Shell takes biggest hit

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Best Of Londonist: 21 February 2021
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Shell takes biggest hit

OF ALL the companies in Trinidad and Tobago’s upstream energy sector, the country’s royalty earnings from Shell’s T&T’s operations for the period October 2020-January 2021 were the lowest.

The Government earned just $10 million in royalties from the local subsidiary of Royal Dutch Shell, one of the largest energy companies in the world.

On February 10, Finance Minister Colm Imbert, in an update on the country’s actual fiscal outturn for the first four months of fiscal 2021, used the receipts from the country’s upstream sector to illustrate the effect the pandemic was having in the sector.

Imbert said the earnings for the first four months were down by $1.8 billion to $12 billion, which is 13 per cent less than what the Government expected to collect at $13.823 billion.

Imbert pointed out that non-tax revenue was down by $1.430 billion or 35 per cent and that royalties on oil and gas were down by $806 million, or 49.2 per cent, as a result of depressed oil and gas prices and lower-than-expected production volumes. He also said extraordinary receipts from oil and gas companies were down by $100 million or 98.0 per cent, again as a result of the downturn in the oil and gas sector.

In the 2018 budget, which was delivered on October 2, 2017, Imbert announced the imposition of a 12.5 per cent royalty rate applicable across the board on the extraction of all gas, condensate and oil. The measure became effective during the 2018 fiscal year. The Finance Minister said 12.5 per cent royalty was imposed “to ensure that taxpayers get some benefit from the extraction of our country’s hydrocarbon resources.”

In identifying specific companies from the upstream sector, he noted:

• BPTT—royalties were down from $480 million to $164 million, a decline of $316 million, or 65.8 per cent;

• Shell—royalties were down from $181 million to $10 million, a decline of $171 million, or 94.4 per cent;

• BHP—royalties were down from $108 million to $50 million, a decline of $58 million, or 53.7 per cent and

• EOG—royalties were down from $84 million to $35 million—a decline of $49 million or 58.3 per cent.

Those four companies accounted for $594 million in revenue that the Government had projected it would collect but did not.

Imbert said the losses were attributed to production declines, equipment, infrastructure and energy prices.

The decline by Shell was the most drastic.

The Sunday Express reached out to Shell Trinidad to discuss the decline in its earnings which resulted in only $10 million in royalties.

“Last year, 2020 was an extraordinary year for Shell, as for many companies. The prevailing external environment, including the Covid-19 pandemic and the persistent low oil and gas prices, did impact Shell’s business and operations in Trinidad and Tobago,” the company told the Sunday Express yesterday in a statement on the contributing factors which led to a decline in its earnings and royalties to the Government.

Revenue projections on royalty earnings are done by the Ministry of Energy and Energy Industries.

Shell said it does not provide revenue projections to the Government.

In 2019, as a result of agreements between the Government and Shell, the company agreed to pay T&T US$397 million.

“Our preference is to deal with these arrangements, not in a clandestine way but there is a deeper confidentiality to it. We have these arrangements all over the world. We need to ensure that we maintain a degree of confidentiality but what I will confirm is that hundreds of millions of US dollars converts to billions of TT dollars and we have confirmed that Trinidad will benefit to billions,” Derek Hudson, former Vice President and Country Chairman of Shell Trinidad and Tobago had said at the time.

Moving Forward

Despite the low earnings in a depressed global marketplace, Shell said it will continue with its planned projects.

“In November 2019, we received project sanction for the development of Block 5C (Barracuda) in the East Coast Marine Area, and then followed in March 2020 with project sanction for the development of Block 22 and NCMA-4 (Colibri) in the North Coast Marine Area.

“While our initial project schedules were impacted by Covid-19, they are now scheduled to deliver first gas for Barracuda in the latter half 2021 and Colibri in the first half of 2022,” Shell told the Sunday Express.

When he delivered the Ryder Scott 2019 natural gas audit last month, Energy Minister Franklin Khan said that exploration success in the deepwater was responsible for the movement of large volumes out of this category and into technically recoverable resources. For Shell, the revision of the Original Gas-in-Place (OGIP) due to seismic interpretation in the Endeavour field resulted in an addition of technically recoverable resources.

In seeking to shore up the country’s natural gas to sustain its demand, Khan has said that Shell’s Barracuda and Colibri in 2021 and 2022 respectively would have a cumulative capacity of an additional 450 mmscfd. Shell also said its Manatee development in 2025, which was as a result of the successful delinking from the Loran Manatee field, would result in output ranging 350mmscf/d to 700 mmscfd.

Expected gas from the Manatee field, Khan said, led the Government to take the strategic decision to perform critical maintenance on Train 1 to ensure that it is operable and ready to go when more gas becomes available.

“This Government is doing everything within our means to strengthen the natural gas value chain. In the natural gas business, more so than almost any other industry, the upstream, midstream and downstream are inextricably linked, and each of these sectors is a complex, moving part in its own right. On the one hand, we have the upstream players who have been requiring higher prices to adequately compensate for a return on capital investment and refurbishment of ageing infrastructure, and there is veracity in that claim. On the other hand, we have a mature downstream petrochemical industry which has to operate in a competitive global environment. In between both of these, we have Atlantic LNG, which is in the midst of a restructuring exercise, and the midstream aggregator and transporter, the National Gas Company (NGC), which has been squeezed by the diminishing margins,” Khan had said at the opening of the energy conference last month.

“We consider the upstream companies as partners in the development of the country’s hydrocarbon resources. We have been working with the upstream companies to understand the challenges that they are facing and the part that Government can play to minimise the delays in start-up of projects. The implementation of several projects was unavoidably delayed by the disruption of global supply chains and the implementation of strict Covid-19 protocols. However, the upstream companies have used the lost time to recalibrate and rework their schedules. As a result, the delayed projects are due to come onstream in the latter part of 2021 and onwards,” Khan had said.

The company told the Sunday Express yesterday that the pandemic has affected the way it did business.

“Like many companies, Shell is putting the safety and health of its people and key stakeholders first and ensuring the safe operations across its business,” it said.

“Since the start of this public health crisis, we have been focused on keeping our staff and the community safe by taking critical decisions related to our operations, leveraging technology and working with our stakeholders and partners to maintain our production and deliver on our commitments. Some of our critical actions: Most of our office-based staff work from home, since March 2020, and we are taking the necessary time and care to reintegrate them into our offices, in accordance with existing health and safety protocols and public health procedures. Our sites teams operate under strict public health protocols and procedures, including how we onboard and rotate our shift crews, and we monitor and review these from time to time,” it said.

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