Derek Hudson, Vice-President, Shell Trinidad and Tobago: Interview

What needs to be done to enhance the viability of renewed oil and gas exploration?

DEREK HUDSON: It’s very easy to say that T&T is uncompetitive; the fiscal terms need to be improved, and there needs to be a better atmosphere in order to attract capital to T&T and do what is necessary for development. However, it is a two-edged sword. There hasn’t been enough exploration to match the decline in production, and in a $50 per barrel oil environment the competition for capital is exacerbated, making the challenge to make up the resource deficit more extreme.

T&T must become more competitive and cost effective, and extract more out of its producing reservoirs. We need to be nimbler in how we respond to challenges, and therefore position our businesses to be successful at low prices. We also need a more collaborative conversation to review the fiscal terms that will bring new fields into production. However, as I said previously, while things need to change from the governmental side, the industry must also be flexible, and both sides need to contribute in a collaborative and unified fashion. In my view, the dialogue has too frequently focused on what happened in the past. We’re at a pivotal point, and the decisions made over the next 18-24 months will have quite an impact in determining whether this industry is sustainable over the next 15-20 years.

How can companies in the energy sector work together to mitigate the negative effects of the persisting low-price environment?

HUDSON: In the past, we all competed for separate blocks and drilled separate wells, and this approach worked. But in this low-price environment we need to examine potential partnerships more closely.

One area of cooperation could be the use of seismic vessels. All upstream companies use them individually, but we could just as easily bring one in and work together in collecting the data on open acreage. There are also opportunities to collaborate on exploration, development and logistics. Shell, BP, BHP Billiton, EOG Resources, Perenco, Touchstone, Petrotrin, the National Gas Company and other major players recently signed an upstream collaboration agreement that has already paid dividends. We will continue as an industry to explore these possibilities. Now that Guyana is beginning to develop an energy economy, and some of the other islands are investing in new energies, we also need to examine how we collaborate and optimise our resources regionally. In a low price environment, collaboration between companies also opens the door to significantly reducing our operating costs.

What kind of strategies are being employed by the sector’s upstream companies to prevent production decline in existing fields?

HUDSON: We’re looking at a series of reservoir management strategies. These include: how to approach workovers differently, how we handle differential pressures across the systems we put gas into, how we mitigate sand production in our producing wells, as well as a whole host of other measures.

One of the discussions we’re having with the Environmental Management Authority (EMA) is with regards to water disposal, and how it could enhance additional production. We now have the issue where, because of the regulation in place, we must bring water to shore. However, if in the future the industry and the EMA could achieve a better and less complicated balance in terms of water disposal, production could be increased.

The output of many existing fields is rapidly declining, so producers are working hard to simply maintain their position. Therefore, we’re not seeing a relative increase in production at present, but more stability in production. This paves the way for bringing on new fields in the next 18-24 months, and we should then see a steady increase in production volumes. The strategy must be to protect the base, the production and the associated facilities, while developing new production centres.