Interview: Andrew Jupiter
To what extent is the decrease in T&T’s oil and gas production linked to the decline in commodity prices being observed currently?
ANDREW JUPITER: Lower commodity prices have negatively affected the oil industry in T&T. There has been a reduction both in drilling and workover activity, and as a result all the companies involved in production have registered a decline in output. From a high of 238,000 barrels per day (bpd) in 1978, the country’s production in 2016 stands at about 80,000 bpd. Furthermore, new secondary recovery projects have been shelved.
Reduction in overriding royalty has been sought by lease operators, and at prices under $30 per barrel, overriding royalty to Petrotrin has been adjusted. Curtailment in natural gas has continued to downstream plants in the Point Lisas Industrial Estate. Gas production is currently about 3.8bn standard cu feet per day (scfd), a decrease of 400m scfd. Upstream companies are unable to produce sufficient gas for the natural gas company to transmit to the downstream user. Therefore, oil and gas production is inextricably linked to the decline in commodity prices.
How are low oil prices affecting the margins and profitability of refinery businesses?
JUPITER: In a refinery business, profitability depends on the price of oil, as well as the refined products you take to market. Recent throughput levels of around 160,000 bpd translate into a utilisation rate close to 80%, hence the need to use imported crude in our refinery. There is a belief that as oil prices decrease, the margins of refineries increase, simply because of the lower input cost. However, if product prices are not being sustained as oil prices drop, the overall impact on a refinery’s margin might not be quite as much as anticipated. The gross margin ultimately depends on the efficiency with which a refinery business is run, the types of products it sells and to whom it sells them. Our premium market is the Caribbean.
What measures are being taken to boost the industry’s operations to meet 2016 targets?
JUPITER: Our overall production decline rate for 2016 is estimated to be around 10%. Given this, unless we find a new field, it will be extremely difficult to increase oil production. The first objective is to find new oil, and I expect that the 3D seismic data we now have available will allow us to pick more accurate locations. In addition, we need to re-examine our enhanced oil recovery and ensure the necessary geological work and prospect generation are conducted to stabilise production. We have already carried out steam flooding in T&T and are now looking at carbon dioxide flooding again.
How has the work of independent operators contributed to national oil output?
JUPITER: The work of independent operators has been crucial in our industry. Lease operatorship and farm-out activities were introduced about 1986, when the local industry was faced with the challenge of low oil prices. The model has since evolved from lease operators simply working over idle wells to drilling wells. Current data shows that these partners have significantly contributed to an increase in T&T’s oil production. Each independent operator has achieved different levels of operating cost, but it is a fact that these players operate at a lower marginal cost per barrel than Petrotrin does. In a small country like T&T, we need to work in partnership with all the relevant independent stakeholders that can contribute to the stabilisation of oil production, while also working with the various unions to ensure that efficient operations are maintained for the benefit of the country.