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The newest bid round by Trinidad & Tobago corrects some unfavorable contract terms from earlier rounds. At least 20 bids for six blocks have been received.
Trinidad & Tobago’s (T&T) upstream industry has been put through the grinder over the past few years. With oil production levels on the wane and gas export demand also sliding as the United States makes the most of its shale gas boom, the islands’ government has had to act decisively after years of relative stagnation to avoid what could be a disastrous downwards slide.
But act it has. The twin-island Caribbean state’s latest licensing round offers deepwater acreage, reflecting a new-found recognition of the competitive global nature of the offshore exploration business. The bidding round recognizes the need for smaller nations to offer the best fiscal incentives to realistically compete with larger emerging frontier regions with vast potential resources around the world such as the east coast of Africa and the eastern Mediterranean.
The early signs are positive. The T&T government is expecting to see an upturn this year in offshore drilling activity and, with several new international oil companies now involved and other larger ones interested in the frontier deepwater blocks on offer in the latest round, there is now at least the possibility of arresting the islands’ falling oil production levels.
Crude oil and gas liquids production last year is estimated to have fallen by nearly 24% from the 2010 figure of 145,000 barrels per day (b/d) because of maintenance activity and unpredicted field disruptions. The forecast is for around 138,000 b/d this year. This will fall to a predicted 127,000 b/d by 2016, according to various industry sources.
Hence the government’s strong focus on making its 2012 Deep Water Competitive Bid Round as appealing as possible.
The round having formally got underway in early April, following an aggressive marketing campaign and a series of road shows in energy hubs such as Houston and London. The T&T Ministry of Energy and Energy Affairs (MEEA) is initially offering six selected deepwater blocks. The bid round will remain open for four months, with the closing date set for July 30.
The blocks being offered are in the East Coast Marine Area and Trinidad and Tobago Deep Atlantic Area and feature a mix of water depths, hydrocarbon play-types and production potential.
Seismic contractor PGS, in conjunction with the MEEA, has acquired 6,766 km of marine multiclient 2D data over approximately 43,000 sq km of the offshore area.
Crucially, this bid round is substantially different from disappointing past rounds, taking advantage of revised contractual terms, a more transparent bid evaluation process and fiscal incentives designed to attract potential investors while optimizing government revenues.
The ministry admits it was directly in response to the limited success of the 2006 Trinidad Deep Atlantic Bid Round that it launched several initiatives aimed at encouraging future exploration over the acreage with the intention of a second Deep Atlantic Bid Round.
These initiatives included a concurrent review of fiscal, contractual and technical aspects of the Deep Atlantic Area. Fiscal and legal terms were reviewed in collaboration with consultants and other government stakeholders, while a detailed technical review was carried out in collaboration with Dynamic Global Advisors, Houston.
Energy Minister Kevin Ramnarine commented, “This is the third bid round this government is pursuing, and it carries with it tremendous hope for the future of the national energy sector.”
The improved bid package includes offering petroleum sharing contracts (PSC) similar to those offered in a 2010 licensing round. Following that, the government amended a misguided tax regime implemented in 2006, which Ramnarine described as “a disastrous taxable PSC that also required companies to carry state oil company Petrotrin as a part of the bid.”
The minister continued, “We have moved back to the PSC where the company’s taxes are paid out of the minister’s share of profits petroleum and companies are no longer required to carry Petrotrin.”
But, the Ministry has gone much further than this in order to increase the latest round’s appeal, as the 2010 round was itself still disappointing in terms of industry response. Most observers agree, though, this was largely due to the global economic situation at that time as much as anything else.
The MEEA eventually received bids for three blocks out of 11 permits it offered in that deepwater round from companies such as BP, Canada’s Niko Resources and a consortium of Spain’s Repsol, Total of France and Australia’s BHP Billiton. All were focused on blocks that were seen as having the greatest oil potential.
For 2012 in order to increase the levels of deepwater exploration, the government introduced further incentives for companies by reducing the petroleum profits tax to 35% from 50%, a substantial concession.
For taxation purposes the definition of deepwater was also amended from 400 to 1,000 m (1,320 to 3,300 ft) for cost recovery rates. These cost recovery rates (tax breaks due to depreciation) were also increased from 60% to 80%. The MEEA admits these cost recovery rates were altered after considering similar PSC arrangements elsewhere in the world.
This recognition of the need to improve Trinidad & Tobago’s competitiveness as an exploration province was a bold but necessary step, and the early signs are that the government’s efforts will be rewarded.
There has so far been “strong international interest,” according to Ramnarine, with more than 20 nominations registered so far for the six blocks by international oil and gas companies with the MEEA.
Four of the blocks – TTDAA-1, TTDAA-5, TTDAA-6 and Block 25 (a) -- lie in the East Coast Marine Area, while blocks TTDAA-28 and TTDAA-29 are located in the T&T Deep Atlantic Area off the northeastern coast. These feature water depths ranging from 600-3,500 m (2,000-11,500 ft) and lie fairly close to proven oil and gas fields.
The eventual bid winners for the above blocks will be granted a contract for nine years with renewals for a term of 30 years from the date of the contract, if successful discoveries are made.
The 2012 deepwater licensing round, combined with stated plans by E&P companies with existing activities in Trinidad & Tobago to spend around $3 billion on oil and gas exploration on and offshore this year (according to Ramnarine), bodes well for the islands’ immediate upstream future.
Around 15 exploration wells will be drilled, mainly by Canada-based companies Parex Resources and Niko Resources, and also by BP. Five drilling rigs are currently operating in the country with six seismic programs underway or due to start this year.
BP Trinidad and Tobago (BPTT) stated earlier this year it planned to spend $1.1 billion in 2012, including seismic surveys over existing acreage.