Enill on oil and gas sector: Too expensive to explore
Energy Minister Conrad Enill
PORT SPAIN
Trinidad & Tobago Express
Petroleumworldtt.com
06 17 09
At a time when the Government expected to see increased investment in the country's vital oil and gas exploration sector because of a fall in the price of steel and other inputs, it is facing an unexpected problem.
It is actually becoming more expensive for multinational upstream companies to carry out exploration activities in Trinidad and Tobago when according to all conventional wisdom, it should actually be cheaper.
And at a time when the Government needs more exploration activity, solving this dilemma is now a top priority for Energy Minister Conrad Enill even as the preliminary results of a new audit of the nation's crude oil reserves have come up with a figure higher than what he received from Ministry technocrats.
"One of the challenges we still face today which I haven't worked through as yet and which is something that concerns me is that I'm not seeing the reduction in capital cost that I expected," Enill said.
Enill was speaking during an exclusive interview with the Business Express last week as oil prices averaged about US$68 per barrel.
So just as the Government should be able to capture more revenue from its oil reserves it is being hindered by the cost of exploring for crude.
"I had anticipated that with the cost of steel coming down and with the cost of other things happening the exploration costs of productions should, in fact, be coming down as well. I'm not seeing that," Enill said.
He acknowledged that it was a problem.
And that problem is not limited to the cost of inputs such as steel but the existing fiscal incentives that are apparently not doing enough to encourage investment in exploration.
"So I want to understand that as well and, therefore, it means that they way I have to intervene on that is fiscal review which I'm doing now. A fiscal review on the elements that would make an investor want to invest," Enill said.
He added that he was looking at the economics of the matter since "the economics may or may not make sense".
He said that the Government was reviewing the fiscal incentives that would encourage more exploration activity in the country.
Making reference to the ongoing review of those fiscal incentives which includes the taxation regime for the energy sector, Enill said: "Already when we checked, we were in the highest...we were in a quadrant that was extremely high. We were extracting more value out of the companies than other jurisdictions, and that is because we went after it."
While this has been of great benefit to the local economy when oil prices averaged US$100 per barrel and natural gas prices averaged US$7 per mmbtu last year, it can become a major obstacle when those prices decline as had happened late last year until around early April.
"When I looked at competitiveness and taxation we were at the stage where I had to be careful with what I did with the fiscal review otherwise, we'd become uncompetitive and that is why it was taking so long because I had to get the right balance of competitiveness within the sector and at the same time, getting the best benefits for the people of Trinidad and Tobago," Enill said.
He also made reference to the upstreamers which have their headquarters in the United Kingdom.
"The other issue is that the investment decisions are not made in Trinidad, they're made in London and what happens is that 14 or 15 jurisdictions come up against you and say, 'My rate of return on this particular investment is x or y so I have to look at the best returns. So I have to be fighting a global battle," Enill said.
The fiscal review continues as Enill confirmed that the latest audit of the nation's crude oil reserves was being finalised but revealed no specific data and did not identify which firm had carried it out.
"They have some things they have to work through. They have some numbers that they have seen, and let me see how they say it; the number that they have seen is greater than the one we have produce. In other words, we have a number and what they have done is come back to us with a number that is significantly higher than that so we're not happy with that," Enill said.
Story
by Juhel Browne
from
Trinidad Express.com
- jbrowne@trinidadexpress.com
Trinidad & Tobago Express
Wednesday, June 17th 2009
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