Kevin Ramnarine: Petrotrin alive and kicking
Petrotrin's South West Soldado Field Development
Recently another media house reported in sensational fashion that Petrotrin had lost a billion dollars in 2015. The story painted a bleak picture of a company on the ropes.
Such a story would have been a source of concern for the bondholders who invested their money in two bonds that were issued in 2007 and 2009 for US$ 750 million and US$ 850 million respectively.
The reality is however far from this. Petrotrin has its challenges but it is far from death's door. The news report was based on the publication of the company's financials for 2015. What the reporter did not explain is the basic accounting behind the numbers. What is even more alarming is the fact that some officials seemed to be none the wiser.
What are the facts behind this billion dollar loss?t
First, The billion dollar loss is an accounting loss. It is drivenargely by the write down of inventory. Inventory in this case means the stock of crude oil and refined products stored in tanks the valuation of which fluctuates with the price of crude oil.
Secondly, if one examines the balance sheet of the companyone sees a write down of inventory from TT$ 4.1 billion in 2014 to TT $ 2.2 billion in 2015. This write down finds its way into the Profit and Loss Statement in the “cost of sales”. If the price of oil increases the opposite will happen and the company might declare a profit based only on the upward adjustment of inventory value.
Third, the accounting loss comes after the company paid $TT 3.1 billion in 2015 to the Government by way of taxes,royalties, petroleum impost, petroleum levy, unemployment levy, green fund levy. In oil companies a lot of what is paid to the Government comes out from the top line or as a charge against the gross revenue line.
Fourth, the accounting loss also includes the application of “Depreciation, Depletion, Amortization” or DD&A charge of TT $ 2.1 billion.
Petrotrin is not alone in its pain. In 2015, companies within the sector from ConocoPhillips to Shell posted losses.
BP also reported a loss of US$ 6.5 billion. However, what is important in running any company is cash flow management. The old adage “Cash is King” holds true.
A look at Petrotrin's Cash Flow Statement would show that at the end of the 2015 financial year, the company was cash positive. This means that theinflows of cash exceeded the outflows of cash.
The saving grace for the company has been its structure. Petrotrin is an integrated oil company which means it produces its own crude oil (about 43,000 barrels per day) and operates a refinery with a current throughput of around 140,000 barrels of oil per day and imports the balance of approximately 100,000 barrels per day.
The integrated structure means that it is possible to optimize the two arms of the company to get the optimal economic outcome. The performance of the refinery is therefore fundamental to the generation of cash. Petrotrin does not export crude oil. It exports refined products (gasoline, diesel, jet fuel, fuel oil etc.)
The performance of the refinery in the last 15 months has been an untold success story. For a few years prior the refinery experienced interruptions to its operations as a consequence of lack of aintenance and problems associated with the Gasoline Optimization Programme (GOP). In 2013 and 2014 there was a significant level of process unit maintenance overhauls including overdue preventive maintenance. By April of 2015 the performance of the refinery improved when throughput reached 138,688 barrels of oil per day.
On average, refinery throughput in 2015 was 20% higher than in 2014. Credit must be given to all the workers of the Pointe-a-Pierre Refinery.
In recent years it has become fashionable to bash Petrotrin. We are always quick to pull down institutions and people (see Naipaul's Middle Passage). Petrotrin has had its share of problems some of which come out of its history as an amalgam of the assets of Tesoro, Shell and Texaco and some of which are clearly self-inflicted. The company however remains a strategic national asset, a net earner of foreign exchange and the guarantor of our energy security.
The messaging about the company needs to reflect the facts and a better appreciation and understanding of the details behind the numbers.
Public statements by government officials need to considerthe impact on the confidence of bondholders. Unnecessary negative statements and sensational publications can damage the company's eputation with local and international lenders.
This is a difficult time not just for Petrotrin but for every oil company in the world. In the face of this situation, Petrotrinhas demonstrated resilience. Looking forward, the involvement of private capital is inevitable. To this end, there can be no economic rationale for halting the Lease and Farmout Operator programme.
In fact, it is in times such as these that Petrotrin must be creative, innovative and bold in its commercial and operational functions in order to position itself to emerge from this worldwide industry challenge.
Kevin Ramnarine is the former Energy Minister of T&T. Petroleumworld does not necessarily share these views.
This commentary was originally published by Trinidad & Tobago Guardian , on April 26, 2016. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 05/02/2016
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