Sher­win Long, Head, TTEITI Sec­re­tari­at and Al­isa De­o­nanan, pol­i­cy an­a­lyst, TTEITI Sec­re­tari­at

Part 1: How Gov­ern­ment earns from oil and gas re­sources

For T&T, as in any oth­er re­source-rich coun­try, oil and gas con­tracts cov­er a wide range of crit­i­cal is­sues. These con­tracts are the le­gal pil­lar un­der­pin­ning every­thing from how prof­its are split be­tween Gov­ern­ment and ex­trac­tive com­pa­nies to how much com­pa­nies con­tribute to the fu­el sub­sidy or train­ing and schol­ar­ships for na­tion­als. Con­tracts de­lin­eate re­spon­si­bil­i­ties for com­pa­nies on en­vi­ron­men­tal reg­u­la­tions, their roles in re­ha­bil­i­ta­tion and de­com­mis­sion­ing, as well as en­sur­ing fence­line com­mu­ni­ties are con­sult­ed and pro­vide in­formed con­sent for a project. These con­tracts dove­tail with tax and in­vest­ment laws and giv­en the com­plex­i­ty and fi­nan­cial im­por­tance of their terms, it is im­por­tant to out­line their ma­jor el­e­ments. In this ar­ti­cle, the Trinidad and To­ba­go Ex­trac­tive In­dus­tries Trans­paren­cy Ini­tia­tive (TTEITI) will ex­plore some of the key terms con­tained in oil and gas con­tracts while out­lin­ing how these claus­es play a role in quan­ti­fy­ing how much the coun­try earns from its re­sources.

Ex­plo­ration and Pro­duc­tion (E&P) li­cences and Pro­duc­tion Shar­ing Con­tracts (PSC)

In T&T, pe­tro­le­um op­er­a­tions are gov­erned by the Pe­tro­le­um Act and its reg­u­la­tions and over­seen by the Min­istry of En­er­gy and En­er­gy In­dus­tries (MEEI) and Min­is­ter of En­er­gy. The Pe­tro­le­um Tax­es Act sets out how oil and gas com­pa­nies are taxed and is over­seen by the Min­istry of Fi­nance and the Min­is­ter of Fi­nance. Over time, the coun­try’s ap­proach to man­ag­ing the sec­tor has shift­ed. Ini­tial­ly, pe­tro­le­um de­vel­op­ment re­lied main­ly on con­ces­sion­ary arrange­ments through the E&P Li­cence. From the 1990s, the coun­try has pre­ferred the pro­duc­tion shar­ing con­tract, which al­lows the State to play a more di­rect role in shar­ing the ben­e­fits of pe­tro­le­um pro­duc­tion. The key dis­tinc­tion be­tween these two con­tracts lies in their struc­ture and how rev­enues, risks and re­ten­tion of own­er­ship are di­vid­ed be­tween the Gov­ern­ment and com­pa­nies.

In an E&P li­cence, com­pa­nies are giv­en the right to car­ry out pe­tro­le­um op­er­a­tions but must pay the Gov­ern­ment a mix of roy­al­ties, tax­es, and levies. Af­ter these pay­ments are made, the re­main­ing pro­duc­tion be­longs to the com­pa­ny, mean­ing the State earns its rev­enues main­ly through tax­a­tion rather than a di­rect share of the pe­tro­le­um it­self. In con­trast, a PSC func­tions more like a prof­it-shar­ing part­ner­ship which is more com­plex and en­sures that the State, as the own­er of the re­source, re­ceives a di­rect por­tion of pro­duc­tion. Un­der a PSC, all pe­tro­le­um pro­duced is care­ful­ly mea­sured at agreed points and then di­vid­ed be­tween the Gov­ern­ment and the con­trac­tor, with each par­ty phys­i­cal­ly re­ceiv­ing its share. Be­tween 2011-2021, GORTT earned $49 bil­lion from PSCs and $86 bil­lion from E&Ps. PSCs now ac­count for the bulk of rev­enue since 2016.

What are the ma­jor oil and gas tax­es?

Along with the Pe­tro­le­um Tax­es Act, both E&P li­cens­es and pro­duc­tion shar­ing con­tracts es­tab­lish the dif­fer­ent pay­ments to be made by op­er­a­tor com­pa­nies. Con­tracts and li­cences can al­so stip­u­late that spe­cial pay­ments, such as pro­duc­tion bonus­es, be made when out­put tar­gets are met. Based on da­ta from pre­vi­ous TTEITI Re­ports, his­tor­i­cal­ly, the four largest rev­enue/tax earn­ing cat­e­gories for Gov­ern­ment are roy­al­ties, PSC share of prof­it, Pe­tro­le­um Prof­its Tax (PPT) and Sup­ple­men­tal Pe­tro­le­um Tax (SPT).

Open Oil, an ex­trac­tive sec­tor NGO, de­scribes roy­al­ties as “a per­cent­age share of pro­duc­tion, or the val­ue of the pro­duc­tion which goes to the Gov­ern­ment re­gard­less of the rate of pro­duc­tion or costs to the op­er­a­tor.”

This pay­ment is made by pe­tro­le­um com­pa­nies di­rect­ly to the Min­istry of En­er­gy and En­er­gy In­dus­tries in ex­change for the right to ex­plore and pro­duce from T&T’s oil and gas acreage. Sim­ply put, if a par­tic­u­lar oil well pro­duces 100 bar­rels per day in Sep­tem­ber and oil prices av­er­age US$50 per bar­rel for that par­tic­u­lar month, the cash flow would be US$5,000 per day. If the Gov­ern­ment agreed to a 12.5 per cent roy­al­ty rate then it would re­ceive $625 per day.

From fis­cal year 2011 to 2025, the Gov­ern­ment has col­lect­ed a to­tal of TT$31.3 bil­lion in roy­al­ties, with a sig­nif­i­cant in­crease fol­low­ing the 2017 roy­al­ty rate ad­just­ment to 12.5 per cent. For 2025, the Gov­ern­ment has re­ceived around TT$2.6 bil­lion in roy­al­ties, with the three largest con­trib­u­tors be­ing bpTT, Her­itage and Peren­co, pay­ing ap­prox­i­mate­ly TT$1.6 bil­lion, TT$521 mil­lion and TT$326 mil­lion re­spec­tive­ly (See Chart 1). It is im­por­tant to note that these fig­ures for 2025 are pro­vi­sion­al and have not been au­dit­ed by the TTEITI au­di­tor/ad­min­is­tra­tor. Sim­i­lar to roy­al­ties, PSC share of prof­it is al­so paid to the MEEI.

Un­der each PSC, the com­pa­nies pro­duc­ing oil and gas pay a share of prof­it to the Gov­ern­ment out of which Gov­ern­ment set­tles li­a­bil­i­ties for tax­es and roy­al­ties on be­half of its PSC part­ners. Com­pa­nies with PSCs al­so have ac­cess to in­vest­ment in­cen­tives. The pay­ments and in­cen­tives are doc­u­ment­ed in the laws that gov­ern the in­dus­try. How­ev­er, com­pa­nies can still ne­go­ti­ate prof­it splits and oth­er terms with the Gov­ern­ment, ir­re­spec­tive of the tax­es fixed by the law. The ne­go­ti­at­ed terms are record­ed in each PSC. The share of prof­it is there­fore a crit­i­cal el­e­ment in PSCs. In fis­cal 2025, the Gov­ern­ment re­ceived TT$4.2 bil­lion in PSC share of prof­it com­pared to TT$4.09 bil­lion in 2024, a mar­gin­al in­crease year on year. The three largest con­trib­u­tors to PSC were Shell, EOG Re­sources and NGC, pay­ing ap­prox­i­mate­ly TT$2.6 bil­lion, TT$881 mil­lion and TT$674 mil­lion re­spec­tive­ly (See Chart 2).

PPT is ap­plic­a­ble to all oil and gas pro­duc­ers and is ap­plied to charge­able in­come from op­er­a­tions, af­ter de­duc­tions for op­er­at­ing ex­pens­es, cap­i­tal al­lowances, roy­al­ties, SPT, Pe­tro­le­um Levy/Im­post, sig­na­ture and pro­duc­tion bonus­es, among oth­ers. The cur­rent rate is 50 peo­ple with 35 per cent for op­er­a­tions in deep wa­ter blocks. Be­tween 2019-2024, Gov­ern­ment re­ceived TT$ 25bil­lion in PPT.

SPT is a wind­fall tax linked to the av­er­age price of crude oil and com­pa­nies are charged based on a scale. Pre­vi­ous­ly, SPT was trig­gered when oil prices ex­ceed­ed US$50 per bar­rel. How­ev­er, re­cent changes have ad­just­ed this thresh­old to re­flect changes in glob­al oil mar­kets and in­cen­tivise lo­cal pro­duc­tion. From Jan­u­ary 2024, SPT was trig­gered when oil prices sur­passed US$75 per bar­rel. When oil prices av­er­age be­tween US$75.01 and US$90.00 per bar­rel, the tax is 18 per cent. Where prices av­er­age be­tween US$90.01 and US$200.00 per bar­rel, the tax is 18 per cent plus 0.2 per cent of the sur­plus of weight­ed oil prices over US$90.00. Be­tween 2019-2024, Gov­ern­ment re­ceived TT$7.9 bil­lion in SPT.

Apart from these tax­es, the TTEITI cap­tures da­ta on oth­er ma­jor tax pay­ments such as Green Fund Levy, Pe­tro­le­um Pro­duc­tion Levy and Pe­tro­le­um Im­post as well as com­pa­ny spend on cor­po­rate so­cial re­spon­si­bil­i­ty ini­tia­tives.

Con­clu­sion

As the na­tion­al bud­get ap­proach­es, the en­er­gy sec­tor will con­tin­ue to con­tribute sig­nif­i­cant­ly to the coun­try’s eco­nom­ic well­be­ing. The mon­ey the coun­try earns from the up­stream is dri­ven by glob­al bench­mark prices and do­mes­tic pro­duc­tion so it is im­per­a­tive that av­enues for in­creas­ing pro­duc­tion are chan­nelled as T&T has lit­tle con­trol over the di­rec­tion of glob­al prices.

The com­pa­nies in the up­stream sec­tor pay their tax­es in US dol­lars, pro­vid­ing much need­ed for­eign ex­change. The tax­es from the sec­tor al­so help with so­cial ex­pen­di­ture for cit­i­zens, whether pen­sions, CDAP drugs or GATE. These up­stream oil and gas con­tracts are a crit­i­cal com­po­nent to the coun­try’s de­vel­op­ment, de­ter­min­ing how much the Gov­ern­ment and com­pa­nies earn from re­sources, a com­pa­ny’s oblig­a­tions for en­vi­ron­men­tal re­me­di­a­tion, and what mech­a­nisms can be used to en­sure the coun­try earns fair val­ue from its re­sources.

Next week, in Part 2 of this ar­ti­cle, we will fo­cus on what cost com­pa­nies are al­lowed to use for tax pur­pos­es and ex­plore what pro­vi­sions are in place in the event of an oil spill or for de­com­mis­sion­ing oil and gas fa­cil­i­ties.

For more in­for­ma­tion vis­it www.tteiti.com