In December 2018 Petrotrin – Trinidad and Tobago’s state-owned oil and gas company – completed a major restructuring drive, aimed at streamlining the company’s operations and cutting costs. While the move resulted in major job losses and faced opposition, it was seen as essential, both in order for the company to regain profitability and for the country to successfully revamp its hydrocarbons industry.
Petrotrin had faced mounting challenges as a result of its heavy debt burden, a shortage of human capital and ageing infrastructure. This was despite some progress having been made in recent years in improving crude oil production, refinery throughput and bunkering. While it will take time for the full outcome of the restructuring process to become apparent, early indicators appear positive, with the reformed company returning to profitability and opening new oil wells. Nevertheless, the move continues to face opposition, both in terms of the future structure of the company and the loss of important downstream opportunities.
Restructuring & Closure
According to government figures, the company accumulated losses of around TT$8bn ($1.2bn) between 2013 and 2018, along with debts of TT$12bn ($1.8bn). Furthermore, the company owed the government TT$3bn ($443m) in unpaid taxes and royalties and would require some TT$25bn ($3.7bn) to remain solvent, though would likely continue to operate at a loss. The firm had historically operated the country’s only refinery, located at Pointe-à-Pierre, north of San Fernando.
As part of the first stage of the restructuring of the company Petrotrin closed operations at the loss-making refinery in November 2018. As a result of a steady decline in oil production, the company had been forced to purchase 100,000 barrels a day to make up for the shortfall and keep the facility functioning. Speaking to local press at the announcement of the closure of the refinery Wilfred Espinet, chairman of Trinidad Petroleum Holdings, announced that, “Petrotrin will be able to independently finance all of its debt and become a sustainable business. Our goal is for Petrotrin to be an internationally competitive and sustainably profitable leader in the local energy sector.”
Following the closure Petrotrin was broken up into different entities in December 2018: Heritage Petroleum Company, which is responsible for the exploration, development, production and marketing of crude oil, and Paria Fuel Trading Company, for the trading and marketing of imported fuel products. Petrotrin itself was rendered a subsidiary of Trinidad Petroleum Holding, which is responsible for all legacy items that have not been transferred to one of the new operating entities, including ongoing operation and maintenance works, workers’ pension payments, and its properties and lands. Meanwhile, ownership of all Pointe-à-Pierre refinery assets was handed to the newly established Guaracara Refining Company, a holding company tasked with the management and sale of the refinery.
While Petrotrin’s restructuring is now complete, it will take the new company time to get fully up and running. “The strategy for the Heritage Petroleum Company is still in a transition phase and it will take some time to get the right procedures in place,” Thackwray Driver, CEO of the T&T Energy Chamber, told OBG. “The restructuring has meant that its upstream operations are starting to ramp up and they have to put more work into farm-outs, but as a new company with new processes that is not likely to happen straight away.” Following restructuring Heritage Petroleum Company has emerged as a much leaner entity. Indeed, the company shed approximately 5000 members of staff and efforts are currently under way to increase production, and attract international investment to develop new oil wells and upgrade existing assets.
However, according to the latest available figures, the results so far have been positive. In late November 2019 the Heritage Petroleum Company reported after-tax profits of $725m for its first fiscal year ending September 2019. Speaking at the announcement of the return to profitability, Franklin Khan, minister of energy and energy industries, told industry and union representatives, “Once the Heritage Petroleum Company continues to be profitable, we can spread out further in the community. All these facilities that were managed by Petrotrin... all of them will be restarted.”
Furthermore, in another promising sign for the industry, the company found itself on a par with BP T&T in terms of the number of new wells during the first half of 2019, with both companies commencing operations at six wells each during this period. This places it higher than BHP, which opened three, and Shell, which opened one. As the country’s newest state-owned company operating in a sector dominated by major foreign players, the importance of the Heritage Petroleum Company operating successfully cannot be understated.
The new firm reported that production averaged 32,897 barrels per day during the first six months of 2019, representing 66% of the country’s total average crude output. “The Heritage Production Company has turned a profit in since mid-2018,” Douglas Boyce, a consultant at T&T-based upstream services provider Intecsea, told OBG. “So the cloud over the industry has a silver lining.”
Nevertheless, while the restructuring effort has been praised by some opposition lawmakers and the return to profitability appears to vindicate the government’s decision to push through the restructuring plan, there continues to be some political pushback. Most notably, there is debate over the most suitable structure for the company moving forwards. Speaking ahead of the local government elections in early December 2019, Kamla Persad-Bissessar, leader of the opposition United National Congress party, stated that Petrotrin should be revived as a single entity, and that the current result of the restructuring into four separate companies is “a recipe for disaster”. Persad-Bissessar told local media that, “In today’s competitive oil market, an integrated petroleum company stands a far better chance of survival than a company broken up into its constituent parts.”
The restructuring of Petrotrin also encompassed the downstream segment, which included the closure of the country’s Pointe-à-Pierre refinery. Industry players welcomed this move as a means of cutting costs and allowing the downstream sector to diversify. “I think it is a blessing that we have shut down the refinery, as we were importing oil anyway and the refinery process was very costly,” Boyce told OBG. “It was a very inefficient facility and now you can buy from various markets, depending on the price, and you have the flexibility to buy refined products from other countries.” The move was similarly welcomed by Driver, who told OBG, “Closing the refinery was an overall positive development. It was a tough decision for the government to make, but I think it was the right one.”
The move was not uniformly welcomed, however, particularly among companies engaged in providing services to the downstream segment, which have also been affected by the country’s decline in upstream production. “We have seen the country adversely affected by the closure of the refinery, which took away a significant portion of our business,” Indar Boodoo, managing director of Indar Analyser Services, which provides process analysis and monitoring to the upstream and downstream industry, told OBG. “Increased production is still a long way off, and the country is now seen by investors as being less competitive.”
Nevertheless, the restructuring efforts also present opportunities for downstream players, notably in areas such as environmental impact assessments and the monitoring of emissions. “We are looking into new lines of business on the environmental side of things and we are seeing where the new opportunities arise,” Boodoo told OBG. These opportunities form part of a broader array of diversification possibilities for domestic and international firms in T&T, brought about by the government’s commitment to increasing electricity capacity from renewable energy sources and shifting away from total reliance on natural gas. “As is the case with the country’s oil and gas sector, the renewable market in T&T has opportunities for players of all sizes,” Krishna Persad, CEO of the domestic energy services company Renaissance Energy, told OBG. “The idea of generating electricity in the home and selling it back to the grid is starting to gain traction, and will open up the market for individuals and businesses. As the cost of photovoltaic panels halves every two to three years, achieving this is closer than once thought.”
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