March 11, bpTT announced its plans to sell their Teak, Samaan
and Poui (TSP) assets. Exactly one month later on April 11,
Venture Production plc, the Aberdeen-based oil and gas production
company released their preliminary results for 2004 and included
in their report a public statement that they are in the process
of withdrawing from T&T.
Venture Production explicitly pointed to the Governments
inability to implement the anticipated fiscal reform package
as a primary reason for this strategic decision stating that
this anticipated fiscal reform did not materialise during
prompted the company to conduct the recently
completed strategic review of its operations in that country.
Publicly, bpTT has clearly stated that the primary reason
for its sale of TSP was the fact that these assets had to
compete for investment capital with very profitable assets
elsewhere and that under these circumstances bpTT were unable
to put in the sort of investments needed to squeeze the most
out of these aging reservoirs.
While bpTT has made no public statement on this matter, it
would be interesting to know to what extent the current and
proposed fiscal regime for oil production influenced the bpTT
decision to sell.
In his presentation to TTPC 2005, Peter Inglefield, managing
partner of PriceWaterhouseCoopers and an expert on T&T
taxation, suggested that the total government take from oil
and gas production was above global averages. For oil production,
the government tax take was in excess of 80 per cent and in
excess of 60 per cent for gas production.
Overall taxation of oil and gas production is budgeted to
contribute $9.0 billion, or 45 per cent of total revenue for
the 2004-5 fiscal year, up from $6.5 billion (38 per cent
of total revenue) in 2003-4. This does not include the very
significant corporate tax revenue collected from the downstream
plants and Atlantic LNG nor the taxes paid by companies who
service the energy sector
The Governments stated policy is to ensure that we have
a fiscal regime that balances both the need to continue to
attract new investment and, in the words of Conrad Enill,
the receipt on a long-run basis of a reasonable share
of the economic rent from the commercialisation of our energy
resources (speaking at TTPC 2005).
It is clear that the Government does not consider the amount
of revenue currently being enjoyed to be a reasonable
share and that it is committed to increasing its take,
especially from gas production.
The clear danger, however, is that the current taxation regime
for oil production, especially with the recent tightening
up on a number of anomalies, simply makes investment
in marginal fields unprofitable. This has certainly been the
case in the independent sector on-shore where the level of
investment has plummeted, despite record high oil prices.
While TSP continue to represent a significant asset, with
estimates of some 50 to 60 million barrels of recoverable
oil, questions need to be asked about whether the fiscal regime
is conducive to encouraging renewed activity and investment
in the fields.
It would be interesting to know what impact the recently announced
changes to the taxation regime have had on the economic models
being run by the potential investors in TSP.
While the Government has characterised these as minor fixes
to a few anomalies they could have large potential
impacts on the investment profile.
The continued uncertainty over the fiscal regime for gas production
adds an element of uncertainty and risk to the whole investment
climate in the petroleum production sector. It remains unclear
how the efforts to totally separate oil and gas taxation will
actually work, especially in fields producing both hydro-carbons.
These elements of uncertainty could have serious impacts on
the desire of some investors to make a strong commitment to
It is important to note that marginality of a field is not
merely a function of size though this is a crucially
important variablebut the costs associated with investing
in and managing the asset.
Older fields with decreasing production profiles, such as
TSP, require higher levels of on-going maintenance, and hence
higher costs per barrel, in order to keep on producing oil.
This is why smaller, younger companies, with lower fixed operating
costs, have moved into the mature provinces such as the North
Sea, as the majors have departed as noted by Bruce Dingwall,
the founder of Venture and former president of the UK Offshore
Operators Association in his presentation to TTPC 2005.
The arrival of new companies into the North Sea has sparked
new activity and reversals in production declines from marginal
In T&T the current regime offers few incentives to drill
new wells or work-over old ones, especially in marginal fields,
but this activity is crucial if production is to be increased.
In other mature provinces specific incentives are included
in the fiscal regime in order to stimulate investment and
renewed activity. Similar incentives are urgently required
in T&T especially if Eric Williams is to see his long
held desire for a deep exploration programme on-shore actually
In his budget presentation Prime Minister Patrick Manning
specifically stated his Governments commitment to the
traditional oil production sector, but made no specific mentions
of any measures being introduced to reverse the production
With the Governments eye on increasing its take from
new gas developments and fixing anomalies in the oil taxation
regime, the STCIC sincerely hopes that they do not miss a
narrowing window of opportunity to stimulate investment in
Without decisive action in this area we are likely to see
more companies exit T&Ts oil production business.
We wait to see who will take their place and whether these
changes will be in the best interest of T&T Inc.
The President of the STCIC, Dr Jim Lee Young, is the general
manager of Venture Production (Trinidad & Tobago) Ltd.
Given the potential conflict of interest, Dr Lee Young has
neither commented on nor contributed to this article
Dr Thackwray Driver, CEO, STCIC.