BHGE on Trinidad’s oil and gas environmentOctober 22, 2018
Ronald Solomon, Caribbean area manager for Baker Hughes, a GE company (BHGE), talks to TOGY about the company’s current and upcoming projects, and the opportunities and challenges companies face in the local oil and gas industry. In the domestic market, BHGE has worked with Petrotrin, BP Trinidad and Tobago, BHP Billiton, Shell, EOG Resources and Repsol, among others.
This interview is featured in The Oil & Gas Year Trinidad and Tobago 2019
• On production progress: “Some operators in Trinidad have dramatically increased production. They doubled and, in some cases, tripled production after making quite modest investments in these fields. They do it the same way Petrotrin does it and they are doing it three times better on a shoestring budget. Petrotrin could achieve these results if it had money to invest in technology, multilateral completions, intelligent pumping with submersible pumps or solar to power rod pumps, and multilateral – or even lateral – wells drilled on land.”
• On foreign exchange issues: “Lack of forex is going to hurt the smallest players because some of the things they have to purchase to do business are in US dollars. The forex comes from the central bank. Small companies want to buy or rent equipment, but they cannot get US dollars. People are making profits because they have access to the forex, and others do not.”
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What are BHGE’s most recent developments and upcoming projects?
Starting with offshore, we are active with BP and Shell, and we provide some services for EOG. We also do work for Perenco, such as providing a nitrogen pump and some chemicals.
We are looking for opportunities onshore Trinidad and Tobago with several small players, gearing up to have an onshore drive this year and into 2019 with Petrotrin and other players. We are making some progress with the negotiations.
When you are trying to get commitments for something that is multi-year and in the national interest with the state company, it takes some time to make sure they have trust and confidence. It is a partnership and not a normal oil company-services company relationship. In this case, there are some unconventional commercial models involved.
We also have upcoming activity in Guyana for phase two of Exxon’s completions in Liza. This is for the seven-well programme, not the exploration programme.
At what stage is BHGE’s project with Petrotrin?
We are in the midst of signing the term sheets with Petrotrin and have agreed to all major contractual terms. As the major investor, we are going to invest capital to drill new wells, track wells and recomplete. We are going to use our tech, tools and global geoscience expertise. We have a three- to six-month study phase in the field. We will be remunerated based on the oil production and split it with Petrotrin.
It’s a win-win situation. Petrotrin gets increased oil production without making the investment, and the country gets more oil production.
How has BHGE adjusted to Petrotrin’s 20% cut in contract payments?
Salaries cost Petrotrin the most, accounting for 50% of its spending. Only 30% of its spending is on services companies. Something is brewing there, so it will be useful to see what the union’s comments are, as well as comments from Petrotrin.
A lot of that company’s focus is on streamlining and reducing fixed expenses. It is important to lower your fixed costs and increase your variable costs. That is the only way you can stay nimble as a business, which is what we try to do as well.
What is the likelihood that Petrotrin will sell off assets to pay down debt?
A lot will depend on the unions. Two and a half years ago, there were several different alternative models to jumpstart the industry here. The country has long-term contracts and commitments for gas monetisation. We need to move from 80% to 100% to fulfil all the gas supplies, but ammonia and nitrogen production on the global scale are not going to move the needle in terms of revenue coming in. It is not volatile enough to jumpstart things quickly.
The question is whether or not players would buy the assets that Petrotrin would sell. You have ageing assets and lines that are not well documented. For private companies, acquiring assets and then having leaks is risky. They would have to spend hundreds of millions of US dollars in asset integrity tests, upgrades and switching stations, and that is just to get the oil from the pointsource to the refinery. Petrotrin does not have the money to do these things.
Instead of focusing on offshore, we focus on onshore, where the risk is more manageable. Any kind of headwind is visible and you do not have marine considerations, which are very risky.
Some operators in Trinidad have dramatically increased production. They doubled and, in some cases, tripled production after making quite modest investments in these fields. They do it the same way Petrotrin does it and they are doing it three times better on a shoestring budget. Petrotrin could achieve these results if it had money to invest in technology, multilateral completions, intelligent pumping with submersible pumps or solar to power rod pumps, and multilateral – or even lateral – wells drilled on land.
What holds back more local medium-sized companies from participating in the sector?
It is a vision problem. We have been heavily invested in gas production in Trinidad, all of which is virtually offshore. Barriers to entry into that market are very high. BP has spent USD 1 billion on subsea infrastructure. You cannot have lease operators doing that.
However, there are plenty of exciting things that local oil companies are doing on land. They are providing employment, using local vendors and giving back to the community. Operators such as Columbus, Well Services and East Coast Drilling are small, but they are very important. The question is how much they should scale. This is not a place where you have large expanses of land. They are appropriately sized for fields.
The land work is enough to reinvigorate the oil services industry. A lot of people are dependent, especially in southern Trinidad, on the trickle-down economics of the small oil companies there. Many people benefit from having an active oil industry on land that would not benefit from offshore work. Offshore attracts the higher-level players with higher HSE requirements and more money to invest. It does not benefit trickle-down very well.
How difficult has it been to navigate the country’s foreign exchange shortage?
Lack of forex is going to hurt the smallest players because some of the things they have to purchase to do business are in US dollars. The forex comes from the central bank. Small companies want to buy or rent equipment, but they cannot get US dollars. People are making profits because they have access to the forex, and others do not.
Furthermore, why do we need the expense of printing currency, distributing it and balancing this against something else? We have 1.3 million people; there is no global demand for Trinidadian dollars. We do not need our own currency because we do not have enough scale to warrant having it. It would remove burdens and unfair advantages that some people with access to US dollars have over others.
Will Guyana be able to reap the benefits of its new discoveries and what role could Trinidad play there?
What are they going to do with the oil? Exxon does their first pass on the FPSO and the oil will go to tankers for it to be shipped. In the oil industry, the money really comes not in the upstream, but in the downstream. That is why Point Lisas was so successful for many years.
Guyana is going to go the same route as CIS countries such as Russia, Kazakhstan and countries where you produce the raw material, ship it out and do not gain the true benefit of that resource. The country needs to develop a good downstream strategy, even if it is taking condensate out of the field and doing something with it.
Ghana takes advice on how Trinidad monetises downstream, but Guyana has not done that. The devil is in the details, in how you set the terms. Guyana’s GDP is low and its population is low. It has suffered from brain drain; many talented Guyanese are living in the US, UK or Trinidad. They do not have the expertise and experience locally to negotiate international contracts with IOCs.
Guyana needs advice from somebody who has its interests at heart. If the country reached out to us, we obviously have our self-interest there. Trinidad made mistakes in the 1950s and 1960s, and we were still making mistakes into the 1990s, but we learned from them. We would be in a good position to advise, but there is always a competing sentiment between Guyana and Trinidad.
They have every right to be guarded against Trinidad’s advice, but they should still be open to it because we understand the unique challenges of operating in this part of the world in terms of logistics, formations and the kinds of talent you need. The Trinidadian oil industry is a success case when it comes to localisation, and we are a net exporter of talent.
In what areas can Trinidad and Tobago become globally competitive?
Manufacturing is key. We must break dependence on importing products and selling them back to somebody else as a model of having a successful business.
If we run the country better, we will have a balanced budget. We do not need to be globally competitive. With a country of 1.3 million, it is very difficult to be competitive with another country that has scale.
If we want to play globally on a niche-market basis, we could be a very strong player. We have good intellect, business sense, horsepower and experience down here, but we are lacking leadership and vision.
What is BHGE’s vision for 2019, both locally and regionally?
We are growing. We are doing a paradigm shift in our business model here by entering into more JV relationships and doing more integrated project management. Our strength is that we play in everything. BHGE is present from subsea all the way down to the final product. Our term for this is “fullstream.” We are the only services company that can boast of this capability.
We do all the gas turbines and maintenance work for Atlantic LNG. We have power projects through GE in Guyana and Venezuela. Our focus is on delivering fullstream services and expertise that are not just related to oil. There are so many spaces, digital and cloud-based, that we are present in. Outside of Trinidad, we are active in Suriname, Barbados, Jamaica, Aruba, French Guiana and Guyana.
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