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‘Fake oil’ reveals flawed measurement systems

Published: 
Thursday, September 21, 2017

The much discussed allegations of state-owned Petrotrin paying for oil that it never received has raised many questions, not the least of which has been to what extent is there the requisite level of verification taking place at Petrotrin.

For many years the auditor general has warned both UNC and PNM governments that the Ministry of Energy needed to get its house in order and verify that the oil and gas companies were being truthful in their reporting of how much oil and gas they were producing and, therefore, how much money they should be paying to the government for the extraction and sale of this country’s patrimony.

In its 2016 report, the auditor general made the startling revelation that there was no evidence that since 2013 the Ministry of Energy and Energy Industries actually verified the production being reported.

“As reported in the previous three years, no evidence was seen that oil and gas production data received from companies, and used in the calculation of revenue collectible was verified by the ministry. The response from the ministry stated that verification of oil and gas data is undertaken by ensuring the witnessing and testing of calibration of meters at fiscalisation points and witnessing of meters at loading of crude at ports.”

It added, “The following were noted, there is no collaboration between the measurement unit and the contract management unit. The responsibilities of the measurement unit include the witnessing and testing of the production data.

“The responsibilities of the contract management unit include the collection and review of the production data; a log is not maintained to reflect the queries raised by the contract management unit with the operators and the resolutions made.”

To compound matters, the auditor general in 2016 found that the measurement unit is constrained by a shortage of manpower and a lack of measurement training and, as a result, 75 per cent of the planned activities was not undertaken.

The report said: “As a result, the accuracy of revenue from royalties and share of profits from oil companies could not be assessed. At the time of the audit in January 2017, royalties from 11 oil companies as at September 30, 2016 were outstanding. Quarterly and annual reconciliations of royalties due and received were not produced for nine of the 11 oil companies. These are required by the Petroleum Regulations, Chapter 62:01 paragraphs 70 (1) – (2) and 71 (1) – (3).”

The report found that the same problem also existed in the collections of royalties for mining, when five operators mining on private land could not provide proof of ownership of the mineral rights in order to be exempted from paying royalties.

But the warnings that the country could very well be leaking millions of dollars also came from the Extractive Industries Transparency Initiative.

In the EITI Report 2013 concerns were raised that the system used by the Ministry of Energy to calculate the production figures was not sufficiently robust.

It read, “Production information is published on the MEEI website. The TTEITI reconciliation has, however, raised questions on the operation of the system used to compile figures for production. We recommend that the process used by the MEEI for compiling and publishing production figures is reviewed to ensure it is robust and produces reliable figures.”

In EITI Report 2014 and 2015 repeated EITI Report 2013 recommendation that the records in the MEEI are kept using manual systems. This made the obtaining and collation of information time-consuming and prone to error. It also makes management of the information and control over government revenues more difficult and prone to error.

It said: “We recommend that MEEI introduce appropriate computerised systems to record and control information relating to the production and finances from the oil and gas sector.”

The EITI also noted that membership of the EITI was voluntary and even though some of the companies that use Petrotrin’s acreage to produce their oil, the EITI still could verify their figures.

Despite its non-participation in the EITI, A&V drilling is mentioned in EITI Report 2014 and 2015 as being one of Petrotrin’s lease operators and farm outs.

In the same report it is recorded that Petrotrin paid government in 2015, on behalf of its LOFOs and IPSCs, $25,989,955 in revenues.

That payment will have included A&V’s liability.

Does the revelation mean that the government will now have to give back to Petrotrin money in royalties that it was not due?

Does it mean that Petrotrin’s losses have been over stated?

There is a lot left to be said on this matter.