WHOLLY State-owned crude oil producer, Heritage Petroleum, is prepared to sell the company’s crude to the Pointe-a-Pierre refinery, if that billion-dollar State asset is transferred by the end of October to Patriotic Energies, the company formed by the Oilfields Workers’ Trade Union (OWTU).
But Heritage CEO, Arlene Chow made it clear, in an interview with Express Business, that the price at which Heritage sells oil to the refinery must be competitive.
With Prime Minister Dr Keith Rowley placing a deadline of the end of October for Patriotic Energies to secure the refinery, Chow was questioned on whether Heritage would sell oil to the refinery already calibrated to receive Heritage crudes.
“If the price is competitive to what we obtain from the open market, we may consider selling. If it is less, as it used to be with the Petrotrin refinery, then it does not make financial sense to sell to the refinery,” she responded.
“Also the question is whether the refinery will want Heritage crude. The refinery has to consider the composition including viscosity etc to know if it meets the composition needed. This is the case whether the refinery is operated by Patriotic or any other operator,” she answered.
Speaking at the Spotlight on the 2021 Budget on Monday, Rowley said there was a date specific deadline of the end of October for a contractual conclusion of negotiations between the Government and Patriotic.
“And if by the end of October, there is no conclusion to a way forward, and by conclusion, I mean contractual conclusion between the State and Patriotic, then we’ll have to look at other options.” he said at the event hosted by the Ministry of Finance at the Hyatt.
The Prime Minister said he hoped “that we can work out something” because effort was made for over a year on the sale.
The refinery has now been closed close to two years. It was mothballed in October 2018.
On September 20, 2019, Finance Minister Colm Imbert had announced that a company owned by the OWTU was preferred bidder to own and operate the refinery after it won the bid to purchase the Guaracara Refining Company Limited and Paria Fuel Trading Company Limited with a US$700 million offer.
Good decision to store
AT a time of depressed energy prices, Heritage’s chief executive Arlene Chow said the company has benefited from its decision to store and sell its oil when the Covid-19 pandemic began.
In response to questions from the Express Business, Chow explained that the price of crude varies depending on supply and demand fundamentals, geo-politics and markets sentiments.
“Our crude is called Molo, which is the Trindad and Tobago brand. It is a medium gravity, medium sour crude that is a blend of land and offshore crude supply. Molo’s pricing is linked to Brent prices as it is a water-borne crude. At present, Brent is trading at about US$40.00 per barrel and we have been trading upward of 90 per cent of the Brent price,” said Chow.
A citizen of T&T, Chow is a career energy executive who was appointed as the interim CEO of Heritage on September 2, 2019 to replace American Mike Wylie. She has worked at Trintoc, Amoco, BP and at Atlantic LNG.
In April, the energy company announced that instead of selling its crude at lower prices which had the oil market since January, that it would temporarily store about two and a half months supply - 3.5 million barrels of oil.
T&T’s crude comes from two sources- BPTT’s Galeota mix and Heritage’s Molo crude, with the price earned from these two crudes referenced to the price of Brent crude.
“During the months of May and June 2020, given the precipitous fall in the price of crude oil driven by reduced demand due to the impact of Covid-19 as well as the oversupply of crude on the market because of the price war between Saudi Arabia and Russia, the leadership of Heritage took a strategic decision to store our oil production and hold for a period until prices recovered. Based on market forecasts and intelligence, this recovery period was predicted to be from July 2020 onwards.
“Through the combined efforts of the Trinidad Petroleum Holdings group of companies, Heritage was able to nimbly increase its storage capabilities by circa 1 million barrels in order to deliver on this storage strategy. With this increased capacity, Heritage was able to store all of its production for the months of May and June, when prices were most depressed, and subsequently sell when prices recovered from July onwards.
A total of five (5) cargoes were stored rather than sold during this period.
“Recently, Molo crude has been placed in the US West Coast - California and the Gulf Coast- Louisiana and Texas and East Coast in Delaware. We also ship to European markets mostly to Rotterdam,” she said.
She said at the end of August, crude oil production was approximately 40,000 barrels of oil a day.
In November 2018, the Government took the decision to shut down Petrotrin and establish three entities- Heritage Petroleum Limited, Guaracara Refining Company Limited and Paria Fuel Trading Company Limited.
In the first ten months of operation, the company said it earned $5.4 billion and turned a $1.4 billion profit and made no taxation expense.
In its audited financial statements for the period ending September 30, 2019, Heritage said it also held $1.16 billion in cash and cash equivalents for the end of the period.
According to Note 16, the revenue breakdown, the company earned $4.8 billion from crude oil sales; $329 million from natural gas sales; $229 million in royalties; and $11.1 million from natural gas liquids. Note 20 explained that for the period, the company paid $89.3 million for employee benefit expenses including $63 million in salary and wage benefits.
According to the accompanying notes on the financial statements (Note 2), Heritage is owed $1.47 billion from transactions from related parties (the State and other state enterprises), including $48.3 million in VAT refunds.
It is also owed $515 million from parent company TPHL mainly from loan principal repayments, interest obligations and cash advances.
Further, it is owed $900 million from Petrotrin for fees and transactions related to restructuring and asset transfers.
The company does, however, owe Government $185.7 million in taxes other than income tax ($23 million) and royalties ($162 million).
When the pandemic hit in March, the company was forced to revise its 2020 business plan.
In April, the company said it would implement the following measures:
1. To curb its spend, it would re-evaluate activity for the rest of 2020 in detail and decided on risk based reductions through optimization of activity and project portfolios.
“We have also partnered with our Energy Service Companies to reduce their rates aggressively. These measures have resulted in a capital expenditure reduction of 49 per cent and an operating expenditure reduction of 21 per cent in the revised Heritage budget which will be constantly reviewed,” it said in a news release at the time.
2. To generate revenue, Heritage said it would identify and implement additional cash-generating options such as the sale of obsolete assets including scrap iron and supply boats which it expects will yield significant revenue.
3. To stabilise its current expenses, it will put a freeze on recruitment except for critical jobs.
“We knew we needed to regroup and recalibrate. We developed a plan with a stringent focus on cash. We reduced operating and capital expenditure. In addition, Heritage developed options to sell surplus stock, slowed the pace of recruitment to critical roles and stored crude for May and June until prices improved,” she said last week.
Chow said the moving forward the plan is to build a foundation for sustained growth focusing on: “Operating our facilities in a safe and compliant manner is a key component of our plan by improving integrity and infrastructure of our facilities, deliver sustained production growth year on year by stabilisation and organic growth and with workovers and well servicing, installing and improving gas compression and injection for gas lift and assessing opportunities for partnerships to create value.”
She said Heritage is continuously being innovative to increase production in a safe manner.
“In the Land Assets, we are managing deferrals and improving on efficiency on workovers and well servicing so that our production base is maintained. We are also working on EOR (Enhanced Oil Recovery) projects with our Steam Flooding Systems to increase production. A Field Development Plan is being done with a focus on Inactive Wells so that we can implement actions to reactivate and impact on production. On the offshore the focus is on workovers and other well work. In addition, we are improving our compression reliability and improving our facility and pipeline infrastructure so more wells can be put on production,” she said.