Colombia is an example of a model T&T can follow in how it attracts foreign investment, says Roger Packer, president, Energy Chamber of T&T. “Our close neighbour, Colombia, presents an interesting example of how institutions restructuring can foster investment into the oil and gas industry. Over the past seven years, Colombian oil production has increased by 43 per cent on the back of a fundamental reform of their state oil company and the regulatory and investment promotions functions of the state.” A January 26 Bloomberg report quoted Colombia’s Mines Minister Mauricio Cardenas as saying that Colombia, South America’s third largest oil producer, expects about US$10 billion in international investment in crude, mining and energy projects this year. The amount is similar to last year’s foreign direct investment, said Cardenas, who was interviewed at the World Economic Forum’s annual meeting in Davos, Switzerland. President Juan Manuel Santos has lured companies owned by billionaires Carlos Slim and Eike Batista to Colombia, where production of crude rose to a record last year. Foreign direct investment in Colombian coal mines and metals and oil projects climbed to US$6.5 billion in the first nine months of 2011 from US$3.6 billion a year earlier, according to the South American country’s central bank figures.
Oil production will increase 18 per cent to an average of 1.1 million barrels a day in December from a year earlier, Cardenas said in a January 12 interview. Colombia is the third-largest crude producer in South America after Venezuela and Brazil. Packer was speaking on Monday at the opening ceremony of the Energy Chamber’s annual conference at the Hyatt Regency Trinidad hotel, Dock Road, Port-of-Spain.
He said it is important that T&T attracts foreign investment to sustain its energy sector. “Clearly, we need to be competitive if we are to attract the investment dollars needed to develop our industry. This is not just about fiscal terms, it is also about getting the right institutional structure and one that is responsive to change and able to adapt and change the strategy as the external market evolves. “We need to significantly strengthen the state institutions that promote investment across the entire value chain. And we must deepen the collaboration and integration between investment in the upstream and downstream sectors,” he said.
Raising the bar
He called for high standards among local companies in the energy sector. “Ensuring that local companies are operating at the highest standards is a crucial element of local content. This is why initiatives of the Energy Chamber, such as the Energy Industry Competency Development Initiative and Safe To Work Initiative, are so important for local content.” South-South co-operation is important, Packer said. “We also believe that these programmes are important for us to partner with and work in close collaboration with industry associations and chambers in some of the newly emerging energy provinces in Africa and in the Caribbean region. We believe that this can foster genuine South-South technical co-operation at the same time as building the business-to-business relations that are so important to the service industry.” Energy Minister Kevin Ramnarine, who spoke at the conference, signalled his intention to attract smaller upstream companies, and referred to local company Trinity. “It is in the national interest to attract smaller companies who have more manageable cost structures and are more nimble. A number of these companies are doing exciting things, like Bayfield, Range, Leni, Parex, Niko and Fram, and our very own Trinity. In this regard, it should be noted that the lease operatorships and farmouts produce approximately 30 per cent of land oil production at present.”
Seeking BRIC investors
Packer said it is urgent that T&T attract new investors to its energy sector. “We need to have institutions that are able to secure investment not just from our traditional partners in North America and Europe, but new investors from the rapidly growing BRIC countries: Brazil, Russia, North America and Europe as well as SaudiArabia and the Gulf States. Often this will mean working with majority state-owned companies.
“And highlights the importance of having foreign policy framework to attract investment as well as promote our services globally,” he said. T&T requires significant continued investment in T&T’s upstream sector, Packer said. “If we are to ensure a rebound in oil production and consistent delivery of gas to our diverse downstream plants, it is just not about exploration and new developments. As the offshore infrastructure ages, it is important that operators invest heavily in preventative maintenance, if we are to safely and consistently deliver oil and gas.” Aleem Hosein, deputy chairman, Petrotrin, said workers need to be continuously educated about the value of foreign investment in the industry. “We must educate unions as to why multinationals are needed to invest in the sector. Many of them are still thinking in the 1970s when foreign companies were nationalised,” he said.
Packer gave “good news” about the fiscal regime. “Clearly, getting the right incentives in place is crucial if we are to turn around the declining oil production. On this score, there is good news to report. The fiscal incentives for onshore oil introduced in 2012 resulted in a significant return to drilling activity in 2011.
“Last year showed a significant return to drilling activities in Trinidad, with the total footage drilled bouncing back above 35, 000 feet drilled. This return to the drill bit was led by development drilling by the small operators in the lease-out and farm-out sector, who collectively drilled well over 100,000 feet—the highest ever figures ever in this sub-sector.” He said if T&T is to see increased oil production, the smaller independent operators have a “crucial role” to play. “However, if we are to increase oil production, we cannot just look onshore. Increasing production from the mature near-shore off both reservoirs, off both the west and east coasts of Trinidad, is the key to increasing overall national production in the short to medium term.
“While the emphasis has been on getting the right fiscal structure for onshore oil and to attract exploration activity into new areas, we have perhaps forgotten the crucial near-shore oil sub-sector. This is an area where we need to rethink the fiscal terms and, in the case of the Trinmar acreage, the organisational and equity structure for the assets.” He also said a mechanism needs to be found to stimulate the offshore gas sector. “In the case of the gas sector, it is not just the fiscal terms that we need to consider, but the contractual terms for gas sales. Without a fair market for gas, no investment will take place.” He also spoke about “significant fiscal reforms.” “With the newly reprocessed seismic data in hand we all hope that the upcoming March 2012 bid round will get a very positive response. The Minister of Energy and Energy Affairs must ensure that it closes off in the deepwater production sharing contracts (PSC) already under negotiation. We have seen in recent past how long and drawn out negotiations can lead to T&T missing the opportunity to get exploration acreage into the hands of companies with good track records.”
Energy Minister Kevin Ramnarine described the T&T economy as open. “The emergence of Brazil, India, China, Russia and the emergence of new players in energy in Africa has not gone unnoticed. On the regional front, we here in T&T are looking on with great interest as exploration for oil takes place off the coast of Guyana.” He added that over the last 21 months, the Government has built bridges with India, Brazil, Ghana, Tanzania and Mozambique. “The vision of Prime Minister Kamla Persad-Bissessar is that we strengthen South-South co-operation. The United Nations Conference of Trade and Development in its 2011 report has noted that in 2010, developing countries absorbed close to half of the global foreign direct investment. The world has changed and its consequences for the way we do business in T&T.”
Ramnarine said Petrotrin is important in increasing oil production. “The main player in any strategy to increase national oil production is Petrotrin. The licence for Trinmar expires in July 2012. This is a once in a lifetime opportunity to get things right in Trinmar where much of the potential for increasing oil production resides. It is a time for bold, innovative and game-changing decisions.”
2012 upstream/downstream activity
Ramnarine outlined his optimism about the energy sector. “In 2012, exploration will again spring to life after four years of moderate activity. This year will see a total of 15 exploration wells drilled in T&T. The majority of exploration activity centres on the efforts of Parex Resources of Canada, Bayfield of the United Kingdom and Niko of Canada. All this exploration will lead to an increase in demand.” In the downstream sector, Ramnarine said there are the National Gas Company (NGC) and National Energy Company (NEC), which will hold discussions with Methanol Holdings Trinidad Ltd on February 14 to determine the “obstacles” to the commencement of work on the much-anticipated AUM 2 plant. “Cabinet also has before it matters related to other major investments in the mid-stream and downstream sectors.”