While Trinidad and Tobago's state-owned oil firm are restructured, private companies ramp up exploration activities

While state-owned oil company Petrotrin announced in the first half of 2018 that it would finalise plans to restructure its operations in order to increase efficiency, moderate losses and ramp up oil and gas production, as of early September 2018 the process had yet to take shape. Petrotrin has faced strong opposition from the Oilfield Workers’ Trade Union (OWTU), which said that the restructuring plans could put 2500 employees out of a job, according to international media in late August 2018.

Meanwhile, increased exploration activities are offering opportunities for private investment and further development of the sector. The upcoming upstream projects by local and foreign companies are expected to boost oil production, which has stagnated since the 2014 global oil price shock.

Private Intervention

One of the restructuring options Petrotrin could consider is the intervention of private capital. Franklin Khan, the minister of energy and energy industries, told local media in June 2018 that, while the national oil company requires change, the government is not in a position to provide the capital needed to upgrade the firm’s ageing assets to increase production. As of August 2018 Petrotrin produced over 40,000 barrels per day (bpd) of crude oil, which accounted for around 60% of the country’s total oil output. However, output is declining due to limited exploration activities as a result of the company’s financial constraints, Khan said, adding that the direction of Petrotrin’s restructuring will be entirely decided by its board of directors.

The government’s hands-off approach has been praised by the Energy Chamber of Trinidad and Tobago. Thackwray Driver, president and CEO of the chamber, told media in June 2018 that, given the lack of public finances to improve the company’s operations, Petrotrin could look towards the private sector for investment. “We think the government is taking the right approach by empowering the board to make those changes,” Driver said. According to Driver, some options to consider include farm-out programmes, through which the firm would award blocks to private players on a shared revenue or royalty basis; joint ventures, through which Petrotrin would share revenues with a partner; and listing portions of the company on the T&T Stock Exchange in order to raise capital.

No Deal

Khan announced in April 2018 that the government had engaged two global consultancies to advise Petrotrin’s board on how to restructure: Solomon Associates and McKinsey. Meanwhile, a transition team was created to oversee the restructuring process following the resignations of several board members, including Fitzroy Harewood, the former president of Petrotrin. Interim appointments were made to head the company’s refining and marketing, finance, and exploration and production divisions, to last for a period of six months.

In July 2018 the board of directors outlined a company restructuring scheme; however, it was met with resistance from the OWTU. While the union agreed that the strategy is the best path towards ensuring the sustainable future of the state-owned company, local media reported that the process had reached a stalemate as the OWTU disagreed with Petrotrin’s proposed methods, criticising its employment policies.

Furthermore, the union proposed that Petrotrin be divided up into four subdivisions – onshore exploration, offshore exploration, refining and marketing – which stands in opposition to the board’s plans to split the company into two separate operations – one focused on upstream activities and the other on downstream. If the board of directors were to successfully implement its proposed restructuring, which would inevitably result in changes to staffing, it would first require approval from the OWTU.

Responses

The OWTU is focusing on unimportant matters, according to Wilfred Espinet, chairman of Petrotrin. He told local media in July 2018 that “the important thing is to make the company viable. It has to be competitive, and to do that it has to focus on operations as a clear part of the strategy.” Espinet also pointed out that Petrotrin should start operating like an international company and think beyond T&T.

Ancel Roget, president of OWTU, told local press in August 2018 that time is of the essence for implementation of the restructuring plan in order to take advantage of rising commodity prices, despite criticising the company’s management structure, which he described as “overburdened”. Roget proposed a leaner, more streamlined structure, and said that the company should be more efficient in hiring skilled personnel to operate and manage exploration and production activities. While some sectors such as human resources are overstaffed, technical departments, such as offshore, are operating with vacancies. Additionally, wages make up a significant part of the company’s expenses because workers are taking on double or triple shifts due to a shortage of experienced staff. Roget called on the government to remove Petrotrin executives, saying that the company needs to restructure immediately to revert a downward spiral “in every sphere of its operations”.

Outstanding Payments

Adding to the urgency of the situation is Petrotrin’s bond repayment due in 2019, which has resulted in various banks brokering talks with the state-owned oil company to consider ways of meeting the payment of $850m, according to US stock exchange Nasdaq. The uncertainty surrounding the T&T government’s unwillingness to provide a guarantee, and instead forcing the company to refinance, is threatening Petrotrin’s credit rating, which was downgraded from “Ba3” to “B1” by Moody’s in April 2017. The most recent review by the US-headquartered credit rating agency in May 2018 showed that Petrotrin held its “B1” rating steady for the past 12 months. The national oil company also has a $750m bond that is expected to mature in 2022.

Despite its outstanding debt, Petrotrin demonstrated positive results from its sustainability drive after posting a $85.6m profit after tax in the second quarter of 2018 on the back of a $517.5m loss in the previous quarter. According to Espinet, the cost reduction initiatives undertaken by the interim executive board had contributed to the gain in profits, together with strategies implemented on the advice of the consultancies it had engaged. “The mandate given to the board to make Petrotrin a sustainable profitable entity, through proper governance and management of a competitive business, is planned in three phases: survive, thrive and grow,” Espinet said.

Exploration is Key

Private companies are also carrying out exploration activities, which are ramping up gas production, and observers are optimistic that T&T is on track to increase oil output. “Further exploration will definitely be the solution or the breakthrough the market has been looking for,” Navin Bissoon, managing director at Isotech, a local technology and services firm advising companies active in the oil sector, told OBG. “In the near future exploration will assert itself as a much more important operation than, for example, production.”

Following the arrival of BP’s Angelin production platform in August 2018, Dwight Mahabir, deputy chairman of the Energy Chamber, told local press that the country can look forward to ongoing investment in new developments. In the same month Canada’s oil and gas company, Touchstone, said that it had drilled the first seven wells of a 10-well programme in T&T, with Paul Baay, CEO of Touchstone, expressing excitement over the prospect of increasing production in the near term after an expected strong start to 2019. In addition to the company’s existing drilling programme, Baay said the exploration opportunities on the Ortoire River and future development potential are expected to contribute to the company’s growth.

Meanwhile, in June 2018 US gas exploration and production company Range Resources announced it had hit its production target in T&T ahead of schedule, which the firm attributed to its optimisation programme. Range Resources reported a 43% increase in output in June 2018, which equated to an average of 820 bpd, surpassing its target of 800 barrels. The optimisation strategy has been applied to 34 wells across T&T, and there are plans to extend it to a further 24 in the third quarter of 2018 as the company reviews its plans for the island nation.

Range Resources is also increasing its storage capacity in the country, and is considering the development of at least two wells before the end of 2018, while reviewing an accelerated development programme to sustain its production growth. “There are some very interesting dynamics in the market at the moment, namely due to Shell’s very decisive expansion policy and its desire to overtake BP as the sector’s largest company,” Bissoon told OBG. “This competition is definitely good news for all services companies. It is quite likely that the 2019-20 period will be a booming time for the country,” he added.