MICHAEL PA CHARLES
HAVING WORKED in the oil and gas industry for 45 years, 30 of which were in Petrotrin and its predecessor companies, I find the decision by the Petrotrin board to shut down the Pointe-a-Pierre refinery and focus only on exploration and production confusing, and makes little strategic, business or technical sense.
Let’s examine the situation.
Petrotrin must make a bullet payment on its World Gas-To-Liquids loan and later the Ultra-Low Sulphur Diesel Unit loan and needs to convince the financiers that the action being taken will return the organisation to a positive cash flow.
Normally, a business in a negative cash-flow situation would sell part or all its assets, or lease out, to raise funds. Also, it could restructure, re-strategise and downsize its labour force and reduce wages.
But that is not what the Government is doing. Instead, the first activity is to shut down the refinery asset at great expense – both in human resource exit costs and engineering and construction costs, which is required to make the refinery plants dormant and safe.
The latter requires major expenditure to ensure all hydrocarbons and other dangerous fluids are removed and vessels and pipelines cleaned and filled with nitrogen etc. In addition, all incoming cross-country pipelines, power and utility systems must be secured from tampering and theft, and which too will be very costly.
So, this will create an even bigger burden, rather than improve the cash flow.
Secondly, the plan is to invest in the land fields and Trinmar’s offshore Soldado Field (the exploration and production asset) which currently produces about 40,00 barrels of heavy, sour crude, probably worth about US$25 per barrel at final sale.
Any significant production from exploration is unrealistic because our land and Soldado Fields are matured and there are no known exploration prospects, and in any event will require major investment in data gathering and analysis (seismic work etc).
So, maximising production is what must be focused on. But the land and Trinmar Soldado Fields are at the end of their primary production life, meaning any major increase can only come from secondary production (steam, water and carbon dioxide flooding etc). This requires huge capital investments and will not pay out with current crude oil prices.
Drilling replacement wells and development drilling, as well as workovers to existing wells, must take place just to sustain existing production. So, this will be all very costly and again will impact negatively on cash flow.
The only place a significant change in production is possible at this time is Trinmar’s South West Soldado Field where the compressor gas lifting platform was closed in for safety reasons in 1999, and four successive governments have failed to properly reactivate the field with a replacement platform, which too will be very costly.
So, all these actions may not improve on the cash flow but in fact could impact negatively.
The Government intends to import all the refined products such as gasoline, diesel, Jet A-1, kerosene, bitumen and cooking gas (Phoenix Park cannot meet the total local demand for cooking gas). Then rehandle and sell these refined products to the local market as well as to export, expecting to make a profit by “teminalling operations,” returning the organisation to a positive cash flow. But where is the financial data to support this business approach?
Compare this to what the Solomon report (and the Lashley and JSC reports – the fourth McKinsey report has not been made public) are suggesting: that the refinery be reorganised in terms of chemical process engineering, human resource downsizing, and corporate structuring, all resulting in reduction of operating costs.
In summary, the three reports are saying that with organisational restructuring the refinery and crude oil production operations can achieve profitability when working as separate but linked business units, supporting each other. Local crude is worth more at the Pointe-a-Pierre refinery rather than selling it for a low price at some overseas refinery.
In the absence of hard data there seems to be no strategic vision or positive financial returns with the proposed approach, yet Trinidad, with its strategic geographical location, can be the refining centre of the region, especially now with the Caribbean market opening due to Venezuela’s inability to meet is commitments.
But the Government has taken a very narrow view by focusing on the corporate bottom line only, and when you add the negative socioeconomic impact of wiping out the oil refining industry, you better be prepared to deal with the consequence of affecting the lives of thousands of employees, contractors, vendors and their families.
Or, is there another plan that the Government has not told the country?
Michael PA Charles is a project management and strategic planning consultant