Energy expert: The art of the deal

THERE IS an art to ensuring that a deal, particularly major energy deals which involve multiple moving parts, is struck in a way that all parties can benefit.

Every stakeholder involved has to ensure their interests are met and they do not find themselves making promises they can’t keep in the future.

The recent negotiations for the restructuring of Atlantic LNG and negotiations surrounding the Dragon and Loran-Manatee gas fields are no different.

Each has its own intricacies, all of which have to be navigated by the government to ensure the nation receives the best benefits.

In a conversation with Business Day, Cecil Camacho, consultant and former senior partner of Johnson, Camacho and Singh, said these deals required careful negotiations. Everyone at the negotiating table had to work around several complications to complete them.

He gave the government and its advisers high marks for their ability to close these three significant deals, saying that with expert advice from top firms, the government was able to go into uncharted territory, renegotiate terms and get exemptions to access resources that would have otherwise been untapped. He said these deals would only serve to benefit the nation in the future.

“All these three things are monumental,” Camacho said at his office on Maraval Road, Port of Spain. “The Atlantic reorganisation may not provide gas for the country, but what it does is improve our share of the pie. Dragon gas and Loran-Manatee are designed to solve the gas-shortage problem, which has had a debilitating effect on our production. Each of these deals are very unique.”

Getting into the game, staying in the game

TT got into the LNG game in 1995 with the formation of Atlantic LNG (ALNG).

TT’s first train began construction in 1996, with American-based engineering, construction and project management company Bechtel winning the engineering, procurement and construction (EPC) contract to build the plant at Point Fortin.

Train one first produced gas in 1999. Approximately three million tonnes per annum and about 6,000 barrels per day (bpd) of natural gas liquids (NGLs) were produced yearly at the time.

The government, through ALNG, had to go to the negotiation table with four other entities – British Gas (BG) , Repsol, Amoco (now bpTT) and Cabot.

They negotiated the project and shareholder agreements, both critical for building the Point Fortin plant.

The project agreement dealt with all permissions, support from government, land and everything needed to complete the project. The shareholder agreement dealt with the rights of all the entities involved and the stakes that they had in the project and its profits.

Camacho sat at BG’s side of the table. He said five different companies coming together on a single project had its own complications. What made it even more complicated was that each company had its own interests.

Companies like Cabot and Repsol were off-takers. They didn’t want to produce gas but rather buy gas.

Camacho said BG’s interest in train one was as a buyer, but all shareholders had agreements to sell LNG.

“BG had become a producer in Trinidad around the time when train one was being established. They were on the cusp of producing on the east coast. When you produce gas as an upstream producer, you have to have a marketing plan to present to the (energy) ministry based on what you are going to do with the gas. LNG was definitely an option BG was looking at as an energy company. BG’s interest was to sell gas and to have access to LNG cargo,” he said.

TT, on the other hand, was trying to get into the LNG game. Before train one, there was no LNG production.

TT built the Point Lisas Industrial Estate in the process of building infrastructure for the production of NGLs.

The National Gas Company (NGC), up until that point, was an aggregator of gas. This was an opportunity for the company to actually be part of the production.

The plant went on to be the largest facility in the world at the time and the first of its kind in the Caribbean and South America.

It made TT the tenth LNG producer in the world at the time. Atlantic held the record for fastest LNG project establishment, being completed in six years.

The shareholder agreement started with TT having a five per cent stake in train one, but Camacho said this was an important move for the country.

“It meant that TT had an interest in the energy business,” he said. “Once you have a stake, that means you are in the game. The country wanted to have an energy facility, and NGC’s participation was important, in that it would have a stake in the energy production.”

At that time, NGC had a ten per cent stake in train one, with the expansion to trains two, three and four. The government, through NGC, held an 11.1 per cent stake in train four.

TT, at the time, had no stake in the other two trains.

According to Central Bank data online, production of natural gas and LNG peaked in 2010, producing 4,329.5 million cubic feet per day (mmcf/d). But production experienced a gradual decline over the following 12 years. In 2022, it was producing around half of what it did at its peak – 2,683 mmcf/d.

TT’s stake in the LNG game improved with the restructuring of ALNG, which was completed in December 2023.

At the Diplomatic Centre, the Prime Minister said instead of only two trains, NGC will have a ten per cent stake in all four trains, with bp and Shell holding 45 per cent each.

The government also expected to see stabilisation in gas production in 2023 with projects such as Shell’s Colibri project, which started production in March 2022 and bpTT’s Cassia compression project, which produced its first gas in November 2022.

Gas production was expected to be further boosted last year by bpTT’s infill programme in the Mango, Savonette and Angelin fields; EOG Resources’ Osprey west and east developments and Touchstone’s Cascadura development onshore.

Nearshore and deepwater bid rounds for more exploration resulted in 16 bids for nearshore exploration and four for deepwater exploration.

However, some of the most promising solutions to TT’s production decline come from outside its borders, with the Loran-Manatee and Dragon gas fields giving access to a significant amount of natural gas.

Devil in the details

The government negotiated a commercial term sheet with Venezuela in 2017 to develop the Dragon gas field with 4.2 trillion cubic feet of estimated reserves, about a third of TT’s total gas reserves.

The gas was to be piped through a 17-kilometre pipeline to one of TT’s offshore facilities. However, sanctions imposed on Venezuela halted the arrangement in its tracks. The government was, however, able to negotiate with the US government in 2023 for a development licence for the Dragon gas field through the US Office of Foreign Assets Control (OFAC), which waived sanctions. Dr Rowley, in a media briefing in December, announced that TT was the holder of the official licence for exploration, production and export of natural gas from the Dragon field.

Again, negotiations had come with a meeting of interests. TT, with a shortage in production, needed natural gas content to meet its production demands. Venezuela, with significant content but no nearby facilities to produce, would benefit from being able to produce LNG.

“Venezuela has no LNG plant, their petrochemical industry is not located close to these fields, this makes sense for Venezuela as well, commercial sense,” Camacho said.

The Loran-Manatee arrangement was also a significant move to secure natural-gas resources, beginning with negotiations for a unitisation development agreement for the gas resource, which sits on the border of TT and Venezuela. In 2019, it was later arranged for TT through Shell to commence the development and production of Manatee resources located southeast of Mayaro Bay and straddling the Venezuela/TT border. That deal gave access to about 2.7 trillion cubic feet (tcf) of gas. NGC signed an amended gas sales contract to incorporate part of the gas volumes from Manatee.

Finance Minister Colm Imbert, in budget 2024, said the first gas production is expected in the first quarter of 2028.

But the devil is in the details, and one of those details has great concern with the political risk of dealing with Venezuela, which has had years of uncertainty due to heavy sanctions and civil unrest.

After Hugo Chavez died in 2013, Maduro assumed the presidency and was elected to office later on. Years of hyperinflation reduced the value of its dollar and made the US dollar the de facto dominant currency.

The Venezuelan people showed their distaste for the president by voting in the first opposition-controlled national assembly. That resulted in a standoff with the Maduro administration.

Maduro was voted back into office in 2018 amid boycotts and accusations of fraud. The National Assembly declared the election illegitimate and opposition leader Juan Guaido declared himself interim president until a “free and fair” election is called.

The US recognised Guaido and placed heavy sanctions on the Maduro government.

In the middle of all this is PDVSA, the state-owned energy company, was heavily sanctioned as well.

US sanctions against the Maduro government included oil shipments to Cuba, as well as threats of sanctions on third parties linked to Venezuela’s oil sector.

This already presented complications for the government having to negotiate with the US to secure licences for exploration and production. Because of the uncertainty of the political landscape in Venezuela, things could change rapidly. Camacho said TT, in its negotiations, would have had to make sure measures were in place to ensure that the deals they currently have would stay in place despite any political change.

In the case of Loran-Manatee, Camacho said that deal was one-of-a-kind. The common practice is the original unitisation agreement, but for one country to exploit its half of the field is hardly ever heard of.

“It may have happened in other parts of the world, but it may have been very isolated," he said.

Despite the option of accessing gas from other resources, such as Barbados and Grenada, Venezuela has been spoken about for a long time, but the political risk there makes deals all the more complicated.

“That’s what creates the novelty of the whole thing,” Camacho said. “We know we can try to deal with Grenada with no problems and similarly with Barbados. But can you do that with Venezuela successfully given the political uncertainty?”

Camacho noted that while there has been commentary raising concern over the political risk of dealing with Venezuela, it is not uncommon for entities in the energy industry to deal with countries that have been under political conflict.

“It happens all the time. Countries that have political turmoil sign on to agreements all the time, especially in the energy sector,” he said. “There are places where the energy sector is virtually insulated from the turmoil in the country, where there is a huge energy industry and people live in enclaves.”

Iraq, Nigeria and Syria all have budding energy industries despite their own conflicts.

He said when negotiating with a sovereign country, one has to make sure that all the protection possible is put in place, and that in the event of a dispute, it could be resolved in a manner previously agreed upon.

Camacho said TT is represented by one of the top legal firms in the US.

“They have the best legal advice on how they are going to insulate themselves from the political risk of dealing with Venezuela,” he said.

For the oil companies, the Dragon and Loran-Manatee are stranded resources. These negotiations, he said, are an opportunity to use these resources and gain a return.

“Without this, it just sits there,” Camacho said. “So the interest of PDVSA and Shell is to maximise the resources that they have.”

He said that while these deals and the gas produced may not address TT’s shortage immediately, whenever it does manifest itself, it would provide benefits.

“Everyone tries to break this down to a political discussion without recognising the basic facts. TT needs gas, Venezuela needs a market. Once we get it there will be an improvement for the country.”

Camacho said despite challenges, the ALNG restructuring, Dragon and Loran-Manatee agreements would eventually manifest itself in future budgets.

“From the government’s perspective, the first priority is to have access to gas,” he said. “Those are negotiated, obviously, for the benefit of the country. Without the gas, we have no monetary benefits, with the gas we have monetary benefits. So right there, it is a win for the country.”