Energy transfer pricing under the microscope in Trinidad

"Absence of clarity and precision in the existing long-term contractual and commercial arrangements has severely compromised the value received by Trinidad and Tobago for LNG," according to energy minister Franklin Khan (pictured).

The official made the comment during the opening speech at the annual conference of the Energy Chamber of Trinidad and Tobago.

Khan highlighted findings from Poten and Partners' gas master plan report, which estimated that the potential loss from the Atlantic LNG (ALNG) trains averaged US$6bn/year between 2011 and 2014.

"These are staggering figures. In general, Poten and Partners have found that the beneficiary of the substantial value generated by the trains were not so much the upstream gas suppliers; rather offshore jurisdictions which were either low-priced markets or high-priced markets, but with the revenue not flowing back to Trinidad," he said.

The minister announced that an international energy consultant was hired for advice and that the government is drafting legislation to address transfer pricing and to clarify tax laws related to artificial and non-arm's length transactions.

DRILL PLANS

On the upstream front, Khan said that companies plan to spud 64 development and 17 exploration wells this year, compared with 76 development wells and one exploration well in 2017, the latter the Macadamia well by BPTT.

The minister outlined 2018 planned offshore development drilling: BPTT's two wells at Angelin and three at Cannonball; Shell's three wells at Starfish and four at Dolphin, and at least one appraisal well at blocks 5(c) and 5(d); and DeNovo Energy's three wells at Iguana on block 1(a).

The other major planned development drilling activity will be primarily onshore by Petrotrin (18 wells), operators under lease operatorship, farm-out and incremental production services contracts (25 wells) and Primera Oil and Gas (eight wells).

In exploration, planned drilling will be carried out by BHP, EOG Resources and Petrotrin.

PRODUCTION

The minister added that forecast natural gas and oil production in 2018 will average 3.7Bf3/d and 72,000b/d, respectively.

BUSINESS CONFIDENCE

"Despite the fact that upstream activity is set to increase in 2018, most service companies operating in Trinidad and Tobago report that they are still not confident about their business prospects and future growth," the energy chamber said following its quarterly survey of energy service companies.

Results show that over 60% of companies reported that the volume and value of their business were below normal levels and that around half reduced staffing levels last quarter.

Of particular concern is uncertainty over the future of financially-strapped Petrotrin, which has been the "life blood" of many smaller and locally-owned service firms, chamber chairman Eugene Tiah said in his welcome remarks.

"With Trinidad & Tobago's almost 50-year-old industrial relations laws making efficiency and labour productivity gains hard to implement, this has placed significant pressure on many of our members," Tiah added.

In his speech, Khan emphasized the need to strengthen the local content and participation policy framework, pointing out that sector jobs in 2014-17 fell to 14,900 from 21,700, or 3.4% and 2.4%, respectively, of total employment.

"Local content varies from project to project depending on the nature of the activity," BPTT regional president Norman Christie said at the event.

The executive explained that "for capital projects requiring major spend on specialized heavy equipment and material such as steel, the value retained was in the 20% range, but for operational expenditures, the value retained was at 60%."