Petroleum Agreement, parties have 60 days to submit a dispute for resolution after being informed of the final position on an audit. The Ministry has already notified Exxon. The agreement requires reasonable efforts to resolve disputes through negotiation before escalating the matter further. If no resolution is reached after the 60-day negotiation period, the dispute may proceed to resolution by a sole expert or through arbitration.
Auditing Exxon’s expenses is critical for Guyana’s revenues, as Exxon and its partners are entitled to recover up to 75% of the crude oil they produce annually to cover their costs. Since production began in December 2019, Exxon, Hess, and CNOOC have been maximizing this cost recovery allowance, taking up to 75% of crude each year. The remaining 25% is split equally between Guyana and the Exxon-led consortium, meaning Guyana currently receives just 12.5% of total production, which it then sells to generate revenue.
As the companies recover more of their expenses, the expectation is that their need to claim the full 75% cost recovery ceiling will decrease, leaving more crude oil to be split equally between them and the government. This would increase Guyana’s share of production, leading to higher revenues. Ensuring that only legitimate costs are recovered is key to this process, making cost audits an essential oversight mechanism.
The US$214.4 million in expenses flagged by the IHS Markit audit represents the first-ever audit of Exxon’s costs in Guyana. Separately, an audit of expenses incurred during the period 2018-2020 by VHE Consulting has been completed. Exxon has responded to VHE’s findings, and the firm is now examining Exxon’s response before issuing its final assessment. VHE was also hired to audit expenses incurred in the period 2021-2023.
