The Petrotrin story ready for the next chapter
Petroleumworld 08 24 2018
The extent to which the economic survival of state-owned Petrotrin and T&T are inextricably linked is the kind of information that can cause sleepless nights. That is why, instead of wasting time casting blame and trading threats, the more sensible route for all concerned is to make a reality check and accept the difficult truth about Petrotrin and the tough decisions that have to be taken now, before it is too late.
Petrotrin is in a very bad place, not due to any recent developments but as a result of a combination of many factors, including bad management, poor decisions and unhealthy work practices which have combined over many decades into a “perfect storm”. The way out of this turmoil must be carefully navigated to avoid a heavy casualty toll which could be just a bad decision or two away.
Forget the noise and clamour of competing interests all trying to extract the largest chunk of that rapidly shrinking Petrotrin pie. It is time to face up to the uncomfortable truths about this country's failing energy company.
In its current state, had it not been for cash injections and various other interventions by the Government, Petrotrin would have gone out of business a long time ago.
This is a company saddled with a huge debt due, in part, to massive project failures, an outdated refinery in urgent need of upgrading, massive project failures and overstaffing.
The majority union at Petrotrin, the Oilfield Workers' Trade Union (OWTU), claims that at the core of the company's problems is its highly paid, inefficient management. However, on the other hand, there is also the claim that the debt, currently estimated at $12 billion, is due to high employee costs amounting to 50 per cent of operating costs and an overtime bill of $22 million a month.
While the company has announced a $85.6 million profit for the first quarter of the current financial year 2018, that has to be viewed in the context of an overall loss of $500.7 million for the first nine months of the financial year.
As of June 30, salaries and wages accounted for 52.8 per cent of Petrotrin's operating cost: $2.19 billion out of $4.15 billion.
According to information recently made public, the company currently has 3,437 permanent employees whose wages and salaries total $1.87 billion annually, or approximately $544,370 per employee, or $45,000 a month.
The company's debt includes bonds raised to finance failed projects like the ultra-low sulphur diesel plant and World GTL projects. The first of those, valued at US$850 million, is due to year from now. The other, worth US$750 million, is due in 2022. Petrotrin pays $687 million annually in interest payments to service the former, and$542 million a year to the latter.
The energy company's short-term debt of $4.2 billion includes trade financing and government-guaranteed working capital.
In addition to unsustainable debts, the poor state of the company's assets is another concern. Deteriorating infrastructure, including berths, sea lines, port facilities, tanks, pipelines tanks, platforms and wells must be significantly upgraded to bring Petrotrin up to the standards required for 21st century efficiency and eventual profitability.
However, these upgrades come with a huge price tag, estimated at $3.4 billion.
Consider, also, that Petrotrin's oil production has been declining since 2007 and at the current rate could be down to just 32,000 barrels of oil per day by 2021.
So there is no avoiding the fact that Petrotrin needs to be radically transformed.
Those changes will require a sizeable injection of capital and—as has been a common theme through the life of this company in its many stages of evolution—will require private sector input.
So while privatisation—even partial privisation—is an idea that is been strongly resisted in some quarters, there are not many options available to Petrotrin.
The fact it that the state-owned energy company is the result of a series of acquisitions and mergers with major oil companies.
Also, this wholly-owned national company, which some now proudly claim as part of our patrimony, came about because of developments between 1968 and 1975 when the government took control of the assets of foreign companies shutting down their local operations when global political and economic developments made it unprofitable for them to maintain a presence in this country.
Petrotrin was established in 1993 from a merger of two state-owned oil companies, Trintopec and Trintoc, with a third, Trinmar Ltd, being added in 2000.
Trintoc comprised the assets of Shell Trinidad Ltd and Texaco. Trintopec was formed when the government purchased Trinidad Tesoro—a joint venture with the Tesoro Oil Company which was created to purchase the assets of British Petroleum.
If we look back even further, we find that companies were formed United British Oilfields of Trinidad (UBOT), Trinidad Leaseholds Ltd) and other entities formed from the companies which first commercialised oil finds in Trinidad in the early 20th century.
Today, Petrotrin's operations include land and marine acreages, joint ventures, lease operatorships, farmouts and production services contracts to support its exploration and production activities. The company has an automatic stake in all exploration and production arrangements with foreign companies in T&T.
In addition, it operates the country's only petroleum refinery, located at Pointe-à-Pierre, south Trinidad. A smaller Point Fortin refinery was shut down some years ago, partly to make way for Atlantic LNG.
Some crude is imported to meet the needs of the refinery which produces liquid petroleum gases, unleaded motor gasoline, avjet/kerosene, diesel/ heating oil, fuel oil and aviation gasoline among other products.
However, the refinery has not been profitable for many years.
Early in the life of his administration, in an address to the nation in January 2017, Prime Minister Dr Keith Rowley reported on Petrotrin's rapidly declining fortunes, made worse at that time by the slump in crude oil prices, which had led to a more than 50 per cent decrease in its revenues, from $37 billion in 2012 to $16 billion in 2016.
In its current state, Petrotrin is negatively affecting overall confidence of international investors in this country, so it is vitally important that the company's adopts a new business model and changes are made in its governance arrangements.
The main proposal for restructuring of Petrotrin is for establishment of three operationally independent business units: Trinmar, Land Exploration and Production and Refining and Marketing.
Other key recommendations were that the new entities adopt and adhere to the laws and regulations for publicly-listed companies, particularly for transparency and accountability; and that the board of directors' terms of office are cycled in a manner that ensures continuity of membership of 50 per cent of the board at all times.
In some quarters, strong arguments are being made for partial privatisation of the company, with the government retaining majority control. This is seen as one way of getting the injection of capital needed for upgrades and much needed expansion in some parts of its operations.
It is also felt that rescheduling of Petrotrin's debt requires identifying a strategic partner with financing to undertake a series of major projects, including construction of a modern refinery, investing in enhanced oil recovery techniques and increasing exploration efforts.
While there is already some resistance to the proposed changes to Petrotrin and even dire warnings about staff cuts and other painful measures to be taken, the truth is that the most painful option of all is to leave things as they are.
The remedy for all that ails Petrotrin is bitter but there are no fast and easy alternatives.
Energy must therefore be focused on containing the inevitable fallout so that the company—and this nation—can move forward to a more stable and profitable future.
It is time to start the next chapter for Petrotrin.
Story by Suzanne Sheppard from Trinidad & Tobago Guardian
guardian.co.tt.com 08 24 2018
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