Last update: 12-Dec-2013 4:02 am
Thursday, December 12, 2013
Trinidad & Tobago Guardian Online
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Royalty rates reduced for LGO
Even before the committee set up to review the fiscal regime for the hydrocarbons industry made a single recommendation to the Minister of Finance for the national budget, another oil company, Leni Gas and Oil (LGO), had its royalty rates reduced. The same was done for another oil company, Range Resources Ltd, in March. The committee’s recommendations were relayed to Finance Minister Larry Howai on August 17, Energy Minister Kevin Ramnarine said.
On August 14, LGO announced that it had successfully concluded an agreement with the Petroleum Company of T&T Limited (Petrotrin) “to reduce substantially the overriding royalty rates associated with oil production from the Goudron Incremental Petroleum Service Contract (IPSC) and to extend the contract by five years to November 2024 in consideration for LGO undertaking additional drilling activities at the onshore Goudron Field in eastern Trinidad.”
Petrotrin and LGO agreed that, effective August 1, overriding royalty rates for existing and future production will be reduced to incentivise further development and exploration in the Goudron Block. LGO has committed to additional work beyond what was envisaged in the original contract, the LGO release said.
The new agreement states that oil production between the First Tranche Oil, which is currently approximately 40 barrels per day (bopd), and a rate of about 150 bopd (reducing annually by 2 per cent) will receive a relative reduction of approximately 20 per cent in the overriding royalty paid to Petrotrin. Production above 150 bopd, which Goudron is already exceeding, has been granted a more significant reduction equivalent to approximately 45 per cent of the previously applicable rate at the current oil price, LGO said.
Under the revised agreement, LGO will drill a total of ten additional development wells in the main Goudron field area to a depth not exceeding 3,500 feet and one exploration well in the wider Goudron Block to a depth of 5,000 feet. This work programme will be undertaken over the next six years. The company’s business plan envisages the drilling of 30 new wells in the block.
Language has also been included in the IPSC that, subject to mutual agreement in 2019, extends the current term of the contract by an additional five years to November 2024.
LGO said this extension is significant as it will allow the company to effectively instigate Enhanced Oil Recovery programmes to bring the 30 million barrels (mmbbls) of possible (P3) reserves and some of the 63 mmbbls of contingent resources currently estimated in 2012 by the company’s independent competent person, Challenge Energy Limited, in to proven (P1) and probable (P2) reserves over the next few years.
Neil Ritson, LGO chief executive, said in the press release: “We greatly appreciate the efforts by Petrotrin to enhance the commercial terms in the Goudron IPSC. Netbacks will be significantly increased and this makes it easier for us to sanction additional capital work which is to the mutual benefit of both parties. This agreement is transformational and brings significant additional revenue to the company’s bottom line at a time when we are reinvesting heavily in production growth.
Since we took over as operator of Goudron some nine months ago we have raised average daily production levels by 750 per cent and that trajectory is set to continue as we now deploy additional resources to the field.” In an August 16 statement, Petrotrin said it has an IPSC with “a subsidiary” of LGO in the Goudron Field. It said: “In consideration for a significant and expanded work programme of drilling a minimum of 10 development wells over the next six years, Petrotrin has revised the Override Royalty (ORR) Schedule.
The additional drilling programme is over and above the minimum work programme (MWP) agreed and contracted to at the execution of the IPSC.
The ORR reduction incentivizes Leni to undertake additional activities and is expected to result in increased crude oil production estimated to be in excess of 500 barrels of oil per day (bopd). This will benefit both Petrotrin through increased revenues from overriding royalty and increased crude supply to the Company’s Pointe-a-Pierre Refinery, as well as the state through additional royalties and taxes.”
On March 8, Range Resources Ltd had announced it received more acreage and lower royalties. Asked why was Range Resources getting increased acreage without going through a competitive bid round, and why was Range’s royalty reduced, Petrotrin in an e-mailed statement said: “In 1995 December and 2002 January, the Morne Diablo and South Quarry Farmout Blocks respectively were awarded to Trincan Oil Limited, predecessors of Range Resources, following a competitive bidding process.
In 2009 January, in consideration of an amplified work programme, Petrotrin’s Board of Directors approved a revised Override Royalty (ORR) Schedule that would incentivize and result in both increased activity and production levels for the two blocks.
“The model farmout agreements (FOAs) do not provide preferential treatment to any individual operator. The philosophy of the model FOAs is to incentivize activity in the farmouts to replicated similar success achieved in the lease operatorship programme wherein an equivalent approach yielded improved production levels from 4,700 barrels of oil per day (BOPD) to current levels of 5,800 BOPD. We trust that the foregoing provides clarity and emphasizes that these matters were handled with due adherence to proper business procedures.”
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