In the energy industry, a promise is a comfort to a fool.
Now, more than ever, mistakes, wrong moves and bad decisions could cost a company millions of dollars. With the industry being so seriously affected by recent shocks like the economic fallout from covid19 and the impending transition to clean energy, a poor decision based on an empty promise – or worse, an empty well – could be fatal to a company.
Luckily the National Gas Company (NGC), the state owned energy company that aggregates, purchases, sells and distributes natural gas, is not in the promises business.
Chairman Conrad Enill, in a conversation with Business Day, said every decision the NGC made over the past year, including the decision to keep Atlantic Train 1 in operations, is based on the best possible data available.
“In our business we manage two things, risk and cost,” Enill said. “If we get a dry hole we could lose millions of dollars. We don’t have that kind of resources to throw away. So we are not in the business of making promises, we are in the business of making decisions on the best possible data.
“Is the data flawed in some instances? Possibly. Are the decisions wrong in some instances? Maybe. But every decision we make, we make them in the knowledge that it has the best chance of success by looking at all the things we can look at.”
Of course, like any other player in the sector NGC has had a rough couple of years. Regional credit rating agency Caricris downgraded
(https://newsday.co.tt/2021/01/08/ngc-credit-rating-downgraded-outlook-changed-to-negative/) the company’s creditworthiness a couple days after New Year's. Caricris lowered the regional ratings on NGC’s US$400 million debt issue to CariAA (foreign and local currency) and ttAA on the TT national rating scale, from CariAA+ and ttAA+, respectively; it also changed its outlook to negative.
Enill said raters like Caricris look at the environment and the earning capacity of the company, and look at the other factors affecting the company. Then they compare from their last assessment if the factors changed and whether the factors changed positively or negatively.
In NGC’s case as with many other energy companies, the changes were negative.
“What you see reflected in the change in status has to be interpreted as the environment is no longer as favourable as it was before and there were some challenges and they (Caricris) have identified those challenges.
And before that, in October, the NGC recorded its first ever after-tax loss of $316.2 million for the first six months of 2020 – a decrease of 296 per cent or $477.3 million from 2019's $161.1 million six-month profit for 2019. Revenues decreased by 22.9 per cent or $1.74 billion year-on-year to $5.87 billion for the six months to June 2020.
Both the downgrade and the losses were blamed on commodity prices and the negative economic effects of covid19.
The change in status and the announcement of losses means that it would be a little more costly for NGC to finance itself because of the current risks involved in investing in the market, and it may have a mildly diminished ability to pay its debts.
But just because the company is down, doesn’t mean it's out.
Enill said NGC is doing better than hundreds of oil and gas companies and are no different than many other companies still surviving in the sector.
“EOG has lost, BP has lost. There is not a company that I am aware of that has not been affected by what is happening when it comes to global energy,” Enill said. “NGC is in that space and it would be affected as anyone else. ”
“Many companies are not around now but we are still here,” he said.
Enill said the finance division of NGC worked out a plan based on the cash requirements for the short, medium and long term to not only keep the company afloat but to encourage growth even in the most uncertain of times.
“We have a financing plan in place to raise the external market as required to meet the needs for investment and to meet the needs for operating the organisation.”
NGC also has other subsidiaries – processing, production and exploration companies all connected to NGC – which, in some instances, contribute to the cash requirements of the group.
“When we look at what our plan is going forward, there are some plans for investing in assets,” Enill added. “These assets, once we invest in them, would give good dividends.”
Enill said the assets would not only provide the company with gas but when they make a profit NGC would also be able to partake.
“So we are looking to diversify our income stream by making these investments.”
NGC is also in a good position, serving as the middle man in managing the natural gas value chain in TT.
And TT has available resources – energy consultants Ryder Scott said in their latest audit of TT’s energy resources that TT could expect a 113 per cent recovery of their resources.
“The fact that Ryder Scott got positive responses means that the country will have gas for resources so they could go into the marketplace and compete. They could go through the petrochemical sector or through the energy sector. This guarantees your future revenue streams.”
Those revenue streams come in the form of several projects carded from as early the first few months of this year all the way to 2026. BHP, for one, will start its Ruby project early this year, which could provide up to 150 million standard cubic feet of natural gas per day. BPTT’s Matapal project is on track for 2022 and that could provide TT with twice as much as BHP’s output.
Enill added that, despite the talk of clean energy like hydrogen energy and solar power the market for natural gas isn’t going anywhere for at least another four decades.
“It is around 2060 that renewables will start to grow,” Enill said. “What we are seeing from the statistics that we are getting is, projecting out into the next few decades you see oil growing by 0.3 per cent per annum, gas by 1.7 per cent and renewables, when it gets to that stage, at about four to 15 per cent – and that is around 2040. It means that for the foreseeable future, the infrastructure we have in place would allow us to have some revenue streams doing what we currently do.”
That means that NGC, like other companies, would have to do two things. First, it would have to make their operations more efficient so it could do more with less, and plan for a future that would be transitioning from fossil fuel to clean energy in a matter of decades.
“As we start to develop products, NGC, like other companies will have to put in place investment that is required to facilitate that. It may mean a change in the way we approach the technology. It may mean partnering with others who are involved in the process. It may mean investing with somebody who has the technology but not the money, it may mean retooling systems in a particular way using the technology.
“All of those issues are currently being discussed, because it is still in very early stages. We are in the process of looking at feasibility studies to determine whether or not there is sufficient evidence to move us in a particular direction. The results would help us make decisions going forward.”
Enill said in order to streamline the company for the future, NGC would need TT’s best and brightest.
He said while re-organising the company to ensure that it is governed and managed properly NGC will also seek out talented people to innovate, introduce and enhance the company.
“We are looking at three things: employee engagement, digitalisation and technology, and talent management. We are looking for talent and that is how our human resources are going to be deployed and managed. We are basically saying going forward, it is not about expertise. It is about how you are able to use your talent.”