Linda Hutchinson-Jafar, Business Writer

Port-of-Spain,Trinidad:

Multinational energy companies operating in Trinidad and Tobago see gas resources available in the country over several decades, but have asked government to re-consider their tax regime that is posing a major deterrent for high-cost exploration particularly in the deep water and ultra deep water, which may hold new hydrocarbon reserves.

The leaders of several energy companies made their open and frank comments during a two-day government-sponsored conference earlier this week to review the country's energy developments and to build a new policy that will shape the future development of the oil and gas industry.

President of BHP Billiton, Trinidad and Tobago, Vincent Pereira, said his company did not participate in the government's recent ultra deep water bid round because of the prohibitive fiscal regime which does not consider the high risks and huge costs that companies undertake in frontier acreage.

Unique activity

"This is frontier territory, high risk and high exposure but with potential significant rewards. The activity is unique, the technology is extraordinary," Pereira told the conference, chaired by Prime Minister Patrick Manning.

"It is not the shelf, it is extremely high cost, a multiple on shelf expenditure. The commercial arrangements must recognise this and provide the necessary framework that allows commercial viability."

Pereira added that the significant up-front investment required for a deep water development cannot sustain the very slow payback over time that occurs with the current high tax regime.

He suggested a more progressive tax rate that is lower for deep water projects and incentives for the full capital investment and not limited to the exploration component.

BHP Billiton Trinidad and Tobago produces 30,000 barrels of oil per day and 220 million standard cubic feet of gas per day (mmscfd) which is re-injected for pressure maintenance to aid oil production.

The company is currently working on its Phase 11 gas project which involves the development and sale of gas from their Greater Angostura field. First gas production is expected in 2010.

560m cubic feet of gas daily

Last December, the state-owned National Gas Company concluded negotiations with BHP Billiton, EOG Resources, and BG Trinidad and Tobago for the supply of 560 million standard cubic feet of gas per day beginning in 2009 which will be used for new domestic gas-based projects.

President and chief executive officer of BP Trinidad and Tobago, Robert Riley, advised the government to take a hard look at reducing technical risk such as 3D seismic, and creating the right incentives to open up deep water exploration.

"Incentives will be needed to capture smaller pools of gas and marginal oil and gas on shelf and on land. Lower priced market opportunities must be looked at hard since the industry no longer has low cost stranded reserves," he said.

The BPTT chief also encouraged the Energy Ministry to review its policy with respect to farm-ins and farm-outs to further encourage exploration and suggested that gas finds should determines the rate of expansion and sustainability of the expanding gas-based sector.

"Development of gas resources should be market led but should recognise that exploration risk is higher than before. The gas industry continues to play a significant role in the future development of the nation (and) each link in the value chain needs to be world class in order for the gas industry to remain competitive, " he said.

US$5 billion to be invested

Modifications must also be made to the regulatory and fiscal structure. BPTT plans to invest US$5 billion over the next five years to maintain its 500,000 barrels of oil equivalent a day or three billion cubic feet a day of gas, for the next 20-25 years.

"We're spending over US$1 billion a year over the next five years and we don't see that changing a whole lot," said Riley.

He noted that the Columbus basin shelf, which has delivered high quantity and high volume prospect, may now be maturing and the transition will be towards smaller and more complex prospects.

"Pools are going to be smaller, a lot more deeper, the average well cost is not less than US$50 million," he added.

Energy companies were ramping up huge costs in carrying out exploration and that BPTT's costs over the last five years have doubled.

Riley also expressed confidence that the country has many more decades of gas resources and described the recent Ryder Scott audit which showed a decline of three trillion cubic feet of gas over the last two years, as "snap shots."

"It moves up, it moves down.There is gas, gas will be found, this is hydrocarbon land and it will be hydrocarbon land for a long time, " he told the conference.

Last week, government announced a decline of over three trillion cubic feet (tcf) in its natural gas reserves over the last two years.

An audit by the Houston-based Ryder Scott showed that 3P (Proved, Possible and Probable) were estimated at 30 tcf in January 2007.

Government is also pinning its hope on the estimated 37.1 tcf in exploration gas reserves identified by Ryder Scott, which was based on preliminary work done by companies that own energy blocks in the country.

5 TCF increase

This was an increase of five tcf over the 32 tcf identified in a 2005 audit byRyder Scott. The audit found that if 20 per cent of the exploration gas reserves can be located, it could add another six tcf to the total reserves.

State-owned integrated energy company, Petrotrin also sees a positive oil and gas reserve picture.

"We have looked at the future and we note that in E&P (exploration and production) ... we've going to expend probably about TT$7 billion (US$1.2 billion) over the next five years, consisting mainly of exploration, seismic work, development drilling," said Executive Chairman Malcolm Jones.

Martin Houston, BG's executive vice-president and managing director for North America and the Caribbean, said there has been a decline in bids being made on the government's licensing round and suggested that a stimulus is needed for exploration.

"The reserves are undoubtedly there but there's need for incentives to encourage exploration," he said adding, "we do share the view that there's a lot of gas out there to be found."

However, Houston echoed concerns of other up-streamers that exploration costs were increasing.

Standard guidelines

Petro-Canada's Senior Vice-President, Operations and Technology, Gordon Carrick, called for clearer criteria and standard guidelines for Certificate of Environmental Clearance (CEC) from the state-agency, Environmental Management Authority which would help in their planning.

"Often rig commitment must be made in advance of CEC so the operator needs confidence in the CEC award process," said Carrick.

Petro-Canada plans to begin an eight-well exploration programme in three energy blocks in the latter part of this year.

At least 29 wells are carded to be drilled by energy companies over the next few years.

Thirteen wells are planned for drilling during 2007-2008 while 16 more exploration wells at a cost of US$565 will begin from 2008 by companies that were selected for energy blocks in the 2006 competitive bid round.

Prime Minister Patrick Manning said government recognises that the sustenance of the energy sectordepends on the availability of the raw resource.

Planed for

"Our reserve numbers have decreased somewhat but we have planned for that. It is for that reasons that I have personally given my strongest support towards increasing upstream activity in the local hydrocarbon sector that will increase our reserve base," he told the conference.

The Energy Ministry which manages the downstream businesses that exceed US$9 billion is also considering offering acreage on the north coast and two blocks on the east coast by mid-2008 for competitive bidding

Permanent Secretary in the Ministry of Energy, Leroy Mayers, said in 2008 and beyond, the Ministry plans to conduct 3D surveys in the north coast marine area and electronic surveys in the deep Atlantic.

"This is to improve the data that we have, so that when we go out for our next bid round, hopefully towards the middle or towards the end of 2008, we can provide the companies with improved data which will ensure that they can make better judgement in terms of the blocks we present to them," he said.

The Ministry will conduct study on heavy oil as well as audits on potential acreage. The Energy Ministry also plans to commission an energy data hub by October which among others, will enable secure electronic transfer of the country's high-value petroleum information and create online collaboration and knowledge-sharing between the ministry and upstream producers.

Trinidad and Tobago is the world's leading producer of ammonia and methanol. In 2006, it exported 5.1 million tonnes of ammonia and 6.1 million tonnes for methanol. The U.S. last year imported 56 per cent of ammonia and 77 per cent of methanol from Trinidad and Tobago.

The U.S. also imports about 67 per cent of its LNG supplies from the twin-island republic.