Inside, confidential and off the record
A future for oil in T&T?
Oil being pumped from a resevoir in Trinidad
Ruby projec, deepwater exploration success and PNM proposal to change SPT oil taxation regime might just give new life to TT oil industry.
The oil sectors of Trinidad and Tobago, one of the world's oldest oil producers, and Guyana, the newest, have seemed to be on a vastly different trajectory over recent years. While Guyana has seen an unprecedented string of exploration successes and new production already on stream from the Liza field, Trinidad and Tobago has experienced a decade-long decline in its oil sector.
Other than for a few years in the early 2000s when the BHP Angostura came online, oil production has been on a downward trajectory since the early 1980s when production was over 200,000 barrels per day (bpd). For the first half of 2020, production was just 56,000 bpd. However, that pattern could perhaps be about to change
The BHP Ruby project, currently in execution, will certainly change the trajectory in 2021 and will bring on significant new oil production with initial production targeted at 16,000 bpd. The new topside and jacket for the Ruby platform are reported to be on their way to Trinidad and Tobago from the Gulf coast for installation on the field.
In addition to this new oil project, in execution, there are two other events that could have major impacts on the future of the oil industry in the country that are being closely monitored by the industry. The first of these is the deepwater Broadside well, currently being drilled by BHP in its southern deepwater license area off Trinidad's east coast. The second is a very different event but also potentially game changing, namely the anticipated announcement of a significant change to the Supplemental Petroleum Tax (SPT) regime for small onshore producers in the national budget presentation, scheduled for October 5th 2020.
Notwithstanding constraints caused by travel restrictions and strict COVID-19 protocols, the Broadside exploration well is currently being drilled by the Deepwater Invictus rig under Phase 5 of BHP's deepwater drilling campaign. Broadside is located in deepwater block TTDAA 3 off the east coast of Trinidad in what BHP is calling its southern Licence area.
There have already been two hydrocarbon discoveries in this southern Licence area, with the Le Clerc well drilled in 2016 and the Victoria well drilled in 2018, both in block TTDAA 5. The block is operated by BHP, with Shell holding a non-operator stake.
These hydrocarbon finds in the Southern Licence area are in addition to the successful deepwater exploration campaign in the northern licence area to the east of the island of Tobago. There have been significant natural gas finds in this northern licence area over the past few years.
The Bélé-1 and Tuk-1 wells were drilled in block 23(a) during March and April 2019 in water depths around 2,000 metres. The Hi-Hat-1 well was drilled in nearby block 14 during May and June 2019 in water depths of close to 1,800 metres. These three discoveries have established additional gas volumes around the previous Bongos discovery. BHP are continuing their evaluation of these significant natural gas discoveries to determine a feasible model to proceed to an investment decision for these significant resources in the northern licence area.
While the major deepwater exploration campaign is underway off Trinidad's east coast, the industry is also closely watching a very different kind of announcement that will have a significant material impact at the other end of the scale in terms of size of developments and production, namely the traditional onshore oil sector. While each well in the traditional onshore oil sector may only produce a few barrels per day, in aggregate, this part of the industry is a major contributor to overall oil production.
It also provides a significant number of jobs and economic activity across many rural areas of south Trinidad, especially when active drilling campaigns are underway. As almost all of this work is conducted by local contractors and service companies, the activity in this sector also has a high multiplier effect and significantly more of the investment dollars spent in the sector recirculate in the local economy, compared to deepwater drilling.
The small oil companies in this sector have been clamouring for changes to the oil taxation regime for many years and especially for changes to the SPT. This is a topline tax on revenue that kicks in as soon as prices average over US$50 per barrel and it has proven to be a significant disincentive to investment. The tax was originally introduced as a windfall tax in 1981 when US$50 was a very high price for oil. The small oil companies, supported by the Energy Chamber of Trinidad and Tobago, have long argued that this is no longer a windfall price and the effect of the tax is to push small oil companies into a negative cash flow position when oil is in the US$50-60 range, and hence acts as a significant disincentive to investment.
Small oil companies, as well as the local contractors and service companies who service this sector, were therefore delighted when they read the proposal in the People's National Movement election manifesto that the floor when the SPT came into effect would be raised to US$75 per barrel. With the success of the PNM in the August 2020 Parliamentary elections, the industry is now closely anticipating the national budget announcement due on October 5th 2020 to see if the Minister of Finance carries through on the promise made in the manifesto.
This change in SPT for the small oil companies, coupled with the coming on stream of the Ruby project and deepwater exploration success, might just give new life to the over-one century- old Trinidad and Tobago oil industry.
Energy Now TT
/August 22, 2020