Asha Javeed

Six years af­ter un­der­tak­ing a mas­sive up­grade of its re­fin­ery, the state's en­er­gy com­pa­ny is now heav­i­ly in­debt­ed. It's over-lever­aged po­si­tion comes from two bonds float­ed to up­grade the re­fin­ery:

�2 A US$750 mil­lion bond to fi­nance a gaso­line op­ti­mi­sa­tion project (GOP)-orig­i­nal­ly bud­get­ed at US$350 mil­lion; and

�2 A US$850 mil­lion bond, in Au­gust 2009, to fi­nance com­ple­tion of the GOP even though it was a year be­hind sched­ule and $3.6 bil­lion over bud­get. The fi­nal cost of the GOP, which was ex­pect­ed to be com­plet­ed by this month, is US$1.4 bil­lion. While debt can be bur­den­some, the in­abil­i­ty to fin­ish the projects has con­se­quences for the cash-strapped com­pa­ny. If two GOP plants–the alky­la­tion unit and sul­phuric acid re­gen­er­a­tion plant, are not com­mis­sioned by its ex­pect­ed No­vem­ber dead­line, Petrotrin will in­cur US$100,000 a day in loss­es, says En­er­gy Min­is­ter Car­olyn Seep­er­sad-Bachan.

She says it's very im­por­tant to get the plants up and run­ning.

"It's one thing to in­cur debt if you have the as­sets to back it. It's an­oth­er thing when you in­cur debt on projects that do not have the po­ten­tial to gen­er­ate the rev­enue streams to ac­tu­al­ly ser­vice the debt. The ca­pac­i­ty of the com­pa­ny to ser­vice that debt con­cerns me," said Seep­er­sad-Bachan, in a Busi­ness Guardian in­ter­view this week.

Is this a sus­tain­able po­si­tion for the com­pa­ny?

"It is dif­fi­cult. I don't want to say it's not sus­tain­able. There are many chal­lenges to Petrotrin giv­en their heavy debt sit­u­a­tion."

That un­for­tu­nate po­si­tion is com­pound­ed by the es­ti­mat­ed $2 bil­lion write-off of the gas-to-liq­uids plant, which is cur­rent­ly un­der ar­bi­tra­tion fol­low­ing a le­gal chal­lenge by Petrotrin's joint ven­ture part­ner, World GTL Ltd. World GTL had filed a breach of con­tract case against Petrotrin seek­ing no less than $12 bil­lion for their loss­es over the col­lapse of a joint ven­ture project.

Orig­i­nal­ly es­ti­mat­ed at $100 mil­lion, the cost of con­struc­tion of the GTL plant bal­looned to US$300 mil­lion and it is still in­com­plete. "The cur­rent sit­u­a­tion re­gard­ing the GTL plant–in which Petrotrin is a 49 per cent eq­ui­ty part­ner–has ad­verse­ly im­pact­ed Petrotrin. Based on ini­tial pro­jec­tions, the plant should have been op­er­a­tional by now and pro­duc­ing high-qual­i­ty diesel. As it is, the plant is in­com­plete and cur­rent­ly in the hands of a re­ceiv­er," re­spond­ed Petrotrin's pres­i­dent, Ken­neth Al­lum. In its 2009 fi­nan­cial state­ments, the com­pa­ny's im­pair­ment for the GTL plant is $1.5 bil­lion.

The bal­ance of the write off will be car­ried in the com­pa­ny's 2010 fi­nan­cial state­ment, the Busi­ness Guardian was told. Seep­er­sad-Bachan said it was her de­ci­sion to write the plant off as a loss.

"It would take US$100 mil­lion to fin­ish that plant. And there's no guar­an­tee you will get liq­uid at the end of it. It is a high-risk in­vest­ment." Seep­er­sad-Bachan not­ed that Petrotrin bore the full cost of that joint-ven­ture part­ner­ship. "Not one cent was put up by World GTL."

It begs the ques­tion: how did the com­pa­ny find it­self in this po­si­tion?

For­mer chair­man Mal­colm Jones has at­trib­uted the es­ca­lat­ing costs to con­struc­tion in­fla­tion. The Gov­ern­ment is seek­ing an­swers through a foren­sic in­ves­ti­ga­tion with spe­cif­ic terms of ref­er­ence with re­spect to whether or not there were acts of im­pro­pri­ety, whether prop­er cor­po­rate gov­er­nance was ob­served and the is­sue of the re­im­bursable con­tracts–con­trac­tors were paid for monies spent af­ter the project was com­plet­ed. At the En­er­gy Cham­ber's con­fer­ence in Jan­u­ary, Im­ti­az Ali, Petrotrin's gen­er­al man­ag­er of strat­e­gy and busi­ness de­vel­op­ment, not­ed: "In 2006, the over­heat­ed glob­al con­struc­tion mar­ket con­tin­ued. Lump sum bids ex­tra­or­di­nar­i­ly high. Dri­ven to cost re­im­bursable con­tracts for two ma­jor plants, with cost and sched­ule risk be­ing borne by Petrotrin."

These mas­sive over­runs, not­ed Seep­er­sad-Bachan, were over­looked by the for­mer ad­min­is­tra­tion. "My un­der­stand­ing is that the stand­ing com­mit­tee on en­er­gy was the one re­spon­si­ble for giv­ing these blan­ket ap­provals for cost es­ca­la­tion and sign­ing off on them and no­body asked ques­tions." While the up­grade was jus­ti­fied, it could have been bet­ter man­aged, she said. "I have a prob­lem with the mas­sive cost over­runs and the ac­tu­al de­lay. What it does is it con­tin­ues to jeop­ar­dise the com­pa­ny's abil­i­ty to re­pay these loans."

For the first time in sev­er­al years, Petrotrin suf­fered loss­es in 2009.

"In 2009, re­fin­ing mar­gins fell dras­ti­cal­ly when com­pared to the pre­vi­ous year. Notwith­stand­ing this de­crease in re­fin­ing mar­gins our fi­nan­cial re­sults for fis­cal year end­ed Sep­tem­ber 2009 show a prof­it based on op­er­a­tions but ow­ing to the im­pair­ment loss aris­ing from the GTL op­er­a­tions, we sus­tained a loss over­all," Al­lum ac­knowl­edged. "For the fi­nan­cial year 2009/2010, re­fin­ery mar­gins re­cov­ered slight­ly and based on unau­dit­ed fi­nan­cial re­sults as at Au­gust 2010 the com­pa­ny has record­ed an op­er­at­ing prof­it. The com­pa­ny ex­pects to close the fi­nan­cial year in a prof­itable po­si­tion," he told the Busi­ness Guardian.

Gillette's board

One of the first tasks for busi­ness ex­ec­u­tive, Lind­say Gillette, who was ap­point­ed as the chair­man of the state-owned com­pa­ny's board ear­li­er this month, is to come up with a debt re­struc­tur­ing plan. That strat­e­gy must in­clude a wider re­fin­ery mar­gin of $8 to $9 for Petrotrin, said Seep­er­sad-Bachan. She not­ed that hav­ing a wider mar­gin would put Petrotrin in a more com­fort­able po­si­tion and able it to ser­vice its debt. To achieve this, Petrotrin will have to im­prove pro­duc­tion from ex­plo­ration and pro­duc­tion. This ap­plies to its sub­sidiary Trin­mar, its farm-out op­er­a­tions and its joint ven­tures. "When­ev­er Petrotrin has to go out in the mar­ket and pur­chase crude for re­fin­ing, the cost of that is high and puts down­ward pres­sure on the re­fin­ery mar­gin. That is why we have tak­en steps so far to pro­vide an en­abling en­vi­ron­ment," said Seep­er­sad-Bachan.

Giv­en the com­pa­ny's dif­fi­cul­ty in re­tain­ing cer­tain Caribbean mar­kets be­cause of Venezue­lan leader Hugo Chavez's Petro­Caribe ini­tia­tive, Petrotrin has to look for new mar­kets. That chal­lenge falls on the board. The board al­so has to look at Petrotrin's health and safe­ty prac­tices and con­form to min­is­te­r­i­al stan­dards.

"Ei­ther they con­form or they don't. We can't leave peo­ple's lives at risk be­cause they're a state en­ter­prise. Every oth­er com­pa­ny in this coun­try has to con­form. Who is Petrotrin? We will have to shut them down if they are not con­form­ing to HSE re­quire­ments," she stat­ed. Gillette is al­so tasked with meet­ing the de­mands of the mighty Oil­field Work­ers Trade Union (OW­TU) which is pub­licly op­posed to his ap­point­ment. Seep­er­sad-Bachan in­di­cat­ed her sup­port for the Petrotrin board and is firm that there be no square pegs in round holes.

"This board will have to look and en­sure that we have the req­ui­site com­pe­tence in the right places. The com­pa­ny has to move for­ward."

That ex­er­cise will al­so in­clude a re­view of the com­pa­ny's hu­man re­sources. Seep­er­sad-Bachan is in agree­ment with the union that the HR prac­tices the com­pa­ny has en­gaged in were not in ac­cor­dance with poli­cies. Al­lum, the Petrotrin pres­i­dent, said: "Our com­pa­ny has em­barked on a five-year busi­ness plan that speaks to a num­ber of ini­tia­tives and key cap­i­tal projects that would po­si­tion the com­pa­ny in the short run to sus­tain its op­er­a­tions and al­so lay the foun­da­tion for long-term growth and vi­a­bil­i­ty. "Our fo­cus on in­creased crude oil pro­duc­tion in the up­stream and com­ple­tion of the clean fu­els pro­gramme in the down­stream will con­tin­ue to dri­ve our as­pi­ra­tion at be­com­ing a more mar­ket-dri­ven, bal­anced, in­te­grat­ed en­er­gy com­pa­ny. We are go­ing through some chal­leng­ing times, which have af­fect­ed the oil and gas in­dus­try glob­al­ly. How­ev­er, we are op­ti­mistic that with the strate­gies be­ing adopt­ed the com­pa­ny will come through this dif­fi­cult pe­ri­od stronger and bet­ter po­si­tioned to re­alise its as­pi­ra­tions," said Al­lum.

Chair­man: Lind­say Gillette

Di­rec­tors:

Sel­by Wil­son,

Charles Bais­den,

Pe­ter In­gle­field,

Cathal Healey-Singh,

Kem­raj Jokoo,

Arnold Ram,

Re­shar Khan,

Kr­ishen­dath Ra­moutar,

Car­lotte Charles

Com­pa­ny's Pro­file

1. Petrotrin is the on­ly in­te­grat­ed oil and gas com­pa­ny in T&T.

2. It is the lead­ing pro­duc­er of crude oil in the coun­try and the lead­ing sup­pli­er of pe­tro­le­um prod­ucts in the re­gion.

3. Petrotrin's re­serves are es­ti­mat­ed at 424.3 mil­lion bar­rels: 254.5 mil­lion bar­rels in Trin­mar, 162.3 mil­lion bar­rels from land fields and 7.6 mil­lion bar­rels from joint ven­tures.

In­vest­ments:

Down­stream Clean Fu­els Projects

1. Gaso­line Op­ti­mi­sa­tion Project (GOP): In­crease gaso­line quan­ti­ty and qual­i­ty and in­crease re­fin­ing mar­gins.

The iso­meri­sa­tion unit and the con­tin­u­ous cat­alyt­ic re­gen­er­a­tion plat­form­ing unit (CCR) have al­ready been com­mis­sioned and are in op­er­a­tion. The new alky­la­tion unit and sul­phuric acid re­gen­er­a­tion plant are near­ing com­ple­tion and are ex­pect­ed to be avail­able for com­mis­sion­ing by end No­vem­ber 2010. The fi­nal phase of the GOP is the up­grade of the ex­ist­ing flu­idised cat­alyt­ic crack­ing unit (FC­CU) which is in progress and is ex­pect­ed to be com­plet­ed by June 2011.

2. Ul­tra Low Sul­fur Diesel Project (ULSD): Abil­i­ty to meet new sul­fur diesel spec­i­fi­ca­tion and be com­pet­i­tive in in­ter­na­tion­al mar­kets. Con­struc­tion work on the ULSD project has com­menced and this project is ex­pect­ed to be com­plet­ed and com­mis­sioned by June 2012.

Up­stream

3D Seis­mic Ac­qui­si­tion: ap­prox­i­mate­ly 215 km of 3D seis­mic over core land fields. Cost-$170 mil­lion.

De­vel­op­ment Drilling

1. Land de­vel­op­ment drilling: drill and com­plete 18 de­vel­op­ment wells. Cost-$70 mil­lion

2. Ma­rine de­vel­op­ment drilling: drill and com­plete 2 de­vel­op­ment wells. Cost-$50 mil­lion.

In­fra­struc­ture up­grades

1. Land In­fra­struc­ture: Up­grade pipelines, roads and bridges, tank farm fa­cil­i­ties, build­ings. Cost-$77.4 mil­lion

2. Trin­mar In­fra­struc­ture: Up­grade elec­tri­cal in­fra­struc­ture, off­shore in­stal­la­tions and pipelines, com­pres­sors. Cost-$163 mil­lion

HSE Com­pli­ance Projects

Pro­duce Wa­ter Treat­ment on Land: Build new wa­ter treat­ment plant un­der build/own/op­er­ate con­tract