Sher­win Long, Head, TTEITI Sec­re­tari­at and

Al­isa De­o­nanan, Pol­i­cy An­a­lyst, TTEITI Sec­re­tari­at

Oil and gas con­tracts are at the heart of how T&T man­ages its most valu­able nat­ur­al re­sources. They set the rules for how rev­enues are shared, how com­pa­nies are taxed and what re­spon­si­bil­i­ties op­er­a­tors have to the en­vi­ron­ment and lo­cal com­mu­ni­ties. The Trinidad and To­ba­go Ex­trac­tive In­dus­tries Trans­paren­cy Ini­tia­tive (TTEITI) fo­cus­es on key dis­clo­sures linked to oil and gas con­tracts. The TTEITI rec­on­ciles pay­ments made by oil and gas com­pa­nies with what Gov­ern­ment re­ceives and helps cit­i­zens un­der­stand where the mon­ey goes and whether the coun­try is get­ting fair val­ue from its re­sources. In this the sec­ond part of our se­ries on con­tracts, we fo­cus on how con­tracts pro­tect na­tion­al wealth and the en­vi­ron­ment through over­sight mech­a­nisms for cost re­cov­ery and en­vi­ron­men­tal safe­guards.

How cost re­cov­ery works

For tax pur­pos­es, com­pa­nies can off­set cer­tain costs, which im­pact how much the Gov­ern­ment re­ceives in tax­es. Ac­cord­ing to Ar­ti­cle 18.7 of 2018 Deep­wa­ter Mod­el Pro­duc­tion Shar­ing Con­tract (PSC), cost re­cov­ery al­lows an oil and gas com­pa­ny to re­coup its in­vest­ments in ex­plo­ration, de­vel­op­ment, and pro­duc­tion from a por­tion of the oil or gas it pro­duces (up to 80 per cent of the avail­able crude oil or nat­ur­al gas). Ac­cord­ing to Ar­ti­cle 2.1 of An­nex C, re­cov­er­able costs in­clude ex­pens­es di­rect­ly tied to pe­tro­le­um op­er­a­tions. These cov­er ex­plo­ration and drilling, salaries and ben­e­fits for em­ploy­ees, the pur­chase or rental of equip­ment and ma­te­ri­als, trans­porta­tion of staff and sup­plies, and pro­fes­sion­al ser­vices such as en­gi­neer­ing, lab­o­ra­to­ry analy­sis or con­sul­tan­cy sup­port.

Be­fore com­pa­nies can re­cov­er their costs, they sub­mit month­ly spend­ing re­ports to the Min­is­ter of En­er­gy. The Min­istry’s tech­nocrats check to make sure the ex­pens­es fol­low ap­proved rules and con­trac­tu­al oblig­a­tions. How­ev­er, if there is no re­sponse with­in 90 days, the re­port is au­to­mat­i­cal­ly ap­proved. Any dis­agree­ments are set­tled with ad­di­tion­al ev­i­dence from the com­pa­ny or, if need­ed, by an in­de­pen­dent ex­pert.

Costs are re­cov­ered de­pend­ing on the type: ex­plo­ration costs can be claimed when they oc­cur, de­vel­op­ment and pro­duc­tion costs are re­cov­ered over a 4 year pe­ri­od and ad­min­is­tra­tive over­head costs have set lim­its and can al­so be claimed when they oc­cur. Any costs above the com­pa­ny’s al­lowed share are car­ried for­ward, but no costs can be claimed af­ter the con­tract ends. Dif­fer­ences in pe­tro­le­um re­ceived are ad­just­ed ac­cord­ing to in­ter­na­tion­al ac­count­ing stan­dards. The PSC Au­dit Unit of the Min­istry of En­er­gy mon­i­tors and au­dits pay­ments to en­sure com­pa­nies fol­low their con­tract terms. Ac­cord­ing to the lat­est TTEITI re­port, be­tween 2019-2023, the Unit dis­al­lowed US$238 mil­lion in ex­pens­es, show­ing the im­por­tance of over­sight.

Pe­tro­le­um laws: Se­cur­ing the na­tion’s pat­ri­mo­ny

The Pe­tro­le­um Act and the Pe­tro­le­um Tax­es Act work to­geth­er to reg­u­late the en­er­gy sec­tor. The for­mer reg­u­lates the ex­plo­ration, pro­duc­tion and sale of pe­tro­le­um re­sources, while the lat­ter en­sures that the State cap­tures fair rev­enues through roy­al­ties, prof­it tax­es, and sup­ple­men­tal pe­tro­le­um tax­es. To­geth­er, they bal­ance re­source man­age­ment with rev­enue pro­tec­tion, safe­guard­ing the na­tion’s pat­ri­mo­ny. In this con­text, pat­ri­mo­ny refers to the na­tion’s col­lec­tive wealth de­rived from its oil and gas re­sources, which, if un­der­val­ued or mis­man­aged, could de­prive cur­rent and fu­ture gen­er­a­tions of their right­ful ben­e­fit.

The is­sues of fair mar­ket val­ue, trans­fer pric­ing and tax avoid­ance have been ma­jor talk­ing points in the T&T en­er­gy sec­tor for sev­er­al years. Stud­ies con­duct­ed by Poten and Part­ners (the Gas Mas­ter Plan 2014-2024) and more re­cent­ly Unit­ed Na­tions ECLAC claim that the coun­try los­es over US$1.4 bil­lion an­nu­al­ly due to these prac­tices. Un­der the Pe­tro­le­um Tax­es Act, tax­able prof­its must be based on “re­alised prices or fair mar­ket val­ue” (sec­tion 19A(1)). Where com­pa­nies re­port un­re­al­is­tic sales prices, sec­tion 5(3) em­pow­ers the Board of In­land Rev­enue to step in and make a de­ter­mi­na­tion on fair mar­ket prices. This clause can help close loop­holes in trans­fer pric­ing and re­lat­ed-par­ty sales.

Sec­tion 31(3) of the Pe­tro­le­um Act au­tho­ris­es the Min­is­ter to “fix the price or the ba­sis for de­ter­min­ing the price at which pe­tro­le­um prod­ucts may be sold” do­mes­ti­cal­ly, shield­ing lo­cal con­sumers from un­fair or volatile mar­ket prac­tices.

Over­sight is re­in­forced by sec­tion 6A(1), which es­tab­lish­es the Per­ma­nent Pe­tro­le­um Pric­ing Com­mit­tee (PP­PC) to ad­vise the Min­is­ter on “fair mar­ket val­ue or pro­cess­ing fees,” es­pe­cial­ly for nat­ur­al gas and LNG where pric­ing is more com­plex. How­ev­er, while the PP­PC’s man­date and terms of ref­er­ence re­main un­changed, the PP­PC is cur­rent­ly not con­sti­tut­ed. The Min­istry of Fi­nance has al­so al­ready start­ed the process of ad­dress­ing trans­fer pric­ing through the Base Ero­sion and Prof­it-Shift­ing In­clu­sive Frame­work (Coun­try-by-Coun­try) Re­port­ing Act, No. 2 of 2024. Coun­try-by-Coun­try re­port­ing is a mech­a­nism used to com­pile and dis­close fi­nan­cial in­for­ma­tion for multi­na­tion­al groups with con­sol­i­dat­ed rev­enue ex­ceed­ing TT$5.76 bil­lion. This re­port­ing will help the BIR cap­ture a glob­al snap­shot of multi­na­tion­al com­pa­ny op­er­a­tions and con­duct high lev­el trans­fer pric­ing risk as­sess­ments. It is im­por­tant to note that weak en­force­ment of laws and reg­u­la­tions un­der­mines both eco­nom­ic sta­bil­i­ty and pub­lic trust, while strong over­sight en­sures that T&T cap­tures fair val­ue from its pe­tro­le­um re­sources.

En­vi­ron­men­tal safe­guards in oil and gas con­tracts

Oil and gas con­tracts con­tain pro­vi­sions for com­pa­nies to ad­dress oil spills as well as to en­sure they safe­ly de­com­mis­sion their fa­cil­i­ties when their op­er­a­tions end. Ac­cord­ing to Ar­ti­cle 37 of the Mod­el PSC Con­tract 2018, from the date of the first com­mer­cial dis­cov­ery, the Min­is­ter and con­trac­tor shall es­tab­lish an in­ter­est-bear­ing es­crow ac­count, ac­cu­mu­lat­ing cash re­serves to fund re­me­di­a­tion, even­tu­al aban­don­ment of wells and de­com­mis­sion­ing of fa­cil­i­ties re­lat­ed to pe­tro­le­um op­er­a­tions. Com­pa­nies are man­dat­ed to pay US$0.25 per bar­rel of oil pro­duced in­to this es­crow ac­count from the date of first pro­duc­tion.

With­in six­ty (60) days af­ter pro­duc­tion ends or the con­tract area is re­lin­quished, the com­pa­ny must start its pre-ap­proved pro­gramme for aban­don­ment and de­com­mis­sion­ing of fa­cil­i­ties, in­clud­ing for all in­stal­la­tions and pipelines. This pro­gramme must be agreed to by the Min­is­ter. The Min­is­ter can al­so elect to keep these fa­cil­i­ties. The ap­proved bud­get for car­ry­ing out the aban­don­ment and de­com­mis­sion­ing of fa­cil­i­ties pro­gramme is pro­vid­ed from the es­crow ac­count. And, if the es­crow amount is in­suf­fi­cient to com­plete the ap­proved pro­gramme or en­vi­ron­men­tal re­me­di­a­tion, the con­trac­tor must pay all ad­di­tion­al costs. The Min­is­ter may, at his/her dis­cre­tion, ac­cess funds from the es­crow ac­count in the event that the con­trac­tor fails to (i) ef­fect en­vi­ron­men­tal clean-up, or (ii) prop­er­ly aban­don wells, or de­com­mis­sion fa­cil­i­ties to the sat­is­fac­tion of the Min­is­ter. As of Sep­tem­ber 2024, the to­tal amount of mon­ey paid by com­pa­nies to the Gov­ern­ment’s es­crow ac­count is US $119 mil­lion.

Con­clu­sion

T&T’s oil and gas con­tracts are not just about di­vid­ing rev­enues—they are al­so about safe­guard­ing the na­tion’s wealth and en­vi­ron­ment. Pro­vi­sions on cost re­cov­ery en­sure that com­pa­nies can­not over­state ex­pens­es. Pe­tro­le­um laws are al­so sup­posed to close loop­holes in trans­fer pric­ing and pro­tect the State’s share of rev­enue. En­vi­ron­men­tal claus­es guar­an­tee that com­pa­nies bear the cost of clean-up and de­com­mis­sion­ing, rather than leav­ing the bur­den else­where. For the pub­lic, these pro­tec­tions mat­ter be­cause they di­rect­ly af­fect how much mon­ey flows in­to the na­tion­al bud­get, how for­eign ex­change is earned, and how fu­ture gen­er­a­tions ben­e­fit from fi­nite re­sources. By mon­i­tor­ing these con­tracts and re­port­ing to cit­i­zens, TTEITI works to strength­en trans­paren­cy, ac­count­abil­i­ty, and pub­lic trust in the man­age­ment of our en­er­gy wealth.

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