An­tho­ny Wil­son

Con­sul­tant Busi­ness Ed­i­tor

an­tho­ny.wil­son@guardian.co.tt

Whol­ly state-owned Her­itage Pe­tro­le­um Com­pa­ny is re­port­ing prof­it af­ter tax of $1.11 bil­lion for its fi­nan­cial year end­ed Sep­tem­ber 30, 2022. That is 63 per cent more than the $682.68 mil­lion the com­pa­ny earned for the same pe­ri­od in 2021.

Dri­ven by prices for its crude oil that av­er­aged US$97 a bar­rel from Oc­to­ber 1, 2021, to Sep­tem­ber 30, 2022, Her­itage Pe­tro­le­um re­port­ed rev­enue from con­tracts with its cus­tomers of $10.16 bil­lion, com­pared with the $6.82 bil­lion it gen­er­at­ed in its 2021 fi­nan­cial year. That’s a 49 per cent in­crease, ac­cord­ing to Her­itage’s au­dit­ed fi­nan­cials for 2022, which are pub­lished as an ad­ver­tise­ment in to­day’s Sun­day Guardian on pages 55 to 59. In 2020, Her­itage record­ed a lit­tle over $1 bil­lion in prof­it.

The com­pa­ny said in 2022 it gen­er­at­ed $5.4 bil­lion in cash from its op­er­at­ing ac­tiv­i­ties be­fore the pe­tro­le­um prof­its tax. That was 69 per cent high­er than the $3.2 bil­lion it gen­er­at­ed in 2021.

The cash gen­er­at­ed by Her­itage in 2022 al­lowed it to:

• In­vest $484 mil­lion in pro­duc­tion growth, and in­vest in in­tegri­ty ex­pen­di­ture, in­fra­struc­ture, and an In­for­ma­tion Tech­nol­o­gy cap­i­tal pro­gramme. (2022: $498 mil­lion);

• Pay $4.5 bil­lion in roy­al­ties, levies, and tax­es to the Gov­ern­ment of the Re­pub­lic of Trinidad and To­ba­go. That is up from $2.0 bil­lion in 2021, an in­crease of 125 per cent;

• Meet the in­her­it­ed debt oblig­a­tions of the Trinidad Pe­tro­le­um Hold­ings Ltd (TPHL) Group of Com­pa­nies. Her­itage took over Petrotrin’s debt, which was pre­vi­ous­ly held by TPHL, in May 2022, when the debt was resched­uled for the sec­ond time.

Her­itage raised US$975 mil­lion in the in­ter­na­tion­al cap­i­tal mar­ket in May 2022, which “re­fi­nanced the US $850 mil­lion bul­let bond from Petrotrin that was due to ma­ture in Au­gust 2019; part of a US$750 mil­lion amor­tis­ing bond, plus cer­tain costs of the re­struc­tur­ing of Petrotrin in­to the var­i­ous com­pa­nies com­pris­ing the TPHL group,” ac­cord­ing to a state­ment in the Sen­ate on Feb­ru­ary 7, 2023, by Min­is­ter of Trade and In­dus­try, Paula Gopee Scoon—an­swer­ing for Min­is­ter of En­er­gy Stu­art Young.

The re­fi­nanc­ing com­prised a US$500 mil­lion se­nior se­cured bond trans­ac­tion and a US$475 mil­lion se­nior se­cured term loan. It al­lowed Her­itage to im­ple­ment a com­fort­able low­er cost and longer-term debt ma­tu­ri­ty pro­file, as well as re­move sev­er­al re­stric­tive loan covenants that were in place since the 2019 re­fi­nanc­ing, said Gopee-Scoon.

Heritage Petroleum offices in Santa Flora

CEO: Her­itage be­ing run as a busi­ness, pays its way

In an in­ter­view with the Sun­day Guardian be­fore the pub­li­ca­tion of the au­dit­ed fi­nan­cials, Her­itage CEO Ar­lene Chow ex­pressed plea­sure in the prof­its made by the com­pa­ny.

“Our gross prof­it was $3.5 bil­lion in 2022 and our mar­gins have been be­tween 32 and 25 per cent since we were set up in late 2018,” she said.

With the com­pa­ny pay­ing $4.5 bil­lion back to the Gov­ern­ment as roy­al­ties, levies, and tax­es, how much is be­ing rein­vest­ed in the busi­ness to boost oil pro­duc­tion in the fu­ture?

“The cap­i­tal ex­pen­di­ture of Her­itage in 2022 was ap­prox­i­mate­ly $482 mil­lion,” Chow said.

She made it clear that even though the com­pa­ny is whol­ly owned by the State, it is be­ing run as a busi­ness.

She re­called that dur­ing the In­ter­na­tion­al Mon­e­tary Fund’s Ar­ti­cle IV Con­sul­ta­tion with T&T in March, she told the Fund’s of­fi­cials, “We are pay­ing our own way, we nev­er asked for any mon­ey from the Gov­ern­ment, we in­vest­ed in our cap­i­tal ex­pen­di­ture and our op­er­a­tional ex­pen­di­ture, we are pay­ing all of our lega­cy loans and we are pay­ing all of our tax­es.” She said one of the Fund’s of­fi­cials re­peat­ed what she had told him twice, “as though he could not be­lieve it.”

Chow re­it­er­at­ed, “Her­itage pays its way.”

Pay­ing its way is less oner­ous for Her­itage than it was for Petrotrin be­cause the suc­ces­sor com­pa­ny has few­er em­ploy­ers, Chow said.

“When Petrotrin ran the E&P (Ex­plo­ration and Pro­duc­tion) arm, it had 2,500 peo­ple. We have 500 em­ploy­ees. We run a tight, tight ship be­cause we know that it is im­por­tant for us to look at our spend­ing,” said the Her­itage CEO.

In his chair­man’s re­port, at­tor­ney Michael Quam­i­na, SC, said Her­itage’s crude pro­duc­tion for its fi­nan­cial year av­er­aged 39,028 bar­rels of oil per day (bop/d), which was a de­cline of 4.5 per cent from its 2021 fi­nan­cial year when it pro­duced  41,239 bopd.

“The re­serve-re­place­ment ra­tio has been over 100 per cent for the last three years and was 124 per cent in 2022, which is the in­dus­try’s first quar­tile. The re­serves to pro­duc­tion ra­tio has in­creased from 7.3 years in 2019 to 9.2 years in 2022,” said Quam­i­na, who re­ceived ‘silk’ last week, when he was el­e­vat­ed to se­nior coun­sel.

The re­serve-re­place­ment ra­tio is the amount of oil added to a com­pa­ny’s re­serves di­vid­ed by the amount ex­tract­ed for pro­duc­tion.

Chow told the Sun­day Guardian that the Her­itage strat­e­gy is a sim­ple one.

“There is Peak Oil com­ing when the price of the com­mod­i­ty is go­ing to drop ... The strat­e­gy that the Gov­ern­ment has ap­proved is to get the oil out of the ground as swift­ly and safe­ly as pos­si­ble. That is what we are try­ing to do be­cause we do not want Peak Oil to hit us,” she said.

That means go­ing af­ter the coun­try’s proved crude oil re­serves, which are es­ti­mat­ed to to­tal 143 mil­lion bar­rels of oil. She said the com­pa­ny projects that T&T’s to­tal re­serves­—in terms of proved, pos­si­ble and prob­a­ble—now amount to 375 mil­lion bar­rels.

But Trinidad is a ma­ture oil province, Chow main­tained, stat­ing, “That is not an opin­ion, that is a fact. I checked to find out how many 100-year-old fields are still func­tion­ing around the world. I could not find many, per­haps a dozen maybe. And when I looked at the av­er­age de­cline of those fields, it is ten to 13 per cent. We have been able to sta­bilise our de­cline to be­tween five and sev­en per cent.”

She said 13,000 wells have been drilled on­shore in Trinidad and 900 off­shore. Of the on­shore wells, less than half are in pro­duc­tion “be­cause when Petrotrin was run­ning the busi­ness, they did not do much in­tegri­ty man­age­ment, so we can­not even ap­proach those wells, or get a rig on them un­til we fix the plat­forms.

“And you know the whole thing about if you do not main­tain for one year, you take five years to catch up.”

About Her­itage

Her­itage Pe­tro­le­um Com­pa­ny (Her­itage) was in­cor­po­rat­ed on Oc­to­ber 5, 2018, and com­menced op­er­a­tions on De­cem­ber 1, 2018, of that year.

It is a sub­sidiary of  Trinidad Pe­tro­le­um Hold­ings Ltd (TPHL), which is the hold­ing com­pa­ny of Her­itage Pe­tro­le­um, Paria Fu­el Trad­ing Com­pa­ny, Guaracara Re­fin­ing Com­pa­ny, and lega­cy Petrotrin.

 TPHL is the suc­ces­sor of Petrotrin, which op­er­at­ed as an in­te­grat­ed oil com­pa­ny, com­bin­ing ex­plo­ration and pro­duc­tion (E&P) of crude oil with the re­fin­ing of crude in­to var­i­ous fu­els, at the re­fin­ery in Pointe-a-Pierre, which were then sold on the lo­cal and re­gion­al mar­kets.

On its web­site, Her­itage states, “The com­pa­ny aims to fo­cus on ex­plo­ration, de­vel­op­ment, pro­duc­tion, and mar­ket­ing of crude oil with a man­date to pro­vide max­i­mum fi­nan­cial re­turns for the coun­try’s en­er­gy re­serves. Our op­er­a­tions are pri­mar­i­ly lo­cat­ed with­in south­ern Trinidad and To­ba­go with non-op­er­at­ed as­sets off Trinidad’s north and east coast.”