Nadaleen Singh

State-owned Petrotrin said it is has not made any cuts to any as­pect of its op­er­a­tions even though the price of oil has been de­clin­ing for two weeks. On Tues­day, oil prices stood at US$43.08 per bar­rel, just be­low the US$45 lev­el at which T&T's re­vised na­tion­al bud­get has been pegged.

The com­pa­ny, is, how­ev­er not rul­ing out that there may be cuts to its op­er­a­tional costs in the fu­ture, but in­di­cat­ed there are no plans to cut per­ma­nent po­si­tions. Tem­po­rary em­ploy­ees at Petrotrin are hired on short-term con­tracts when re­quired.

"We have been proac­tive in re­view­ing our cost struc­ture and this will con­tin­ue as we pre­pare our bud­get for the new fis­cal year. We are look­ing close­ly at both our in­ter­nal­ly gen­er­at­ed cash flows and debt lev­els and we would make the nec­es­sary de­ci­sions and cuts as we go for­ward."

While not dis­clos­ing how much de­clin­ing oil prices have im­pact­ed its rev­enue, the oil com­pa­ny con­firmed that the de­clin­ing oil prices have im­pact­ed its rev­enue. But the com­pa­ny is con­fi­dent it can cope with chal­lenges that the ex­ter­nal en­vi­ron­ment brings.

"While our up­stream op­er­a­tions have been af­fect­ed by de­clin­ing prices in crude oil, our down­stream op­er­a­tions are ben­e­fit­ing from good re­fin­ery mar­gins. Re­fin­ery mar­gins have hov­ered around US$13 a bar­rel for the past three months, al­most dou­ble what they were for the last fis­cal year.

"These mar­gins are pro­ject­ed to stay high for the next few months. Our op­er­a­tions per­son­nel have been work­ing as­sid­u­ous­ly to en­sure our re­fin­ery units re­main avail­able. As a re­sult, we have seen im­prove­ments in re­fin­ery util­i­sa­tion when com­pared to the same pe­ri­od last year."

In emailed re­spons­es on Tues­day, Petrotrin stat­ed that the com­pa­ny has been able to "off­set some of the rev­enue loss­es to date," be­cause it has un­der­tak­en pru­dent bud­get man­age­ment ini­tia­tives. The com­pa­ny stat­ed that along with its bud­getary mea­sures it al­so im­ple­ment­ed mea­sures to im­prove its re­fin­ery per­for­mance as well as mea­sures to in­crease crude pro­duc­tion in its ex­plo­ration and pro­duc­tion op­er­a­tions.

Petrotrin al­so said it has been "stream­lin­ing" its ex­plo­ration and pro­duc­tion op­er­a­tions and that it has tar­get­ted com­mer­cial­ly prof­itable drilling ac­tiv­i­ties so that it could re­main sus­tain­able.

Mar­i­ano Browne, man­ag­ing part­ner, Browne and Com­pa­ny:

De­cline will af­fect the HSF

Browne, a for­mer Min­is­ter in the Min­istry of Fi­nance, sug­gest­ed that giv­en the de­cline in the price of oil that there would not be any trans­fer to the Her­itage and Sta­bil­i­sa­tion Fund. In emailed re­spons­es on Tues­day, he said: "The for­mu­la re­quires a per­cent­age of the "sur­plus" rev­enues to be saved, ie, rev­enues high­er that the bud­get­ed prices. If prices are falling and be­low the bud­get­ed fig­ures, it is un­like­ly there will be any trans­fers to the fund.

Asked whether the he ex­pect­ed any trans­fer from the fund, he said no, be­cause "it's po­lit­i­cal­ly un­ac­cept­able."

The fluc­tu­at­ing price of oil is like­ly to af­fect T&T's en­er­gy sec­tor, he said.

"T&T's pro­duc­tion at 80,000bpd (bar­rels per day) is small so the ef­fect is there­by de­creased. It will al­so de­lay any new ex­plo­ration as the price has re­mained de­pressed and de­creas­es the rev­enue po­ten­tial of any new well. On the oth­er side, it does make life bet­ter for Petrotrin since the price of im­port­ed oil is now down it creas­es the re­fin­ery mar­gin."

He pre­dict­ed that more cuts are com­ing as en­er­gy gi­ants brace for fur­ther de­cline in rev­enues.

"All the ma­jor oil com­pa­nies have an­nounced re­duced ex­plo­ration ac­tiv­i­ties and de­clines in in­vest­ment ex­pen­di­tures by an av­er­age of 20 per cent. Shell Exxon, ENI, BP have all an­nounced cuts in their ex­plo­ration ex­pen­di­tures. There have al­so been con­sol­i­da­tions as typ­i­fied by Shell's pur­chase of BG and the con­sol­i­da­tion of Hal­libur­ton and Bak­er Hugh­es. In gen­er­al, staff cuts have been an­nounced at ma­jors."

Browne sug­gest­ed there should be a re-think of bud­get­ed ex­pen­di­ture in T&T.

"The gov­ern­ment's bud­get­ed ex­pen­di­ture plans can­not be main­tained. To keep up ap­pear­ances, it has re­quired div­i­dends from NGC, the NGL IPO and the re­pay­ment of pro­ceeds from Cli­co ($4.5 bil­lion) which ought to have been used to pay down the bor­row­ings used to fi­nance the Cli­co in­ter­ven­tion, but are be­ing used to fund re­cur­rent ex­pen­di­ture. This is not a good sit­u­a­tion and will get worse be­tween 2015 and 2017 as the mar­ket is like­ly to be de­pressed for two to three years. New sup­ply is com­ing in­to the in­ter­na­tion­al mar­kets in oil and gas; that makes for a dif­fi­cult sit­u­a­tion no mat­ter who wins the elec­tion on Sep­tem­ber 7."

Roger Ho­sein, econ­o­mist:

Govt must cut spend­ing

Ho­sein said he is not sur­prised by the "de­pressed" oil prices since the sup­ply of oil is high in the glob­al mar­ket.

In emailed re­spons­es Tues­day, he said: "From a sup­ply per­spec­tive, Sau­di Ara­bia has been pro­duc­ing sig­nif­i­cant amounts of crude oil. In June 2015, Sau­di Ara­bia record­ed its high­est lev­el ever of crude oil. In the same time pe­ri­od, OPEC coun­tries al­so kept pro­duc­tion fair­ly con­stant so mount­ing pro­duc­tion by the USA, Sau­di Ara­bia and oth­er coun­tries (es­pe­cial­ly Rus­sia, Brazil, Cana­da and Iraq) has seen glob­al sup­ply in­crease.

"By Q2 2015, glob­al pro­duc­tion had climbed to 95.70 mil­lion bar­rels per day. In the same time pe­ri­od glob­al con­sump­tion stood at 93.6 mil­lion bar­rels per day. In the mar­ket there is an ex­cess of around 2.1 mil­lion bar­rels of oil per day."

In the medi­um-term, Ho­sein pre­dict­ed that the sur­plus in the glob­al mar­ket is like­ly to con­tin­ue, "as Chi­na and Eu­rope seem set for slow­er-paced eco­nom­ic ac­tiv­i­ty at least for the next 18 months and many oth­er economies are be­com­ing more ef­fi­cient in the con­sump­tion of fu­el."

"Fur­ther, crude oil prices are quot­ed in US dol­lars. In this re­gard, the strength of the US dol­lar vis a vis oth­er cur­ren­cies mat­ters. If the US dol­lar ap­pre­ci­ates rel­a­tive to oth­er cur­ren­cies, then the price for a bar­rel of oil in these oth­er cur­ren­cies in­crease, and this can damp­en mar­ket de­mand. Even though the ac­tu­al US dol­lar price of oil re­mains the same."

He added that in the re­cent past, the US dol­lar has been strength­en­ing and this would have ad­verse­ly af­fect­ed de­mand by some economies which have pur­chase crude oil with US dol­lars.

"An­oth­er con­sid­er­a­tion is that US un­em­ploy­ment rate is around five per cent and this is close to full em­ploy­ment. Hav­ing brought un­em­ploy­ment to at, or near, full em­ploy­ment lev­els, the Feds have an­nounced a prospec­tive mar­gin­al in­crease in in­ter­est rates, in the US. This will pro­mote short-term cap­i­tal flows in­to the US, fur­ther strength­en­ing the US dol­lar and, in do­ing so, in­creas­ing the cost of oil in oth­er cur­ren­cies."

There is need for the Gov­ern­ment to cut spend­ing, he sug­gest­ed.

"All of this means, as things stand, the price of oil is de­pressed and the medi­um-term price for the next 18 to 24 months is not like­ly to cross US$75 per bar­rel. In this con­text, the gov­ern­ment of T&T has cut its base­line bud­get­ed oil price to US$45 per bar­rel as well as the price it ex­pects for gas. The T&T econ­o­my is in a new nor­mal, growth rates will not like­ly re­sume to that of the pe­ri­od of gold­en growth, 1996-2008, but will like­ly re­vert to what it was in the pe­ri­od, 1993 to 1995."

T&T Ex­trac­tive In­dus­tries Trans­paren­cy Ini­tia­tive:

Sup­ple­men­tal pe­tro­le­um tax to trend down­wards

The EITI said the de­clin­ing oil prices would have ram­i­fi­ca­tions for the rev­enues earned from the gov­ern­ment and the pri­vate sec­tor and their em­ploy­ment lev­els.

"Gov­ern­ment de­pends on the ex­trac­tive sec­tor for a sig­nif­i­cant por­tion of its rev­enue. In some cas­es, spe­cif­ic rev­enue streams, such as sup­ple­men­tal pe­tro­le­um tax (SPT), are tied to the price of oil so the low­er the price of oil the low­er the amount of rev­enue earned by the State."

Re­gard­ing com­pa­nies, the EITI stat­ed that in its re­ports for 2010-2011 and 2011-2012 com­pa­nies paid the State in to­tal $4.1 bil­lion and $2.3 bil­lion in sup­ple­men­tal pe­tro­le­um tax.

"This year, av­er­age oil prices are sig­nif­i­cant­ly less than 2011 and 2012 prices so the rev­enue re­ceived for SPT could trend down­wards, es­pe­cial­ly since this pay­ment is due/paid on a quar­ter­ly ba­sis. It is im­por­tant to note that oil ac­counts for ap­prox­i­mate­ly 38 per cent of our up­stream rev­enue and gas for the re­main­ing 62 per cent.

"For gas rev­enue, us­ing bench­mark prices like (the US) Hen­ry Hub could be mis­lead­ing for a coun­try like T&T which ex­ports the bulk of its LNG to des­ti­na­tions oth­er than the US such as Ar­genti­na, Brazil and Japan where prices are sig­nif­i­cant­ly high­er. Some LNG sales are al­so tied to long-term sup­ply con­tracts, or the spot mar­ket, there­fore de­ter­min­ing what per­cent­age of our LNG car­goes are tied to fixed price con­tracts or cur­rent prices is not im­me­di­ate­ly clear."

The EITI said even though there have been an­nounced job cuts in­ter­na­tion­al­ly, it is dif­fi­cult to de­ter­mine whether there would be more job cuts here.

"Whether or not there will be fur­ther job cuts is un­cer­tain but, for up­stream com­pa­nies, low prices could force a re­view of ex­pen­di­ture that can im­pact every­thing from ex­plo­ration drilling, analy­sis of seis­mic sur­veys to hir­ing and re­ten­tion of work­ers. If prices re­main de­pressed in the short or medi­um-term, ex­pen­di­ture re­cal­i­bra­tion by com­pa­nies can be ex­pect­ed and de­ci­sions tak­en on any mit­i­gat­ing steps. If price de­clines are long-term, com­pa­nies may need ad­di­tion­al fis­cal in­cen­tives as en­cour­age­ment to de­vel­op new fields."

If there are fur­ther de­clines in the price of oil, the EITI would not have mon­i­tor­ing nor au­dits to do if rev­enues de­cline be­cause, "our task is to in­de­pen­dent­ly ver­i­fy the pay­ments made by ex­trac­tive com­pa­nies in the oil and gas sec­tors to Gov­ern­ment and to con­firm if these pay­ments match gov­ern­ment re­ceipts.

"If the two fig­ures do not match, as has been done in the past, the EITI re­port will high­light the dis­crep­an­cy and pro­vide ex­pla­na­tions to the pub­lic on why there is a dif­fer­ence in pay­ments and re­ceipts. Price de­clines will not im­pact our work but the EITI re­port for the par­tic­u­lar fis­cal year would show the coun­try has earned less from the oil and gas sec­tor with de­tails of the con­tri­bu­tions of the var­i­ous com­pa­nies."

The EITI said: "The re­port pro­vides pre­vi­ous­ly un­avail­able cred­i­ble da­ta to cit­i­zens and it is im­por­tant for na­tion­al di­a­logue if more cit­i­zens took an in­ter­est in the re­port­ed find­ings.

"The re­port is an ex­cel­lent re­search re­source doc­u­ment for uni­ver­si­ty think-tanks and gov­ern­ment plan­ners and can be used for na­tion­al bud­get­ing ex­er­cis­es. It pro­vides da­ta to fa­cil­i­tate the re­view of fis­cal regimes to de­ter­mine whether in­cen­tives of­fered in a cer­tain year boost­ed rev­enue. It al­so records trends in div­i­dend pay­ments by State en­er­gy en­ter­pris­es or so­cial ex­pen­di­ture by ex­trac­tive com­pa­nies."