The Shell Company
Introduction
It has been several months since column 108. Yet, when I told a friend that I intended to publish approximately eight columns over the next few weeks, his immediate reaction was the question: what will you say that you have not addressed in the one hundred and eight columns and dozens of letters over the past four years? Not sure what my answer was.
More recently, I have penned letters in the press raising questions about the conduct of Esso, Hess and CNOOC, the three contractors of the Stabroek Block, as well as about their financial reporting. A specific concern I have are the amounts paid to Esso Exploration and Production Guyana Limited (EEPGL) by Shell Exploration and Production Guyana Limited (2009 and 2011) and then by Hess and CNOOC (2014), and how these were accounted for by Esso Exploration and Production (Guyana) Limited, the Contractor under the 1999 Agreement. Until this is cleared up, there will always be concerns about the integrity and propriety of the accounting records of Esso (now ExxonMobil Exploration and Production (Guyana) Limited). My understanding is that those companies made payments to Esso abroad while the amounts paid might have found their way back to Guyana as costs in the local books via inter-company transactions. If this is so, and there are no consequences, then what’s the point of research and writing? I will persist, for the while.
Beginning with today’s piece, over the next few weeks, this Column will address the conduct of another earlier Stabroek Block partner – Shell Exploration and Production Guyana Limited. Like Esso, Hess and CNOOC, Shell chose the branch model to operate their interest in the Stabroek Block. Perhaps because Shell was in and out of Guyana before the discovery of oil, it has attracted very little attention, including by me. I hope that today’s column goes some way to address that omission.
Then in the weeks following, I will do a review of a recent book From Destiny to Prosperity by former Energy Minister Raphael Trotman giving a narrative on his tenure in that capacity. The book also includes the minutes of a meeting of a Parliamentary Select Committee and extracts from the Hansard which dealt with the 2016 Petroleum Agreement. What stands out in the book was Trotman’s rationalisation of the 1999 Agreement. That will make the PPP/C happy.
I will follow up with a review of the new petroleum legislation – the Petroleum Services Act – which replaces in their entirety the Petroleum Act of 1939 and the 1986 Petroleum Explorations and Production Act. It is worth noting at this stage that the new legislation does not affect the 2016 Agreement, or the regulations made under the 1986 Act as these are specifically “saved”, to use the legal term to describe a situation where subsidiary legislation made under a repealed Act is preserved.
Back to Shell
The Shell company – pun intended – was registered as the branch of an external company in 2009, the same year in which it acquired from Esso, a 25% stake in the Stabroek Block. Then in 2011, it acquired a further 25% making it an equal partner with Esso in the Block. In violation of accounting requirements and legal principles the Guyana Esso branch never accounted for the moneys it received from Shell, for its first 25% or the subsequent 25%.
But here is where the situation gets very messy and shows poor oversight. Shell’s investment in the Stabroek Block extended from 2009 – the year in which it registered in Guyana – to 2014, when it ended its participation in the Block. An application for cancellation of its registration was filed in November 2018. Yet, there is not a single annual report or financial statements for the years 2009 – 2018 in the records of the Commercial Registry as the law requires.
It is a stretch to believe that the company would not have known of its filing obligations under Guyana laws. The question then is whether this was a deliberate decision on the part of Shell, and why the Commercial Registry never picked up this grave omission over a period of several years. The question also must be asked whether Shell ever prepared financial statements or filed tax returns as required under tax laws of Guyana. While the Guyanese public would never know the motive behind the decision not to comply, such non-disclosure has facilitated a more serious issue – it did not have to account for the payments it made to Esso for its 50% stake in the Stabroek Block.
The irony of it all, an affiliate of the same Shell branch was contracted in 2019 to sell Guyana’s first three oil lifts!
Conclusion
It is known that after questions were raised about the 2016 Agreement, then Minister Raphael Trotman commissioned an independent study to investigate the circumstances leading up to its signing. The current administration too, has been confronted with several questions concerning the conduct of the oil companies, many of which did not arise under its watch. Trotman has said he would be willing to appear before an independent and competent Commission of Inquiry. Given the PPP/C’s commitment to “better contract administration” it should not hesitate to set up such a Commission from which so many valuable lessons can be learnt.
Next week: From Destiny to Prosperity Part 1.