Government needs to have a minimum of two bid rounds per year if it is to see more exploration activity and an increase in oil and gas reserves.
This is the view of former Energy Minister Carolyn Seepersad-Bachan, who in an interview with the Business Guardian said it was crucial that there be more equity crude produced locally so that Petrotrin can reduce its reliance on foreign oil to keep its refinery going.
The former Energy Minister said when she was at the helm of the country's energy sector there was a commitment to at least two bid rounds per year but, unfortunately, after her removal from the Ministry, this did not occur.
She also lamented that the country needed to fundamentally change the role of the energy sector to make it the bridge for the manufacturing sector. A role again she said the PP failed to achieve.
The former Energy Minister told BG, "Regrettably the linking of energy to manufacturing was not pursued aggressively under the Partnership Gov't and exploration activity was not sufficient in terms of keeping the set target of two bid rounds per year."
Minister of Finance, Colm Imbert, spent a considerable part of his 2017 budget presentation concentrating on the low levels of production at Petrotrin that averaged 65,196 barrels per day (bpd) in August and 71,182 (bpd) for the first eight months of 2016.
He said Petrotrin's low level of production was a double whammy that meant not only low oil prices but low production levels were negatively impacting revenues from the energy sector.
But the issue of falling crude production and decreasing natural gas reserves are challenges that have been facing the sector for more than a decade.
UWI economist Dr Roger Hosein has argued that the solution lies in a changed role for Petrotrin and the increase use of private sector operators to bring more crude to the surface.
He noted that between 2005 and 2015, oil production from Petrotrin's land operations decreased from 17,500 to 13,300 a decline of 31.5 per cent while at the same time output from its Lease Operators/Farm Outs/ Incremental Production Service Contractors increased by 45 per cent between 2005 and 2016.
Dr Hosein argued that by putting more of its acreage into the hands of the independent operators, Petrotrin can increase indigenous crude oil production and noted that approximately 30 million barrels of crude oil cumulatively produced by these independent contractors would not have been brought on-stream had Petrotrin held onto those fields.
He said, "It may be argued that an expansion of the farm out/lease out program would mean that Petrotrin as a company would become smaller and smaller. This can actually be a good thing as Petrotrin might work better or more efficiently as a holding or infrastructure company whereby they will be responsible for maintaining the infrastructure of the wells and rigs while the smaller companies survey for oil. Petrotrin will then charge these companies a relevant royalty for any oil found on the lands that they own."
According to the UWI lecturer, there is a difference between lease out where Petrotrin rents out individual wells to smaller companies and farm out where they rent out entire blocks instead. The lease out method is considered more inefficient as drilling for oil in one well can have consequences for the other wells in the block and the small farm out companies can't make relevant decisions until they get approval from Petrotrin.
He said these contracted LO/FO/IPSC arrangements have been profitable for a variety of reasons, some of which include:
a) The companies have ownership of the projects and this promotes a greater level of effort,
b) The area where the drilling occurs is smaller and this reduces operational costs,
c) In general smaller companies experience lower overhead costs,
d) Response to issues such as an inactive wells tends to be faster and more effective as this directly improves the productivity of the firm,
e) The companies' profits are tied to output as opposed to time and this is a major difference that leads to these companies being more efficient.
LO/FO/IPSC programmes have also gone into drilling and these have created jobs for some local workers in areas where these fields are located.
He said, in general, these LO/FO/IPSC programmes take small uneconomic wells and convert them into successful economic exercises. With leasing to smaller independent contractors, there is a lowering of over-head costs. This lowering of over-head costs translates into a lowered average total cost of operating a mature well on account of an associated lowering of the marginal cost curve of producing. This means that from an initial break-even position (or even loss making), with a larger company with huge overhead costs, a marginal well can perhaps now make a profit.
But the arrangements have not always worked well and Dr Hosein told BG the independent operators have variously expressed their dissatisfaction with the current arrangement with Petrotrin, for a number of reasons including the following:
�2 The lengthy process for approval for exploration and production type work
�2 The lack of communication between the operational team and the joint venture team as it relates to small operators access to infrastructure
� Petrotrin tends to not meet its contractual obligations to small operators
� Lack of field management by the company
� The company needs to pool the FO/LO/IPSLL operators and iron out these various issues so that Petrotrin can benefit from a greater flow of indigenous crude oil
In very recent times the output of the LO/FO/IPSC programme has declined and this has had adverse implications for workers and service companies involved via backward linkages, with this onshore sector.
The question is can any of these suggestions work in a situation where the OWTU has consistently rejected efforts to reform Petrotrin?