Aleem Khan

Even be­fore the com­mit­tee set up to re­view the fis­cal regime for the hy­dro­car­bons in­dus­try made a sin­gle rec­om­men­da­tion to the Min­is­ter of Fi­nance for the na­tion­al bud­get, an­oth­er oil com­pa­ny, Leni Gas and Oil (LGO), had its roy­al­ty rates re­duced.The same was done for an­oth­er oil com­pa­ny, Range Re­sources Ltd, in March.The com­mit­tee's rec­om­men­da­tions were re­layed to Fi­nance Min­is­ter Lar­ry Howai on Au­gust 17, En­er­gy Min­is­ter Kevin Ram­nar­ine said.

On Au­gust 14, LGO an­nounced that it had suc­cess­ful­ly con­clud­ed an agree­ment with the Pe­tro­le­um Com­pa­ny of T&T Lim­it­ed (Petrotrin) "to re­duce sub­stan­tial­ly the over­rid­ing roy­al­ty rates as­so­ci­at­ed with oil pro­duc­tion from the Goudron In­cre­men­tal Pe­tro­le­um Ser­vice Con­tract (IP­SC) and to ex­tend the con­tract by five years to No­vem­ber 2024 in con­sid­er­a­tion for LGO un­der­tak­ing ad­di­tion­al drilling ac­tiv­i­ties at the on­shore Goudron Field in east­ern Trinidad."

Petrotrin and LGO agreed that, ef­fec­tive Au­gust 1, over­rid­ing roy­al­ty rates for ex­ist­ing and fu­ture pro­duc­tion will be re­duced to in­cen­tivise fur­ther de­vel­op­ment and ex­plo­ration in the Goudron Block.LGO has com­mit­ted to ad­di­tion­al work be­yond what was en­vis­aged in the orig­i­nal con­tract, the LGO re­lease said.

The new agree­ment states that oil pro­duc­tion be­tween the First Tranche Oil, which is cur­rent­ly ap­prox­i­mate­ly 40 bar­rels per day (bopd), and a rate of about 150 bopd (re­duc­ing an­nu­al­ly by 2 per cent) will re­ceive a rel­a­tive re­duc­tion of ap­prox­i­mate­ly 20 per cent in the over­rid­ing roy­al­ty paid to Petrotrin.Pro­duc­tion above 150 bopd, which Goudron is al­ready ex­ceed­ing, has been grant­ed a more sig­nif­i­cant re­duc­tion equiv­a­lent to ap­prox­i­mate­ly 45 per cent of the pre­vi­ous­ly ap­plic­a­ble rate at the cur­rent oil price, LGO said.

Un­der the re­vised agree­ment, LGO will drill a to­tal of ten ad­di­tion­al de­vel­op­ment wells in the main Goudron field area to a depth not ex­ceed­ing 3,500 feet and one ex­plo­ration well in the wider Goudron Block to a depth of 5,000 feet.This work pro­gramme will be un­der­tak­en over the next six years. The com­pa­ny's busi­ness plan en­vis­ages the drilling of 30 new wells in the block.

Lan­guage has al­so been in­clud­ed in the IP­SC that, sub­ject to mu­tu­al agree­ment in 2019, ex­tends the cur­rent term of the con­tract by an ad­di­tion­al five years to No­vem­ber 2024.

LGO said this ex­ten­sion is sig­nif­i­cant as it will al­low the com­pa­ny to ef­fec­tive­ly in­sti­gate En­hanced Oil Re­cov­ery pro­grammes to bring the 30 mil­lion bar­rels (mmb­bls) of pos­si­ble (P3) re­serves and some of the 63 mmb­bls of con­tin­gent re­sources cur­rent­ly es­ti­mat­ed in 2012 by the com­pa­ny's in­de­pen­dent com­pe­tent per­son, Chal­lenge En­er­gy Lim­it­ed, in to proven (P1) and prob­a­ble (P2) re­serves over the next few years.

Neil Rit­son, LGO chief ex­ec­u­tive, said in the press re­lease: "We great­ly ap­pre­ci­ate the ef­forts by Petrotrin to en­hance the com­mer­cial terms in the Goudron IP­SC.Net­backs will be sig­nif­i­cant­ly in­creased and this makes it eas­i­er for us to sanc­tion ad­di­tion­al cap­i­tal work which is to the mu­tu­al ben­e­fit of both par­ties. This agree­ment is trans­for­ma­tion­al and brings sig­nif­i­cant ad­di­tion­al rev­enue to the com­pa­ny's bot­tom line at a time when we are rein­vest­ing heav­i­ly in pro­duc­tion growth.

Since we took over as op­er­a­tor of Goudron some nine months ago we have raised av­er­age dai­ly pro­duc­tion lev­els by 750 per cent and that tra­jec­to­ry is set to con­tin­ue as we now de­ploy ad­di­tion­al re­sources to the field."In an Au­gust 16 state­ment, Petrotrin said it has an IP­SC with "a sub­sidiary" of LGO in the Goudron Field. It said: "In con­sid­er­a­tion for a sig­nif­i­cant and ex­pand­ed work pro­gramme of drilling a min­i­mum of 10 de­vel­op­ment wells over the next six years, Petrotrin has re­vised the Over­ride Roy­al­ty (ORR) Sched­ule.

The ad­di­tion­al drilling pro­gramme is over and above the min­i­mum work pro­gramme (MWP) agreed and con­tract­ed to at the ex­e­cu­tion of the IP­SC.

The ORR re­duc­tion in­cen­tivizes Leni to un­der­take ad­di­tion­al ac­tiv­i­ties and is ex­pect­ed to re­sult in in­creased crude oil pro­duc­tion es­ti­mat­ed to be in ex­cess of 500 bar­rels of oil per day (bopd). This will ben­e­fit both Petrotrin through in­creased rev­enues from over­rid­ing roy­al­ty and in­creased crude sup­ply to the Com­pa­ny's Pointe-a-Pierre Re­fin­ery, as well as the state through ad­di­tion­al roy­al­ties and tax­es."

On March 8, Range Re­sources Ltd had an­nounced it re­ceived more acreage and low­er roy­al­ties.Asked why was Range Re­sources get­ting in­creased acreage with­out go­ing through a com­pet­i­tive bid round, and why was Range's roy­al­ty re­duced, Petrotrin in an e-mailed state­ment said: "In 1995 De­cem­ber and 2002 Jan­u­ary, the Morne Di­a­blo and South Quar­ry Far­mout Blocks re­spec­tive­ly were award­ed to Trin­can Oil Lim­it­ed, pre­de­ces­sors of Range Re­sources, fol­low­ing a com­pet­i­tive bid­ding process.

In 2009 Jan­u­ary, in con­sid­er­a­tion of an am­pli­fied work pro­gramme, Petrotrin's Board of Di­rec­tors ap­proved a re­vised Over­ride Roy­al­ty (ORR) Sched­ule that would in­cen­tivize and re­sult in both in­creased ac­tiv­i­ty and pro­duc­tion lev­els for the two blocks.

"The mod­el far­mout agree­ments (FOAs) do not pro­vide pref­er­en­tial treat­ment to any in­di­vid­ual op­er­a­tor. The phi­los­o­phy of the mod­el FOAs is to in­cen­tivize ac­tiv­i­ty in the far­mouts to repli­cat­ed sim­i­lar suc­cess achieved in the lease op­er­a­tor­ship pro­gramme where­in an equiv­a­lent ap­proach yield­ed im­proved pro­duc­tion lev­els from 4,700 bar­rels of oil per day (BOPD) to cur­rent lev­els of 5,800 BOPD. We trust that the fore­go­ing pro­vides clar­i­ty and em­pha­sizes that these mat­ters were han­dled with due ad­her­ence to prop­er busi­ness pro­ce­dures."