BHP stands by TT

Call it a hunch. The deepwater acreages off the east coasts of Trinidad and Tobago were uncharted territory for hydrocarbon exploration but BHP, the world’s largest mining and extraction company, still felt there was potential. So, when these blocks came up for auction at the country’s first ever deepwater bidding round in 2012 and again in 2013/2014, the company went after them aggressively, eventually winning all of their options, in some cases, partnering with BPTT in the north and Shell in the south.

Now, the last time BHP had one of those good feelings about exploration and production potential in TT, way back in 1996 when it first started operations in this country. Just three years later, it made history with the first major oil find in 30 years. This time, maybe the company’s luck would hold.

Deepwater drilling is complicated. Before being able to drill into hydrocarbon-bearing rock structures, intrepid oil and gas explorers must first navigate 5,000 feet or more of ocean depth before finally reaching the sea floor. In TT, the deepwater can be as much as 6,000 feet. BHP’s first order of business, then, after winning these blocks, was to undertake what was then the biggest deepwater seismic survey in the world.

This would provide the company with data across the entire area, giving a regional perspective that remains fundamentally unchallenged because of its scope. It took some time, but after some complex modelling and interpretation to get an idea of just what was beneath the sea floor, the company used that data to make some strategic decisions about where to drill.

Just four years after signing agreements with the TT government for control of those blocks, in 2016 the company, using the massive drilling ship, Invictus, started its prospecting. The first well drilled was Leclerc, in the south. Two years later, came Bongos-II. And BHP’s hunch would soon be confirmed.

Discovering 'a lot of gas'

BHP’s prospecting in TT’s deepwater is legendary for many reasons, not the least for revitalising the exploration and production potential of a country whose hydrocarbon industry is well over a century old and had for a long time been considered past its peak. It also happened quickly. Leclerc was the first well drilled and although the company itself hasn’t confirmed the volume, Energy Minster Franklin Khan has been reported in the media giving a rough estimate of four to five trillion standard cubic feet (tcf) of gas. Bongos-II was the first well drilled in the northern acreages and in November 2019, during an investor update, BHP’s president of operations for petroleum, Geraldine Slattery, confirmed another major discovery – 3.5 tcf of natural gas.

“It’s kind of nice to have the first well you drill in a frontier basin, which is what the deepwater of TT was, be a discovery,” BHPTT's president Vincent Pereira told Business Day in December at his office in Invaders Bay, Port of Spain. His words sound mild, but make no mistake, Pereira, a 30-plus year veteran of the local energy industry, is proud and excited about his team’s success.

Out of the eight wells drilled in the company’s initial programmes, only two were dry holes – a remarkable average, especially in a frontier basin. The data helped. “We approached it from the perspective of sort of drilling and learning. So, we would drill a couple wells, pause, integrate the well data into our understanding of the subsurface and then with that information find the next location to drill.”

The November announcement was specific to discoveries in blocks 23A and 14, which the company shares with BPTT. “It’s a lot of gas,” Pereira chuckles, but more importantly, it’s gas that can be commercialised. And that’s the stage where the company is at right now.

“We are doing two things. We are further trying to understand/delineate the area to understand how big it is and any complexity we have to deal with while at the same time we are trying to understand how to commercialise this gas. One of the things that is clear is given the scale of what we’ve discovered, is a large percentage of this gas will have to find its way to the international gas market, so liquefied natural gas (LNG). Because it is a lot of gas.”

Out of the ocean floor

As exciting as the find is, it’s going to take some time to get it out of the ground and on to the market.

“I think our desire as a company is always to move projects to the left, which is why we bring them in earlier because the faster you can do a project the earlier your volumes and your cash flows begin.”

Slattery, in her November update suggested that, so long as the project is granted financial approval, first gas can come on stream in 2026 – the same timeline she gave for Leclerc’s development in 2016.

“These are very large investments that have to be made to be able to commercialise, particularly deepwater. Multibillion-US dollars are going to be invested. Clearly, from a company and a project-perspective a couple of things need to happen. The project needs to be economic; it needs to be able to compete for capital within our company because we always have to make sure we are doing the best things. Once we do that, we endeavour to do things as quickly as we can because that helps us. (Hypothetically) if it’s gonna take us ten years to do a project and we can do it in eight, we’ve actually enhanced its viability because we’ve brought it on sooner and we get exposure to the cash flow sooner,” Pereira said.

So, is there a possibility Trinidad deepwater could move up through the company pipeline?

It’s still early days and any dates are prospective right now, Pereira says, but the company has a host of teams looking into it. “There’s a general feel in the industry that doing deepwater tends to take between seven to ten years from discovery to making something happen, let’s see what we can do, if we can do better than that.”

Understanding the market

The next thing the company needs to establish is a market. “There’s a market here in TT and when you think about it, because it’s the closest market you might think it’s the obvious choice. It may turn out to be that, but we do need to make sure we are looking at everything.”

Marketing gas is different from oil. With oil, once it’s a viable enough find that can be economically recovered, it’s uncomplicated to get it sold on the international market. Gas, on the other hand, requires specialised infrastructure and has a more nuanced price structure. “We think about it from the perspective of what is called ‘advantage gas.’ What that means is that it is close to infrastructure and it’s close to a market that needs it. And when those two things come together you have the opportunity to creating a pretty exciting project.”

This deepwater find then, fits the bill effectively. But BHP is taking it slow.

“We continue to refine our view and learn as we study this a bit more. There is Atlantic LNG here in TT, and the market may need gas out into the future (so that gives) some space to bring gas to market, but that is just one potential way of commercialising the gas. Given where we are in the project, which is really, really early – sort of concept stage – we have to look at all the available options to make sure we are selecting the best.”

LNG in the world

Undoubtedly one of the major shake-ups to the industry has been the advent of hydraulic fracturing – or fracking – to extract hydrocarbons, particularly in the US. The US had for years been TT’s biggest market for natural gas but this year, the US officially became a net-natural gas exporter. Despite the dynamics, Pereira’s view is that natural gas, for the time being, will be an in-demand commodity.

“One view is that gas will not be challenged by demand. Gas is the fastest growing fossil fuel today and we think it will continue that way for a long time. The challenge with gas is there’s a lot of it but because reservoirs decline, the gas market is always in what we call inducement – there’s always need to bring new supply on.”

Producing gas, however, is a homogeneous process, so the cost curve among producers is relatively flat. “You have to be careful with the projects you pick so the asset choice becomes important. We’re excited because we think this gas is advantage gas and can be commercialised. Of course, things are changing very quickly. There’s a lot of LNG capability in the world but LNG is also growing quickly. At this point, from our perspective, we believe if we can get this gas to market and to a market that would provide the type of returns we would need to cover any major investment we would have to make, a large portion of (this gas) will have to go to LNG.”

'We believe in TT'

Domestically, Pereira – and by extension, BHP – is content with the overall operating environment in TT. “We’ve been investing in TT since 1996. I hope we will be investing for at least another 23 years. When we started out, we felt Trinidad was a good place to invest and we feel the same way today. As an energy business, we take a very long-term view of things. If we discover gas in 2018/2019 and it will take some years to start producing and then will produce for another 15 years or so, so we’ve got to take a really long view of things. So, in the short-term things might look a certain way but in the long run we remain confident about investing here.”

Are there things TT could do better? “Of course. I think – and this is purely from energy perspective – I think there are a couple things and they fall within the realm of competitiveness. Our industry is an extremely competitive one because every dollar of capital has more than one home it can go to and it wants to go to the best home, and I think TT should endeavour to be that best home to encourage that capital to come.”

His suggestions? “Competitive fiscal terms. We’ve always got to keep looking at that, how rent gets shared between the state and the people who own the resource and the companies that are exploiting it. But that needs to be a rent that reflects the risk that is being taken.”

Another suggestion is faster approvals and an enabling environment that gets things going efficiently. “You can call it ease of doing business, but I think that’s an area we can focus on, so we can have the right structures, and enabling environment that keeps encouraging capital to flow to TT to develop our natural resources. I am confident, optimistic that that’s what will happen, but it requires effort and commitment (and) you can’t stop. Because as soon as you take the lead in a competitive framework, somebody is trying to take it from you, so you need to keep on getting better.”

The future is south

BHP is certainly keen on improving. In the next year, it hopes to continue its drilling and exploration, this time focusing more in the south.

“This is a huge opportunity. We are trying to create a heartland, a business that is large; that is low-cost and so very viable; expandable, with options you can keep working on; and is distinctive in the market. That excites a lot of people within the company and hopefully within TT itself. Because we can’t do it by ourselves. We have terrific partners in BP and Shell. The industry has a history of being extremely collaborative. We work together to create big solutions to big challenges and when we do that everybody is successful.”

Last January, Business Day spoke to Pereira about the potential of deepwater. The company was confident, he said then, that its investment in deepwater would provide returns. Just shy of a year later, the predictions have come true, and its implications for the country, currently struggling to supply its downstream sector with an adequate and sustainable gas supply, are profound.

“This is really exciting. It’s exciting for BHP and BP, our partner. I think it’s exciting for TT. Because this is now a very significant discovery of gas that in a sense drives our economy today. So, from that perspective, companies, country, it’s all exciting. And my way of thinking, we would all be keen to try and figure out exactly how we commercialise this gas.”

The usually reserved Pereira smiles cheekily: “Do you get the sense I’m excited? Because I am.”