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Shift in energy policy

• January 2013 bid round for 200,000 acres • Petroleum tax to be reduced
Aleem Khan
Published: 
Thursday, October 25, 2012
Former energy Minister Errol Mahabir

 

T&T's budget for fiscal 2013 contained three provisions to stimulate exploration and production in the energy sector, “and the first of these three was the harmonisation of what we call SPT, or the supplementary petroleum tax,” Energy and Energy Affairs Minister Kevin Ramnarine said.
 
In a document e-mailed to the Business Guardian on October 16, Ramnarine said, “SPT was introduced in 1981, and in those days, I think the Minister of Energy was Errol Mahabir. It was introduced at a time when the Iran/Iraq war had just broken out and the price of oil went straight through the ceiling.
 
“In those days, the price of oil reached as high as US$42/US$43 a barrel and that was very high in 1981, and the then government of T&T decided that the country needed to capture more of that revenue and they introduced this tax called the SPT, which has been with us now since 1981.”
 
Two SPT rates for marine areas
“There was what we call the pre-88 rate, which is 42 per cent, and there was a post-88 rate, which was 33 per cent.” He said the industry for a very long time had been lobbying for the harmonisation of these rates.
 
Ramnarine said “42 per cent SPT is very onerous. It means then, the SPT comes off from your top line, from your gross revenue. So it means that your cash flow starts at (58) cents (on the dollar), and then you have to subtract from that your cost and so on. So it was a disincentive to exploration and production.”
 
In addition to that, he said, “We realised that since we are signing a new licence for Trinmar, Trinmar would have, in any event, been paying the post-1988 rate, because Trinmar is due to get its new licence any day now. So given all of that, the Government took the decision to harmonise the SPT rate at 33 per cent, and this therefore means a single SPT rate for the marine areas.”
 
Those two rates created a system which could be considered to be discriminatory, and which impacted on the overall fiscal regime competitiveness of the T&T energy sector, and it was done with the view of stimulating the production of oil, the minister said.
 
Asked what would be the revenue loss government would suffer as a result of this harmonisation of the SPT, he said, “First of all, you have to remember the SPT is the top line, so even if you reduce the SPT, what you have is a greater volume of money trickling into the PPT pool, which is the petroleum profits tax, and these things are explained in the Petroleum Taxes Act.
 
“But the amount of revenue foregone as a consequence of this harmonisation is $240 million, which we expect we will get back, because this is expected, and one company has already booked a rig as a consequence of this. So we will get back that $240 million from the increase in oil production, which will mean more taxes and so on.”
 
He said his government “also introduced a special SPT rate, and that SPT rate is for new field development - to enhance economics of a new field development - or small pools and increase the competitiveness of the country’s fiscal system. That rate is 25 per cent and, again, you might ask, 'Well, what are we losing as a consequence to that?' The answer is nothing, and I will tell you why. That 25 per cent only applies if you go after a new field. The alternative is that you do nothing. So, therefore, it is revenue that you would get, and it does not affect (Finance) Minister (Larry) Howai’s base revenue which he is getting from oil and gas right now.”
 
Finally, the minister said, the national budget for fiscal 2013 provided an uplift of 40 per cent on exploration costs, excluding exploration dry holes incurred in undertaking approved projects in deeper horizons. “And for a very long time, (if) you talk to people in San Fernando in the oil industry, they will tell you, 'Minister, below 8,000 feet on land, there is a lot of oil',” he said.
 
“What we want to do is to facilitate persons going after the deeper horizons on land and the deeper horizons offshore.” Turning around oil production is something that takes time and what’s required is an understanding of the fiscal system.
 
Record number of rigs ‘on the water’
Ramnarine also said the services sub-sector of the energy sector “grew by 34 per cent in fiscal 2012.” He said when he “saw that anomaly - because you have all the other sub-sectors contracting, albeit small, and you have this major anomaly” of growth - he called some of the renowned experts in the industry to explain this 34 per cent” to him. 
 
The Energy Minister said one expert told him it is not a reflection of output, but a reflection of activity, “and there is - one would have to be blind not to see - a tremendous amount of activity taking place in the upstream side of the energy sector.”
 
Ramnarine said what underpins that 34 per cent “is the activity, and they measure activity in the upstream sector by some metrics. One of those metrics is, first of all, you look at the amount of rigs that you have working. Right now, there are six rigs working. I call them “on the water” - in the marine area. 
 
“There are two rigs working for BP: the Rowan EXL II and the Westshire rig. There is one rig working for Niko Resources, the Rowan Gorilla III, and there is a fourth rig working for Trinmar, a well services rig. There are two, what they call slant rigs, working for BP. So, six rigs overall offshore are in the water, and I am advised there are about four - possibly six - rigs working right now on land in south Trinidad, all going after oil and natural gas.”
 
He said he read in a newspaper about a company called Range Resources. “Range Resources is a company from Australia and they have been doing a tremendous amount of work in the Quinam/Morne Diablo area to revitalise oilfields that were left for dead.” 
 
Therefore, he said, “When we look at fiscal 2013 very carefully, in fiscal 2013, we expect that 19 exploration wells will be drilled.” Referring to himself, Ramnarine said, “Now, being a person who keeps a lot of data - which is obvious - I had to go and look at my files to see when last this country had 19 exploration wells being drilled in one year, and my data-set, unfortunately, only went back to 2000, but there was no year that we drilled that amount of wells. So there is an unprecedented level of activity taking place.”
 
Turning to another metric, Ramnarine said, “Now, you look at what they call rig days, which is one of the metrics the Ministry of Energy and Energy Affairs keeps. In 2008 - which was a good year - we had 2,690 rig days. That collapsed in 2009 to 744 rig days. It recovered a bit in 2010 - 1,132. Last year, 2,189. This year - and this is up to August of this year - we are already at 1,840 rig days. So we expect to surpass 2008 this year. Again, that is an indication of the level of activity taking place in the upstream sector.”
 
The head of the energy ministry then went on to “give a brief synopsis of what all the major companies plan to do next year - well, (during) fiscal 2013. BPTT plans to drill five development wells. Two of those wells will be in the Savonetta field, and three in the Immortelle field. 
 
“And, as I said, they currently have two rigs working for them, the Rowan EXL II and the Westshire rig. British Gas T&T will be commencing the drilling of four wells to develop the Starfish field. That field, I think it has approximately 500 bcf of gas, and that plan will be rolling out itself in the third quarter of fiscal 2013.”
 
Ramnarine said he wanted “to put on record” his congratulations to Derek Hudson, “a son of the soil, for his appointment as the head of BG East Africa.” He said the people of T&T are “brilliant people, working all over the world in the oil industry.”
Business Guardian

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