The government is engaged with oil companies whose interests are very different from their own

There is a joke that you may have heard in some accounting classes. During an interview, prospective candidates were asked what was 2+2. The engineer answered 4, the journalist 4, and the lawyer 4. The accountant leaned over and whispered, “I can make it any number you want”. There is a great point behind this joke: accounting has many judgement calls and it is not an exact science.

Recently in the news, it was revealed that the oil contract that Guyana had signed with its foreign partners provided for a 50/50 profit sharing agreement. Profit is what you have left after you subtract all your expenses from revenue. Let’s say you can sell a barrel of oil for US$80 which is your revenue. Now you have clear expenses such as paying the workers their salary. However, there are other expenses which require judgement calls such as: Do you claim the worker’s transportation expense to the oil platform? If so, does the transportation cost start when they leave their home in America or when they depart from the shores of Guyana? Are they allowed to fly first class or charter a plane for transportation? What type of depreciation method do you use, straight line or double declining balance? Even potential environmental impact needs to be properly estimated as an expense.

In hypothetical scenarios, this judgement call may result in $60 profit on your $80 revenue or maybe just $20. Thus the profit margin in this scenario can range anywhere from 25% to 75% of revenue. The current oil find is estimated to be worth US$160 billion. Thus in this scenario, Guyana is either getting its share at the lower end of just US$40 billion or maybe up to US$120 billion. A 50 per cent profit sharing agreement on a US$160 billion revenue find, is the difference in doubling the pay of every Guyanese resident for 5 years versus 15 years. This hypothetical illustration makes for a compelling argument: the contract should provide for machinery to resolve disputes over ‘legitimate’ expenses and dollar amounts of deductible expenses should compare favourably with acceptable standards.

A few days ago, the New York Times published an article (June 2) where it noted, in relation to Exxon, “…potentially overstating the value of its assets and defrauding its shareholders”. The article further proceeded to quote the New York State attorney general’s office as saying, “evidence suggests not only that Exxon’s public statements about its risk management practices were false and misleading, but also that Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public.”

The statements in the New York Times are alarming. ExxonMobil is the major partner in the Guyana oil contract negotiations. The number one priority for commercial enterprises like Exxon is their shareholders. If Exxon is being accused of defrauding its shareholders, what about entities that are lower down on its priority list like Guyana? In the oil contract, does the Guyana government have the authority to reject or accept any expense claimed by its partners? How does the Guyana government ensure the calculation of oil profits are legitimate? Who audits the expenses that Exxon and other foreign partners will claim? How are the potential auditors vetted to ensure they are competent and have integrity? These questions are no joking matter given the impact of the profits to the future of Guyanese.

The Government of Guyana was elected to serve in the best interest of the people of Guyana. However, they are engaged with entities whose interests are very different from their own. There are more positives to making the contract public than the stated negatives. We urge the government to release the contract.

Yours faithfully,

Darshanand Khusial

Charles Sugrim

Mike Persaud

June 7, 2017