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Rovuma Area 1Non – Operator Audit (2012 & 2013)

February 2015

Key Initiatives

Budget Agenda

Contents

Section I Executive Summary

Section II Detailed Observations

Section III Scope Limitations

Section IV Annexures

February 2015

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Top Five Budget Expectations

Section I

Executive Summary

PwC

February 2015

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Section I: Executive SummaryA. Introduction, Scope of Work & Limitations

Introduction:

We have completed the non-operator audit of ‘Area 1 Offshore’ of The Rovuma Block – Mozambique (“Rovuma Offshore Area 1”). Our work was carried out in accordance with our Letter of Engagement dated October 16, 2014 and scope of work agreed with Parties to the engagement letter. Our report which has been prepared on exception basis includes an overview, scope and our observations, together with our proposed recommendations.The audit was conducted keeping in view the following objectives:

• To ascertain that Capital and Operating expenses charged to the block are adequately supported and in line with the provisions of the Concession Agreement ("EPC") and the Joint Operating Agreement ("JoA").

• To assess that the expenditures charged to the Joint Accounts comply with applicable agreements, procedures, and with the generally accepted accounting practices used in petroleum industry.

Scope of Work:

• To review compliance of insurance obligations and adequacy thereof.

• To review that there is no co-mingling of funds

• To review whether non-operators' share of recoverable taxes is properly recognized, accounted and maintained thereof.

• To review the minutes of the meetings of the Operating Committee for compliance with JOA perspective

• To check and report any penalties paid by the consortium, which are not reported specifically in the billing statement.

• To check whether local taxes are paid, tax deducted at source for expenditure incurred, etc as per the local taxes of Mozambique

Our work was carried out for the period of two years i.e. January 01, 2012 to December 31, 2013

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accounting practices used in petroleum industry.

• To carry out a review of cash calls, billing statements

• To ascertain that the operations are carried out by the Operator in a prudent manner and are in accordance with good industry practice.

Scope of Work:

Our scope of work comprised of the following:

• To check that the expenditures are incurred, recorded and recovered from the Non-Operating Partner(s) as per the JoA and the EPC.

• Review of execution of Minimum Work Commitment and other compliances as per the Concession Agreement

• To check that the accounting and classification of assets, liabilities, income and expenditure is in accordance with the EPCC

• To check and review the overhead charges charged are in line with the JOA provisions

• To check the details of Property, Plant and Equipments purchased and disposed off during the reporting period.

• To review the basis of allocation & reasonableness of common expenses, including general and administrative costs of the Anadarko

• To review and comment on the Cost Recovery issues, if any.

• Analysis of Budget vs. Actual and observations on significant deviations

December 31, 2013

Limitations:

Our procedures did not constitute an audit, the objective of which is the expression of an opinion on the financial statements or specified elements, accounts or items thereof. Accordingly, we are unable to express such an opinion on the financial statements at the conclusion of our work. In submitting our report to you, we wish to emphasize that internal control is a process, effected by the Board of the Operator/Company, Senior Management and other employees, designed to provide reasonable, but not absolute assurance that risks, including fraud risks, are properly managed to ensure the achievement of the organization’s financial, operational and regulatory compliance objectives.

It is important to recognize that there are inherent limitations in the audit process. For example, our procedures are generally based on the concept of selective testing of the data being examined and are, therefore, subject to the limitation that material errors, fraud and other illegal acts having a direct and material financial impact, if they exist, may not be detected. Also, because of the characteristics of fraud, particularly those involving concealment through collusion and falsified documentation (including forgery), an Audit may not detect a material fraud. We will however, communicate to you as appropriate, any illegal act, material errors or evidence that fraud may exist, identified during the course of our work.

Our deliverables are intended solely for the use of the recipients as mentioned in our Letter of Engagement.

Section I: Executive SummaryA. Overview

Rovuma Offshore Area 1 is owned by Anadarko Mocambique Area 1 Limitada (26.5%), ONGC Videsh Limited (10%), Beas Energy (10%), Mitsui E&P Mozambique Area 1 (20%), BPRL Ventures Mozambique B.V. (10%),PTT Exploration (8.5%) and Empresa Nacional de Hidrocarbonetos (15% ). Brief overview of the block as on date of review is as follows :

• Currently the block is in Exploration phase which is expected to be completed by February’2015.ENH’s interest is carried through the exploration phase. Partner wise participating interest for 2012 & 2013 was Anadarko (36.5%) ,Videocon (10%), Mitsui (20%), BPRL (10%), PTTEP (8.5%) and ENH(15%).

• Commercial framework for proposed LNG project is under discussion with the Government of Mozambique as there is no law at present to govern the same and EPCC amendment may be required. Once the same is approved, Final Investment Decision (FID) and Field Development Plan (FDP) shall follow.

• Anadarko in Mozambique is operating from 5 locations (1 head office in Maputo and 4 operating bases viz. Pemba, Mocimba de Praia (MdP), Palma and Afunghi. Pemba is used as deep water marine base. Mocimba de Praia acts as a logistics base for the company and has an airstrip and charter plane for air support. In Palma & Afunghi, company carries out onshore operations for the offshore block and the site for proposed LNG project is going to be Afunghi Peninsula near Palma.

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project is going to be Afunghi Peninsula near Palma.

I. Expenditure during the period 2012 - 2013: Total expenditure for 2012 & 2013 was USD1.8 billion (of which USD 1.2 billion on Drilling & USD 0.5 billion on Pre-FID development)

USD 7MM

USD780 MM

USD 136 MM

USD 14 MM USD 24 MM

G&G

Drilling

Pre Development

Foreign office capital

G&A

Expenditure Summary 2012 (USD 961 million)

USD 3MM

USD 467 MM USD 369 MM

USD 17 MM

USD 52 MM

G&G

Drilling

Pre Development

Foreign office capital

G&A

Expenditure Summary 2013 (USD 907 million)

G&G – Geological and Geophysical; G&A – General and Administrative (G&A spends include PCO and Time-writing charges)

Section I: Executive SummaryB. CoverageII. Direct Expenditure (Key vendors during 2012-13): Key vendors engaged by Anadarko during the audit period are listed below

along with the review procedures performed by us to check the reasonableness of the expenditures booked:

Vendor NameCategory

Nature of servicesValue - Total

(USD MM)

Value – Sample

Invoice Verification

(USD MM)

Sample Selection Summary

Invoice

VerificationTendering*

Transocean DW

Drilling

Drilling Vessels 191 83 a *

Dolphin Drilling Ltd Drilling Services 136 39 a *

Dolphin Drilling SA Drilling Unit Charter 205 57 a *

Halliburton Drilling Services 79 8 a *

Metrol Technology Drilling Materials 15 - *

Schlumberger Seaco Contract Drilling 98 9 a *

Dril-Quip Inc Drilling Services 5 - *

Subsea 7 Limited Drilling Services 13 - *

MM - Million

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Tidewater Marine Vessel Supply 55 19 a *

Solenta Aviation Aircraft rental 17 2 a

CHC (Canada) Aircraft rental 16 3 a

Bollore Africa Logistics Services 20 4 a *

Bunker fuels Fuels 31 4 a *

Total 881 228

C & C Technologies

Pre-

Development

Geophysical Studies 19 9 a *

Fugro Survey Geo Technical Studies 24 8 a *

Benthic Geotech Geo Technical Studies 8 7 a *

JGC - Fluor FEED Services 47 35 a *

CC JV FEED Services 28 12 a *

International Bechtel FEED Services 45 30 a *

Roos Risk Solutions HSE Consulting 11 2 a *

Solstad Offshore FEED Services 15 - *

SS Construcoes Construction 3 - *

Fdr Safety Llc Manpower / Consultancy

Services

8 - *

King & Spalding 11 - *

Total 219 103

* Refer Observation 15 for Scope limitation w.r.t verification of procurement procedures

Section I: Executive SummaryB. CoverageIII. Indirect Expenditure: Key heads of indirect expenditures are listed below along with the review procedures performed by us to check

the reasonableness of the expenditures booked. MM - Million

Particulars 2012 2013 Key Areas Reviewed

Category Nature of ExpenditureAmount

(USD MM)

Amount

(USD MM)Cost Allocation Accuracy

Time Writing Costs /

Affiliate Charges**

Technical Time writing 2.37 4.96 a a

Operations Time writing 0.02 0.01 a a

Professional Time Writing 0.79 1.26 a a

T&E - US/UK Affiliates 0.21 0.09 a a

Office / Base Camps

Operation Expense

Maputo - Office Costs 7.3 18.26 a a

Pemba & MDP - 6.55 a a

Other minor expenses - 0.97 a a

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Operation Expense Other minor expenses - 0.97 a a

Letter of Credit FeesLetter of Credit Fees

(BNP)1.09 0.49 a a

Financial ObligationsEPC Payments 4 4 a a

Other miscellaneous 0.44 1.3 a a

Overheads PCO Charges 12.79 14.55 a a

Totals 29.01 52.44

Note - Verification carried out on sample basis

* Information/Data w.r.t expatriate and national payroll details was excluded from review.

**Break Up of Affiliate Charges (USD MM)

Year Time-writing (G&A )Time-writing (Charged to Projects / Wells /

AFE)Total Cost

2012 3.39 21.71 25.10

2013 6.33 30.64 36.97

Section I: Executive SummaryC. Summary of Key Findings

Area Summary of Key Findings Impact

Direct

Expenses

1) Payments not in line with contract resulting in overcharging to JV books (17 out of sample review of

150 instances)

• Excess unit rate (day rate) charged for well test operator (9 invoices~ USD 39,253)

• Standby charge payment for deep water studies not in line with contract (1 invoice ~USD 1.04 mm)

• Performance incentives to contract employees of vendors outside the terms of contract (2 invoices~USD0.28 mm)

• Withholding tax not deducted on payments (4 invoices ~3 vendors) ~ USD0.11 mm

Overcharging to joint

account amounting to

~USD01.35 MM

2) Sole cost expense (advertisement publication) charged to joint account

• Supporting documentation not provided for advertisement publication charges (Apr’2012). Online search of the

said advertisement highlighted that such expenditure was incurred as part of the parent company promotion

activity for the Mozambique project



~USD0.14 MM

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Indirect

Charges

3) Third party settlements not excluded from PCO charge calculation

• Third party settlement of USD 4.5 mm not excluded in expenditure considered for computation of parent

company charge resulting in overcharging to JV books



~USD0.07 MM

4) PCO charges incorrectly grossed up by operator (on settlements covered by double taxation rules)

• PCO & other intercompany charges settled through bank account in Mauritius (country with a double taxation

treaty with Mozambique) grossed up for the purposes of withholding tax. Estimated total gross up for 2012-13 ~

USD 10.34mm ~ out of which USD 3.84 mm already charged to account.

Operator should seek professional independent opinion over PE rules in Mozambique and DTT rules-Mauritius

Potential overcharging to

joint account amounting

to ~USD10.39 MM

Cost

Allocations

5) Allocation of G&A spends not done in line with furnished procedures, legal, consulting, audit &

contribution costs not allocated

• G&A allocation not done in line with furnished procedures (G&A allocation done in the proportion of 99.2:

0.08 between offshore and onshore after July 2013 as against the rule of 90:10 furnished to Accounting

Subcommittee resulting in under-allocation to Onshore and overcharging to offshore block (USD 1.16 mm)

• Legal, Consulting and Audit charges ~USD1.4 mm not allocated to onshore block.



~USD1.17 MM

6) RLD (asset use charge) not charged by operator to onshore for last quarter 2013 (USD 100,000) Overcharging to joint


~USD0.1 MM

Section I: Executive SummaryC. Summary of Key Findings

Area Summary of Key Findings Impact

Affiliate

Charges

7) Inadequate control over monitoring, disclosure and reconciliation of affiliate costs

• Affiliate costs (~USD62 mm) not disclosed in budget as per requirement of JOA

• Absence of maker–checker control over time charged to JV account by Affiliates. Reconciliation of time-writing

reports with expense dump (JADE) not performed for 2012 (un-reconciled difference of USD 1.4 mm in 2013)

• Rates for affiliate charges for 2 categories with total charges~USD0.53 mm (UK Admin & Exploration T3/4A) not

certified

• Rates for affiliate charges were based on 1784 working hours, however 3 affiliate employees had charged higher

hours in 2012. (Total excess hours charged to joint account 756 hrs ~ USD 155,564)

Possibility of

unaccounted,

unauthorized and excess

charged booked in JV

account

8) Authorization for expenditure not furnished (requirement as per JOA)

Absence of practice of furnishing AFE to concessionaires for expenditure approval. On review of budget v/s

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Budget &

AFEs

Absence of practice of furnishing AFE to concessionaires for expenditure approval. On review of budget v/s

expenditure at line item level for 2012, we noted:

● In 49 cases (USD 316 mm), expenditure was booked however there was no corresponding budget line item

● In 4 cases, actual expenditure (USD 177 mm) exceeded the budget line item (USD 121 mm) by more than 10%

● Overspending of 30% against other exploration spending (USD 1.25 mm incurred on Faraday Salvage Project)

Potential cost recovery

issues

EPCC

Compliance

9) Non-compliance to requirements of Exploration and Production Concession Contract (EPCC)

noted w.r.t competitive tendering of all renewable insurances in international market, capital registration,

submission of contingency plan to Ministry of Mineral Resources (MIREM), physical verification for fixed assets,

submission of bank statements to government on quarterly basis (though being shared on annual basis),

submission of recruitment & training programs to MIREM etc.


issues

Contracts &

Procurement

10) Documents evidencing compliance to procurement procedure not made available

• Documents evidencing compliance to procurement procedures (such as invitation to tender, quotations/

responses received, bidder list communication to INP and concessionaires etc.) were not made available for our

sample review of 53 work orders (43- orders raised during 2012 & 2013 and 11 amendment orders)

• Manpower contracts are not tendered as per procurement procedures agreed with JV (20 contracts~ USD 57 3

MM)

• Delay ranging from 9 to 590 days noted in intimation of contract award (sole source) to INP in 9 contracts (USD

58mm)

• Contracts not re-tendered as required by INP (2 contracts ~ 5 mm)


issues

Detailed Observations

Section II

PwC

February 2015

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Section II: Detailed ObservationsA. Direct Charges

S. No. Observation Recommendation Management Action Plan

1 Payments not in line with contracts resulting in over-

charging of USD 1.5 mm to joint account

Review of a sample 150 invoices highlighted 17 instances where

payments were not in line with contract resulting in overpayments to

contractors:

a. Excess rates charged: In 9 invoices, Unit rates (day rates)

charged for well test operators were not in line with agreed rates

as per contract resulting in overcharging of USD 39,253.

Annexure 1

b. Excess days billed: In 1 invoice relating to a service contract,

no. of days billed by contractor for consultant deployed were in

excess of no. of days as per timesheet (25 days billed in excess of

timesheet for the month of May’13) resulting in overcharging of

• Invoice verification process

should be strengthened to

ensure that payments are made

in line with the contract / WO.

SAP controls should be

tightened by ensuring utilization

of MM module for all

procurement to ensure that

payments outside the contract

terms are not processed

• Payments in the nature of

incentives / gifts outside the

scope of contract should be

a) The vendor was contacted and provided a

credit note for the excess charges.

b) It is incorrect that excess days were billed

on this invoice. The invoice had an incorrect

timesheet attached to it. The correct

timesheet shows 26 days. An invoice

verification checklist has been introduced to

strengthen the invoice processing process

and the same is duly filled/adhered during

invoice verification.

c1) Although outside prescribed listed

contractual charges, Operator’s Management

approved the payment of this expense as a

February 2015

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timesheet for the month of May’13) resulting in overcharging of

USD 38,125. Annexure 1

c. Payments outside the contract:

1. Performance incentive (in form of gift items - IPads) amounting

to USD205,000 and USD69,300 was paid to contract employees

of Dolphin and Transocean respectively as reward for observing

safety precautions however the same was not defined in

contract. Annexure 2

2. Withholding tax amounting to USD 106, 806 not

deducted on payments to vendor: As per Article 11 of EPC

agreement, Operator is required to deduct withholding tax at

the rate of 10% while making payment non-resident vendors for

work being carried out. However it was noticed that withholding

tax amounting to USD 106,806 has not been deducted in 4

instances (3 vendors) leading to non-compliance to EPC terms

and excess payment made to vendors. Annexure 3

scope of contract should be

post-approval by JV partners

• Operator to carry out a formal

review of similar charges and

take corrective steps to recover

excess payments

• Withholding tax should be

deducted from all foreign

payment for services as per the

EPC.

• Operator to carry out a formal

review of similar charges and

take corrective steps to recover

excess payments

approved the payment of this expense as a

safety and operational performance

incentive. The Drilling Manager has

authority under the company delegation of

authority policies for this approval.

c2) Subsequent review to the invoices

revealed that Tidewater invoice in the

amount of 248000 was subsequently

withheld. All others amounts were corrected

in 2015.

Implementation Timeline : (a)

Implemented, (b)Implemented & (c)

Implemented

PwC Comments:

c1) The invoice has been approved by

Drilling Manager. There is no separate

authority defined for approval of deviations /

exception payments which are not as per

contract. The charges may not be cost –

recoverable. Hence it is advisable to defined

authority for approval of exception payments



2 Sole cost expenses (advertisement expenditure of USD

138,654) charged to JV books

Online search of the an advertisement expenses incurred in 2012

amounting to USD 138,654 highlighted that such expenditures were

incurred as part of the parent company promotion activity for the

Mozambique project. The 8 page colour advert was printed for the sole

promotion of APC with no reference / logo of JV partners. Further all

corporate references were in the name of Anadarko Petroleum

Company (including NYSE stock ticker: APC, website & TV links. Refer

link below

Supporting document was also not provided for such advertisement

charges settled through intercompany – Anadarko Petroleum

Corporation (APC)). Annexure 4

• Operator should

ensure that parent

company

advertisement and /

or publication

charges are not

charged to the joint

account as these are

sole cost expenses of

APC

The advert portrays the project information and benefits

the partnership, hence the charge was booked to the Joint

Account. Going forward, operator shall follow guidelines

of corporate communication for publishing AMA1 related

advertisements and will provide appropriate

acknowledgment to the Non-Operators. Whenever

possible all logos will be displayed.

Implementation Timeline : Immediate /

Implemented

February 2015

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Corporation (APC)). Annexure 4

www.firstmagazine.com/DownloadSpecialReportDetail.1266

.ashx

3 Advance payment of USD 6 Mn made to Dolphin drilling

outstanding for over 2 years

The operator had given an advance of USD 6Mn to Dolphin Drilling in

2011 to compensate for time value of money over their tax obligations

in Mozambique however:

• The terms and conditions (agreement) of advance paid were not

provided for our review

• Per our review of expense ledger (JADE) and discussion with

operator, it was not an interest bearing advance

• Advance has not been received back from Dolphin Drilling up to

Dec’2013

• Operator needs to

define a policy for

advance payments

clearly highlighting

the scenarios

wherein advance

payments can be

made

• Ensure timely

recovery or

adjustment of

advances paid to

vendors

At the time this transaction was entered into, there was

an expectation of the partnership receiving a refund of

the $6 million advance and we continue to believe that

Dolphin Drilling has a right to receive a refund from the

Government of Mozambique.

We will request that our internal auditors conduct a

review of the Dolphin Drilling records on this matter

during the next round of vendor audits in Mozambique.

Implementation Timeline : Operator is monitoring

the receipt of the refund with E&Y Maputo who

represents Dolphin Drilling with the Tax Authorities.



4 Aviation expenditure charged wholly to offshore block

Total spend on aviation expenditure (charter hire and fuel costs) for

the year 2012 and 2013 was USD36 million (USD 8.4 mm directly

charged to offshore block in 2012 and USD 27 mm charged through

camp cost allocations in 2012-2013). Annexure 5

It was noted that the whole amount of aviation expenditure was

charged to offshore block. Flight manifests are not obtained from

vendors (actual flying hours with requisite information such as

name / ID of personnel with block details). As a result, amount

allocable to onshore block cannot be ascertained.

It is to be noted that allocation principles followed by operator

during previous years (Nov 2009 and prior: 50% onshore and 50%

offshore, Dec 2009: 25% onshore and 75%offshore, Jan 2010

• Flight manifests should be

obtained from vendors and

allocation of aviation

spending should be done

basis actual flying hours for

respective blocks

Flights manifests are being maintained by the

Operator. The manifest may not display the all the

information in the manner suggested by the

Auditors. The Onshore Block had no activity

during 2013, which is the reason that very few

aviation related charges were allocated to the

Onshore Block. In addition to Flights manifests,

there is also a travel request form whereby the

relevant cost object is specified by the Requestor.

This data is used to segregate travelers costs by

project.

PwC Comments

February 2015

Slide 13PwC

offshore, Dec 2009: 25% onshore and 75%offshore, Jan 2010

onwards: 100%offshore). As informed, there was a reasonable

activity in onshore block during 2012 and 2013

PwC Comments

The operator should obtain flight manifest with

the requisite details from the vendor (along with

the invoice). Allocation of aviation spending

should be done basis actual flying hours for

respective blocks.

Alternatively, the allocations may be based on

information captured through travel request form

whereby the relevant cost object is specified by

the Requestor.

Section II: Detailed ObservationsB. Indirect Charges


5 Third party settlement of USD 4.5 million not

excluded in calculation of indirect charges

resulting in overcharge of USD 67,500 to JV: As per

section 3.3 of accounting procedure of Joint Operating

Agreement (JOA), the expenditures used to calculate the

monthly indirect charge shall not include expenditures in

the nature of third party claim settlement however it was

noted that in Dec’2012, legal settlements amounting to USD

4.5 Mn were included in expenditure for calculation of

Parent Company Overhead charges resulting in overcharge

of USD 67,500 Annexure 6

• Operator should ensure

compliance with the

provisions of JOA with

respect to computation

of PCO charges

The correction posting done in March 2015.

Implementation Timeline : Implemented

6 Intercompany charges settled through bank • Operator should not This matter has been tabled at the Accounting Sub-committee and

February 2015

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6 Intercompany charges settled through bank

account grossed up (for withholding tax) resulting

in possibility of over-charge to joint account: As per

JOA if Operator or affiliate is subject to WHT as a result of

services performed at cost, its charges for services may be

grossed up by the amount of taxes. Per our discussion with

operator, PCO & other intercompany charges (I/C) were

settled through bank account in Mauritius (country with a

double taxation treaty with Mozambique) after grossing up.

Details are as follows

• I/C charges up to Nov’12 have been settled after grossing

up by 10% WHT (Total gross up of USD3.84 mm charged

to joint account in 2014 for the period Jan’12 to Nov’12)

• No settlement done for I/C charges booked post Dec’12.

Estimated total gross up for the period Dec’12 to Nov’13

is USD 6.5 MM. Annexure 7 & 8

• Operator should not

deduct WHT on

transactions covered by

double taxation treaty,

which result in

additional charges to

joint account

• In case of any risk

highlighted by tax

auditors, Operator

should communicate the

same to JV partners and

additionally seek

opinion from

independent third-party

consultant over the

matter.

This matter has been tabled at the Accounting Sub-committee and

external opinions obtained to support the conclusions presented by

the Operator for the gross up resulting in no overcharge to the Joint

Account. Day rate charges for this period (Dec’12 to Nov’13) were

only grossed up after obtaining the external opinions in 2015.


Section II: Detailed ObservationsC. Cost Allocations


7 Process of Allocation of G&A expenses to be strengthened.

a) Allocation principles (OPEX, G&A and RLD) not furnished

with work programme and budgets for the year 2013 as per the

requirement of JOA (though the same were furnished in the accounting

sub – committee). As per the requirement of JOA, operator shall furnish

a description of its allocation procedures pertaining to the costs and its

rates for personnel and other charges, along with each proposed Work

Program and Budget.

b) Allocation not done in line with agreed rates: As furnished in

accounting subcommittee, G&A allocations between offshore and

onshore block was to be in proportion of 90:10. However, G&A

expenses allocated between offshore and onshore block post July’13 was


compliance to terms of JOA

• Operator should apply

allocation procedures as per

furnished principles

• Allocation based on capital

spending estimates should be

actualised on a periodic basis

a) Operator will implement the

recommendation.

b) The Operator reviewed the allocation

percentages along with the revision of the

2013 Budget. Partners were verbally

advised in the Accounting Subcommittee

meeting of September 17th, 2013 of revised

allocation procedures. This was not

provided in writing. It was explained to

Partners that there were no Onshore Block

operations during 2013; thus, the rationale

February 2015

Slide 15PwC

based on a rough estimate of capital spend i.e. 99.2 : 0.8. Further

allocation was not re-instated based on actual spending. Considering

the agreed allocation rule of 90:10, there was overcharging to the extent

of USD 1.1 mm to offshore block. Annexure 10 & 11

Actual total spend for Offshore block (overall) was USD 908 million

(as per budget vs actual) which lower by the above estimate by 10%

approximately. Actual spending for Onshore not available.

to equitably adjust the allocation

procedures per section 1.9 of Annexure C of

the JOA.

PwC Comments:

b) Change in original G&A allocation

principle (furnished in accounting sub-

committee)should have been formally

communicated / brought to attention of JV

partners.

The change in principle has resulted in an

overcharge of $ 1.1 mm to the joint account

and is not in line with the process defined

as per JOA.

Section II: Detailed ObservationsC. Cost Allocations


7 Process of Allocation of G&A expenses to be strengthened

(contd…)

c) Expenses excluded from G&A allocation without adequate

justification

• Contribution (CSR expenses) excluded from G&A allocation

resulting in overcharging to offshore block and undercharging to

onshore block by USD 99,831. Annexure 12

• Legal, Consulting & Audit charges (incurred by AMA1

~USD1.44million) which are a part of Maputo office costs are not

allocated to onshore block

On review of 15 audit and investment certification invoices (KPMG)

amounting to USD 0.13 million, it was noted that these charges


compliance to terms of

JOA

• Operator should apply

allocation procedures as

per furnished principles

• Allocation based on

capital spending

estimates should be

actualised on a periodic

basis

c) The CSR expenses are solely for the Offshore Block.

Legal, Consulting and Audit charges mainly related to

the Legal and Professional services associated with

the ongoing Offshore Block commercial negotiations

with the Government of Mozambique. These are

specific costs to the Offshore Block and its inclusion

in the cost pool would not be considered fair and

equitable.

The exclusion of the audit fees and other such

expenses is due to the fact that these charges were

accounted for in the same account as other

February 2015

Slide 16PwC

were not specific to Offshore operations however, still not allocated

to Onshore. Annexure 13

professional services rendered in connection with the

referred negotiations. We shall review such costs

which were not included in the allocable cost pool and

make necessary corrections / adjustments to the

joint account.

Implementation Timeline :

8 Rental in lieu of depreciation charges (for asset usage) not

charged by operator to onshore block for the last quarter of

2013: It was noted that RLD was not charged to onshore block for the

last quarter of 2013. RLD resulting in overcharging to offshore block.

Average quarterly RLD charge (for 3 quarters) in 2013 was

approximately USD 100,000 per quarter. Annexure 14

• RLD should be levied as

per furnished principles

The charge was posted in February 2015.


Section II: Detailed ObservationsD. Affiliate Charges


9 Inadequate control over affiliate charges

All affiliate charges (Houston based costs) recorded in JV

books are based on time booked in time writing system

(CATS) and rates certified by statutory auditors. Noted

following issues w.r.t affiliate charges:

• No maker checker control over time booked in CATS

system. There was no process of approval or sign off of

time booked to ensure accuracy.

• Un-reconciled difference of USD1.4 million noted in T/W

report and actual amount booked in joint account for the

year 2013. T/W report (CATS) not shared & reconciled for

2012 charges (JADE) by the operator. Annexure 15

• Institute the process of

review/approval of time

booked in CATS report

• Undertake periodic

reconciliation between

time writing report and

amount booked in JV

account

• All time-writing charges

should be based on

certified rates and

assumptions (category,

The Operator has already implemented a control for the

reconciliation between the general ledger and time writing

report. The Operator’s affiliates have assigned staff members

to review the monthly time writing reports for completeness

and accuracy of project coding. For the period under review,

CATS Time writing details includes non-billable items. The

Joint account was billed less than the total pool of time

writing charges.


Annual worked hours in excess of the average 1,784 per year

February 2015

Slide 17PwC

2012 charges (JADE) by the operator. Annexure 15

• Noted 5 categories where day rates were not certified

(Total cost - USD 0.53 million for 2012) Annexure 16

• Further, KPMG certified rates were based on 1784 working

hours, however 3 affiliate employees had charged higher

hours in 2012. (Total excess hours charged to joint account

756 hrs ~ USD 155,564). Annexure 17

assumptions (category,

hours etc.)

Annual worked hours in excess of the average 1,784 per year

occurs when the employee records time related to prior year

in the current period and when the employee does not take

leave during the period. Both instances do not represent over

recovery of costs, but a timing difference. The time writing

system does not allow the employee to record more than 9

hours per day, hence overtime is therefore not booked.

The unaudited rates are related to time writing for employees

charged from Anadarko’s UK affiliate. The number of

employees and the insignificance of the charges did not

justify obtaining a separate KPMG certification on these

rates. Upon request, the rates are available for auditor’s

review.

Section II: Detailed ObservationsD. Affiliate Charges


10 Time writing costs charged by the Operator for non-technical staff

outside of Mozambique: Section 2.5 & 3.1 (j) of accounting procedure of EPC

provides that for services rendered outside Mozambique for managing the

Petroleum Operations and for providing assistance including financial, legal,

accounting & employee relations services, Parent Company Overhead (PCO)

charge at a fixed percentage of the contract costs is allowable. Section 3 of the

accounting procedure of JOA contains similar provisions. Operator is charging

PCO based on the above provisions.

However the above practice of charging time writing costs for non-technical

resources as well as PCO may not be in compliance with EPC & JOA as this may

result in duplication of charges for the same type of services. Amount charged in

2012-13 towards time writing for non-technical resources (ascertained basis

• Operator should

identify the total

time cost recorded

by non technical

staff of operator’s

affiliate through a

formal review

• The PCO charges are

for the services of

non-technical staff.

Additionally,

In accordance with section 2.7.2 of the Exhibit A

to the JOA, both technical and professional

services provided by the affiliates of the Operator

are allowed to be charged to the Joint Account as

a direct charge. The charges from affiliated

companies are included in the Work Program

and Budget for Partners review.

Implementation Timeline : The professional

non-technical services provided by the affiliates

of the Operator are properly being charged in

accordance with the JOA.

February 2015

Slide 18PwC

sample review of description of work/activity) was USD 1.3 MM approximately.

Annexure 18

charging the JV

account for non-

technical staff by

time-writing leads to

duplication and is

not as per provisions

of EPCC. Any

approval for such

charging/expenses

should always be

sought specifically

from the Partner.

Section II: Detailed ObservationsE. Budget & Expenditure Approval


11 Authorization for expenditure not furnished as per JOA requirement

As per provisions of JOA, Operator shall send to each Concessionaire an AFE as described in

Article 6.7(C) however Operator shall not be obliged to furnish an AFE to the Concessionaires

with respect to expenditure that is listed as separate budget line item. Further Operator is also

required to furnish a supplemental AFE and give prompt notice to non-operators under

Article 6.8(A) for expenditures exceeding budget by 10%

Observations noted are as follows:

(1) It was noted that the Operator does not follow a practice of furnishing AFE for

expenditure approval.

(2) The operator was not able to provide us an activity wise mapping of budget vs. actual

for 2012-13. Review of the budgets and actual expenditure for 2012 highlighted:

• In 49 cases (USD 316 MM) there was no corresponding budget line item for the

• Operator should

ensure compliance

with the requirement

of the Joint Operating

Agreement with

respect to furnishing

of AFE to JV partners

for non – budget items

• Operator should

ensure compliance

with the requirement

The Operator’s view on the way

AFE’s and Work Plans and

Budgets should be managed has

been discussed with the Non-

Operating Partners at the Q4 2014

OCM. Partners were requested to

propose alternative ways to the

current practise been followed by

the Operator.

The level at which budget line

items are being managed for

overspending are those appearing

February 2015

Slide 19PwC

expenditure incurred. Annexure 19A

• In 4 cases, the actual expenditure (USD 177 MM) exceeded the budget line item (USD

121 MM) by over 10% prior to submission of revised budget in Sep’12 (revised budget

presented at OCM was not available for our review). Annexure 19B

• In 6 cases the budget line item (description) could not be traced to the actual

expenditure. Annexure 19C

• Overspending of 30% against other exploration spending not furnished to partners

through supplemental AFE in line with JOA requirement (USD 1.25 million incurred on

Faraday Salvage Project Exploratory. As explained by the operator, this was an un-

budgeted spending however as per Article 6.8 D of JOA the operator cannot exceed

USD 250,000 for non-budgeted items) Annexure 20

of the Joint Operating

Agreement with

respect to over

expenditures.

in the summary page of the

budget. The Faraday Salvage

Project was undertaken upon

obtaining Partners approval.

Section II: Detailed ObservationsE. Budget & Expenditure Approval


12 Affiliate costs not projected in budgets as per the requirement of JOA

With respect to affiliate charges, Article 2.7.2 of JOA requires that such costs shall be presented as

a separate line item in the budget. JOA requires that costs for professional personnel shall be one

line item and such costs for technical personnel shall be a separate line item

Affiliate costs (Houston office) were presented as a separate line item in budget under foreign

office costs as per the requirement of JOA. However, it was noted that:

• Affiliate costs are classified into exploration management, subsurface, business services

and others

• Affiliate costs so presented were only non –project related costs i.e. amount remaining

after allocation of such costs to the respective projects / AFE. Details are tabulated below:

(USD million)


compliance with the

requirement of the

Joint Operating

Agreement with respect

to projection and

approval of Affiliate

Charges as part of the

budget.

• Budget for affiliate

charges (time writing)

should be separately

Operator will implement the

recommendation.

Implementation

Timeline : Q2 2005. All

subsequent work program

and budgets shall disclose

the affiliated charges

included in the budget line

items.

February 2015

Slide 20PwC

should be separately

presented as required

by JOA

13 Pre-development costs not classified in EPCC (approved as part of annual budgets)

Predevelopment costs amounting to USD 613 million for the years 2012 & 2013 (for LNG project)

though part of annual budgets and being charged to joint account are not in conformity with the

expenditures outlined in the EPCC.

Major expenditures incurred during pre-development phase:

• Geotechnical, Geophysical & FEED Studies (> USD450 MM)

• Operational (opex), legal, office capital & administrative expenditure (> USD 100 MM)

• Potential cost recovery

risk

Operator took note of the

observation and would like to

highlight that Pre-

development costs are being

reported as Development

and Production Capital as

defined in the EPC.

Year Actual Affiliate charges

(Gross)

Affiliated Cost Presented

in revised Budget (Net)

Affiliate charges charged

to project not presented

separately

2013 36.97 6.36 30.64

2012 25.10 3.90 21.71

Section II: Detailed ObservationsF. Procurement Procedures


14 Contracts & Procurement

There was absence of a centralized database for work orders & contracts awarded during a

specific period containing details such as work order value, amendments, no of change orders

etc. SAP report for work orders and contracts was not available for our review.

Post multiple requests, the operator had shared a manual work order listing (obtained from

Houston office) however it was noted that

• It did not include work orders for 13 vendors out of sample 31 vendors selected basis

expenses booked Annexure 21

• Further complete details such as work order value, expiration date, service description

etc were not available therein.

Details of work orders selected for the review are as follows:

• Operator should

ensure compliance

to procurement

procedures agreed

with ENH and the

terms of JOA w.r.t

procurement of

material and

services

• Operator should

ensure compliance

to the direction of

Contracts: The Operator is in the

process of identifying a contract

management tool that will help

manage the issuance and

amendment of work orders and

contracts. This is a cross functional

initiative, and the Operator is

conducting internal consultations

aiming to obtain input from several

groups to enable the selection of the

best tool. Implementation

Timeline : 2016Particulars Total

Vendors

Sample - Work orders Total Value* (USD

mm)

February 2015

Slide 21PwC

*Total value booked in JADE for selected parties

Observations noted are as follows:

1. Procurement Procedures not available for review: Detailed policies and

procedures followed by AMA1 for procurement of goods and services (required for

verification of approvals and processes followed w.r.t. contract awards)were not available

for our review.

The operator had shared the procurement guidelines agreed as part of OCM 2007-02

which set out key responsibilities of operator w.r.t. procurement of goods and services.

2. Documents not made available: As per procedures agreed with ENH operator is

required to notify bidder list to INP, seek nominations from other concessionaires, invite

bids basis invitation to tender, seek INP’s approval for sole source cases, intimation to

INP for major contract award etc.

to the direction of

INP to avoid cost

recovery risk with

respect to sole

source contracts

Vendors mm) New Orders Amendment Orders Total

Drilling 15 15 10 25 875

Non

Drilling

16 27 1 28 234

Section II: Detailed ObservationsF. Procurement Procedures (Continued..)

S. No. Observation Management Action Plan

14 Further, as per Section 6.6 (B) - clause 4 of JOA : For all major

contracts, the following principles for tendering shall be

adhered to:

(iii) A copy of the list of pre-qualified bidders shall be submitted

to INP for information.

(iv) Before major contracts are awarded, INP shall be advised of

the Operator's recommendations for information.

For sample of 31 vendors, documents evidencing such

compliance to procurement procedures shared with INP &

requirement of JOA - Section 6.6 – Contract Awards (i.e. copy

of the list of pre-qualified bidders submitted to INP for

information & communication to INP of the Operator's

recommendations) were not available Annexure 22A, B & C

1 & 2) At the time of the audit, these procedures were being reviewed and had not been

made effective, therefore the new procedures were not made available to the auditors.

The procedures alluded to in the finding have been modified by a different practice

between the Operator and INP that have never been formalized. Through the

correspondence exchanged and the several clarifications on the requests submitted,

can be derived the procedures that are currently being followed. For example, in the

referred correspondence INP does not request bidders list when there is a request for

sole source approval. On the other hand, upon submission of bidder list INP derives its

comfort with regards that the Operator is tendering for its goods and services.

Going forward, the operator shall be ensuring compliance to agreed procurement

regulation & guidelines as per the new Decree Law

Implementation Timeline : Q1 2015

February 2015

Slide 22PwC

recommendations) were not available Annexure 22A, B & C

3. Manpower service contracts not tendered as per

agreed procedures (ENH): At the end of 2013, 20

manpower service contracts were active of which 11 contracts

(American Servoil, FDR safety, Orion & Stag) recorded expenses

of more than USD 1 MM during 2012 and 2013 JADE. Total

value of such contracts was approximately USD 55 million. It

was noted that no tendering procedure was followed for such

manpower contracts. Further sole source justifications were not

available in such cases. Annexure 23

Implementation Timeline : Q1 2015

3) The Operator does not tender for personnel. The Operator's approach is to hire the

best qualified individual for the relevant job. In addition, the Operator maintain its

position that procurement regulations does not apply for personnel.

PwC Comment: The procurement procedure applies to procurement of all material

and services and the EPCC does not contain and specific reference to or exclusion of

manpower services. Such costs may be non recoverable due to non compliance to

procurement procedures.

It is recommended that the Operator ensures compliance to procurement procedures

w.r.t such contracts as well

Section II: Detailed ObservationsF. Procurement Procedures (Continued..)


14 4. Non-compliance to procurement procedures: In sample review of 12

work orders (amounting to USD 78 MM) awarded basis sole source, we noted

following non-compliance to procurement procedures w.r.t communications

to INP & concessionaire:

• Delay in intimation to INP: For 9 contracts (~USD 58 mm) delay

ranging from 9 to 590 days noted in intimation of contract award to INP

(sole source vendor). Annexure 24

• Non-compliance to INP requirement: Two contracts (~USD 5 mm)

rejected by INP with requirement to re-tender however, the same were not

re-tendered by the operator. Annexure 25

• Bidder list not furnished to other partners: Operator did not seek

nominations from other concessionaires in 9 cases (~USD32.64 million)

Annexure 26

4) a) The delay in the intimation to INP have resulted from inadvertent

communication failures.

b) Upon rejection of the Solenta contract, the Operator advised INP that

for operational and safety reason, its recommendation could not be

immediately implemented. In relation to the Construction contract, it

was not possible to tender for the services after the construction was in

progress.

c) The Operator has advised that is not subject to this requirement.

PwC Comment :

a) The operator should ensure timely compliance to procurement

procedures

c) As the operator had indicated in earlier OCM (2007) : "The

February 2015

Slide 23PwC

Annexure 26 c) As the operator had indicated in earlier OCM (2007) : "The

procurement procedures are with INP and follow up discussions are

being held. A response from INP has not been received as yet. Anadarko

further indicated that they are conducting business assuming the

proposed procedures will be approved by INP"

However, the operator believes that it is under no obligation to follow

procurement procedures which have not been approved by INP

INP may take exception to the above fact during cost recovery audits as:

• The procedures were accepted by ENH and other partners during

2007

• The procedures were submitted to INP

• The operator clearly indicated in the 2007- OCM that it shall be

conducting business assuming the proposed procedures will be

approved by INP

Section II: Detailed ObservationsG. EPCC Compliance


15 Non-compliance to requirements of Exploration and Production Concession Contract (EPCC)

Requirement (EPCC Reference)

Exception noted – Description Management Action Plan

Competitive tendering of all renewable insurances (Article 16.4)

Renewable insurances not tendered in international market: As per article 16.4ofEPCC, the Concessionaire shall competitively tender all renewable insurances placed into the international markets at least once every three (3) years unless otherwise approved by MIREM.

Competitive tendering is being followed on all new contracts.

Implementation Timeline: Implemented

Capital registration (Article 26.8)

Capital registration not done: As per Article of 26.8the EPCC, the Government and the Concessionaire shall develop procedures under which amounts demonstrably

Operator has encountered difficulties with the Bank of Mozambique

February 2015

Slide 24PwC

(Article 26.8) the Concessionaire shall develop procedures under which amounts demonstrably expended under this EPC that are cost recoverable, as well as such further amounts demonstrably expended as may be classifiable as capital expense under applicable law, shall be entitled to capital registration notwithstanding the account from which the corresponding payments were made

with the Bank of Mozambique regarding the registration of expenditures from offshore bank accounts. Currently working with KPMG to certify the expenditures on a partner-by-partner basis, which will hopefully be accepted by the Bank of Mozambique.

Implementation Timeline: Q3 2015

Contingency plan (Article 14.1)

Contingency plan not submitted to MIREM: As per article 14.1, the Concessionaire shall, before carrying out any drilling, prepare and submit for review by MIREM a well programme including a contingency plan designed to achieve rapid and effective emergency response in the event of a blow-out or fire, escape, waste or loss of Petroleum or damage to Petroleum bearing strata.

The contingency plan was submitted as part of the EIA for drilling operations.

Implementation Timeline: Already in compliance

Physical verification of fixed assets (Section 4 – Annex C)

Physical verification of Fixed Assets not conducted in 2012-13 (ITD fixed asset register for JV was not available. Total asset acquisition in 2012 -13 was USD 30.85 MM as per YTD asset register). Physical verification of movable assets with value >=USD100per unit to be conducted once every year as per requirement of EPCC.

INP Official were invited to participate in the Drilling materials Inventory count, however INP Officials did not express a desire to count the fixed assets.

Implementation Timeline:

Section II: Detailed ObservationsG. EPCC Compliance (Continued …)


15 Non-compliance to requirements of Exploration and Production Concession Contract (EPCC)

Requirement (EPCC Reference)

Exception noted – Description Management Action Plan

Submission of bank statements to government (Article 26.3)

Bank statements not submitted on quarterly basis: As per article 26.3, operator is required to share all the bank statements with the government on a monthly basis. Statements were submitted at the end of year

Operator has submitted the required statements.Implementation Timeline:Implemented

Submit recruitment & training programmes to

Recruitment & Training Programs not submitted: As per article 18.4, in order for MIREM to monitor the fulfilment of the employment and training obligations contained in this Article, the Concessionaire shall annually submit its recruitment and training programmes to MIREM.

Training of Engineers and Technicians are ongoing. Operator is conducting ongoing discussions regarding its recruitment and training

February 2015

Slide 25PwC

training programmes to MIREM (Article 18.4)

training programmes to MIREM. regarding its recruitment and training programs in association with the plan of development.Implementation Timeline:

Interest on Carry (Article 9.13)

Interest on carry amount not booked as recoverable cost in joint account: As per article 9.13 (e) of the EPCC, from the date of commencement of Commercial Production, ENH and any entity designated by the Government to manage the State Participation Interest portion shall reimburse in full the Carry in cash or in kind to the Persons (other than ENH or a Permitted Assignee) constituting the Concessionaire.

Interest will be accounted from the date of the Approval of the first Development Plan.

Interest on commercial loans (Section 3.2)

Interest, fees & other charges on commercial loans not being charged to joint account: Section 3.2 of Annex C of EPC provides that following costs are recoverable with the approval of the Government: Interest, fees and related charges incurred on commercial loans by the Concessionaire for the Petroleum Operations

During Accounting Subcommittee meeting in 2014, it was agreed that each partner that would like to cost recover interest on commercial bank loans should seek approval of INP for the interest to be included in cost recovery. Non-operators have taken note that the interest may be subject to withholding tax and that they prefer to confirm that they are in compliance with MZ tax laws prior to discussion with INP.

Section II: Detailed ObservationsH. Other Observations


16 ITD fixed asset register not available, difference noted in Fixed Asset

Register and JADE: Review of asset balances in fixed asset register vis a vis JADE for

audit period highlighted the following issues

• Inception to date fixed asset register not available for the joint account. Total

value as per Asset Register in 2012 & 2013 is USD 12.97 MM & 17.87 MM

respectively.

• Asset AFE not appearing in Fixed Asset register (12 asset AFE ~ USD1.4 MM as

per JADE not appearing in FAR) Annexure 27A

• Value of “other assets not countable” is negative i.e.USD (287,266) for AFE no

2061850.0416020N.DEV (in 2012 FAR). As confirmed, there have been no asset

dispositions (reason for negative value not provided)

• Amount of AFE as per FAR is not in line with the amount as per JADE in 2

• Operator should

reconcile balances in

FAR with transactions as

per JADE

Operator is developing a system

solution that is aimed to be

implemented after the completion of

the Premier Project.

Implementation Timeline: Q1

2016

February 2015

Slide 26PwC

instances (USD 1.03 MM) Annexure 27B

17 Absence of a process to reconcile JIB and cost recovery statements:

Reconciliation of expenditures as per JIB and cost recovery statements was not available

for 2012 and 2013. As per the operator, an exercise to reconcile all ITD figures for cost

recovery and how it compares to the JIB is in progress. However these reconciliations

are still being finalized.

• Operator should

reconcile cost recovery

statements and JIB

Operator has implemented the

reconciliation between the JIB and

the cost recovery since Q1 2014.


Implemented

18 Cash call forecasting process requires improvement: Noted significant

variations in forecast vs. actual expenditure (ranging from -84% to 50%) leading to

possible excess balance. On reconciling the available cash balance & cash calls received

with cash expenditure for the period Feb’12 to Oct’13, we noted an unexplained variance

of USD 159 mm. Annexure 28 & 29

• Forecast process should

be made more robust

• Intercompany balance

should form part of the

cash call statement

• Variance s need to be

explained by the operator

Cash expenditure were in excess by

USD 155 mm to the cash call, due to

Affiliated charges not being included

in the cash call as they were not

being paid from Nov’12 to Dec’13.


Scope Limitation

Section III

PwC

February 2015

Slide 27

Section III: Scope Limitation*Open Information Requests

IR No Particulars Brief Description

IR - 21

(PTTEP)Well Reconciliations

Well Reconciliations (AFE budget VS. Actual, Tubular, Drill Bits, Mud, Cement, Fuel and Rig Day Rate) for well drilled in the

period 2012-2013

CIR – 9

(PwC)

Clarifications on Equity Group re-

class adjustmentsRequired: clarifications & details of re-class entries passed during audit period

CIR – 5

(PwC)JGC - Trans world

As per the terms of Service order issued to JGC transworld, separate hourly rates for 2012 and 2013 has been defined with

2013 rates being 10% higher than 2012 rates. However on invoice verification we are finding that all the work is being

performed in 2013 only. Please clarify as to why no work was carried out in 2012.

CIR – 4

WO no AMA1-MCSA-1201-0010-W02 was issued to Fugro Survey Mauritius Ltd for performing “Shallow Water

Geotechnical Engineering Investigation and Report” service. The original amount of WO was USD 4.1 million. Subsequently

February 2015

Slide 28PwC

CIR – 4

(PwC)Fugro

Geotechnical Engineering Investigation and Report” service. The original amount of WO was USD 4.1 million. Subsequently

amount has been revised by USD 11.1 Million through 4 change orders.

Kindly provide us with the approvals for the change orders and the reasons for nearly 3 fold increase in the cost.

IR- 209

(PwC)JIB-JADE Reconciliation Reconciliation of balances as per JIB & JADE was not available.

IR-241

(PwC)Cash call forecasting –I/CO balances Details of inter-company settlement and month on month intercompany balances were not available for review.

IR – 255

(PwC)Invoice Approvals Invoice approvals and Delegation of Authority (for invoice approvals and payment processing)

* Limitations other than those already covered in the report

Annexures

Section IV

PwC

February 2015

Slide 29

Thank You

© 2015 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited

(a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of

PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

VS-2408-DDC