Khan: Valuation done before Shell contract extension

ENERGY Minister Franklin Khan reported that a valuation was conducted prior to the extension of the Shell contract for the North Coast Marine Area (NCMA-1).

He was responding to question in Senate Tuesday from Opposition Wade Mark.

Khan said NCMA-1 is operated by Shell TT under a production sharing contract (PSC). He explained there is no set rate of return from PSCs and the minister receives a share of production or the value thereof based on the commercial terms agreed with the contractor.

"In the negotiations for the extension the Government achieved improved commercial terms."

He said NCMA-1 PSC, which would have expired in 2022, was extended to 2035.

"An assurance of continued gas production during the extended term and access to the production facilities...were achieved."

Mark asked what were the improved commercial terms from the extension and Khan said he outlined this in some detail last week and he had indicated then that the most significant aspect of the increased commercial terms was the new gas price which was no longer pegged to the low Henry Hub price.

"And that single act increased the value of Government's share of the production sharing contract most significantly. Because as we have articulated over the last two years the greatest leakage of revenue from this country was in the sale of LNG."

Mark then asked whether Government sought to get more value in the renewed licence as it was due to expire in 2020 (actually 2022) and assets returned to the people of TT "and not given back to Shell on a free plate or platter." Khan replied oil assets are of no value unless you can produce oil and to produce oil it requires capital.

"So while theoretically when the lease expired it comes back to the State but it is this very company that had invested all the capital to create the infrastructure. So it makes more sense to extend the life of the contract and in exploration and production scenarios the gestation period for some of these projects are five to ten years. So no company will sit with a licence expiring in 2022 and invest in 2020. They need at least a ten-year cycle. So that is the basis of the negotiations. And in that context this is standard procedure in the energy sector."

Mark asked whether Government had done a valuation of the assets of Shell before extended the contract and Khan said one was done.

When Mark was informed that his supplementary questions had ended he called out to Khan: "Sell out! Sell out!"

Khan shot back: "Bring in a temporary senator to ask questions."