The crude oil price is being heavily influenced by the increased low-cost supply that is coming out of the shale industry in North America.

Dominic RAMPERSAD President Phoenix Park Gas Processors Limited (PPGPL)

PPGPL plans bear fruit in new low-oil reality

August 23, 2017

Dominic Rampersad, Phoenix Park Gas Processors (PPGPL) president, talks to TOGY about the company’s work programme in 2017. PPGPL operates Trinidad and Tobago's only natural gas processing facility.

PPGPL is a local Trinidadian company formed in May 1989 as the midstream subsidiary of state-owned the National Gas Company. Rampersad touches on the results of Trinidad and Tobago NGL’s (TTNGL) recent additional public offering and how the company is planning on expanding its business in a changing global energy climate. While the oil price crash had a significant negative effect on the industry in Trinidad and Tobago, PPGPL has forged ahead, successfully adjusting to the new economic reality.

• ON THE NEW REALITY: Looking at what is happening in North America with shale production, we know that the days of crude oil prices at USD 75 are over. The crude oil price is being heavily influenced by the increased low-cost supply that is coming out of the shale industry in North America. That is going to be the [reality] for the industry.

• ON MAINTAINING SAFETY: One of the things that this industry will always be challenged with is keeping employees safe even in this low price environment where costs management is a high priority. You always have to make sure that you continue to invest in your safety and maintenance systems to ensure that employees know that the company is doing all that it can do and more to keep them safe. You have to continue to do those things otherwise employees will not be inclined to go the extra mile if, and when required.

Rampersad also discussed PPGPL’s performance in 2016, commenting on the company’s 15% increase in after-tax earnings over 2015. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Dominic Rampersad below.

How has PPGPL’s operational activities evolved during the past year?
As a company, we had an exciting year in 2016. In terms of financial performance PPGPL completed the year with a 15% increase in after-tax earnings over 2015. This is quite an accomplishment given the global environment with very low commodity prices and local gas curtailments. This was achieved through a series of initiatives. For example, in 2015 and 2016 we pursued a deliberate cost management strategy that was complimented by focusing on increasing our process plant efficiencies, general process efficiencies and cost efficiencies. As a result of that work, between 2015 and 2016, we reduced our operating costs by USD 20 million.
[In terms of] the product marketing aspect of our business, our focus remains on securing our core markets and ensuring that we meet our contractual obligations to our customers. In this regard, we continue to be a reliable and dependable supplier of propane, butane and natural gasoline.
In terms of evolution, we have now expanded our marketing operations by laying the foundation for the product trading arm of the business. By the end of this year, we [plan to] complete the reconfiguration of our dock facility to receive product. This will increase the available product that PPGPL will have to export into our markets.
Our growth strategy has also advanced over the past year as we have now extended our boundaries for growth opportunities to include new territories, particularly within the Caribbean. This is the market we know, and there are value-added opportunities for both vertical and horizontal integration. We have a couple of projects that are beginning to take shape, and hopefully between now and the middle of 2018, we will see the positive results of our efforts.

What priorities has PPGPL set for 2017?
[Our] first priority is to deliver on the targets that we have set. Another important objective is to keep our business competitive. Looking at what is happening in North America with shale production, we know that the days of crude oil prices at USD 75 are over. The crude oil price is being heavily influenced by the increased low-cost supply that is coming out of the shale industry in North America. That is going to be the [reality] for the industry. To be able to operate in a positive margin, we have to be competitive. We have to manage our costs and our efficiencies, and we have to deliver strong customer service, otherwise our customers will not come back.
The market has now become more competitive with new entrants and therefore one has to understand those factors in the market. We have to develop different strategies to remain competitive. We can move our products at a decent margin and we can keep our costs within a target limit. As time goes on we have to keep finding more cost effective ways of doing business without compromising quality and safety.
North American producers are constantly coming up with new and innovative ways to produce their reserves at a lower and lower cost, and they are doing it so frequently that they are setting the tone for the rest of the world. The pricing environment is a function of a very elastic supply and inelastic demand. It is going to be a lower price environment than what we saw for this industry four years ago.
Added to this is the fact that we are in a mature environment here in Trinidad, and to continue in this business we cannot just sit and think that one day somebody is going to make a huge discovery and that will be the end of all our problems.

What new technologies are you looking at to enhance performance and extend the lifetime of the company’s assets?
Operationally, there are a host of new technologies that are now available that make the maintenance and asset integrity programmes of the business a lot easier. For example, a gas plant is essentially pipelines, towers and vessels. In the past, if you had to assess the integrity of the pipeline, you would actually have to go and remove the insulation and inspect every centimetre of the pipeline. Now, there are high-wave ultraviolet technologies that scan the pipeline and in scanning it can pick up where there is corrosion taking place without going through the whole process of actually removing all of the insulation to conduct an inspection. As a company, we have been assessing these new technologies and determining which of these are fit for purpose. [Once suitability has been assessed and determined] we implement. As this effort progresses, more and more technology providers approach us and therefore our range of options are continuously increasing. PPGPL’s obsolescence programme is also a daily focus. Some of the equipment in the gas plant are 26 years old. Some of the equipment is at the end of its useful life, and we have to replace it with new equipment. As part of our obsolescence programme, which the company has implemented for many years, we have been replacing plant equipment with more up-to-date [assets]. We have the opportunity to replace plant equipment with more advanced controls that allow us to be able to monitor the performance of the process plant on a real time basis.

How has the low oil price environment affected the safety standards in the domestic energy sector? What is PPGPL doing to address human-factor issues in process safety?
[We ensure safety by approaching it] from a couple of perspectives. One is making sure that when we do our work, we do it with a clear understanding of what our risks are and that those risks are properly mitigated. For every job that is done on the plant, there is a process called the job safety risk assessment that is conducted. Each step of the job is evaluated for risks with mitigation points for each [step]. [Safety] starts with planning and goes into execution when all of our safety systems and all of our safety procedures have kicked in.
Underlying all of that, the issue of the accident rate comes down to a much softer issue outside of policies, procedures and systems. Is the organisation doing enough to make the employees feel safe? If employees come to work and they don’t feel safe and feel they can get hurt emotionally or physically, they will just work for the money; they will not work for you. One of the things that this industry will always be challenged with is keeping employees safe even in this low price environment where costs management is a high priority. You always have to make sure that you continue to invest in your safety and maintenance systems to ensure that employees know that the company is doing all that it can do and more to keep them safe. You have to continue to do those things otherwise employees will not be inclined to go the extra mile if, and when required.

 

To what extent do government actions impact the way PPGPL conducts its business?
The government is the shareholder in NGC, and as with all our shareholders, we ensure that our operations yield positive results. At PPGPL and certainly within the broader context of the NGC group, we have established our priorities and strategic imperatives to complement government policy. We understand very well the significant role that we play in generating much needed revenue for the government.
Right now, the biggest issue in this industry that the government is trying to address through NGC is the issue of gas curtailments. As a subsidiary of NGC, involved in the mid-stream business, we are working together with the NGC in exploring possible solutions to deal with gas shortages.

What actions is PPGPL taking to increase its efficiency in and outside of Trinidad?
We are pursuing projects that achieve two main objectives. Firstly, [we want] to increase our market share in our core Caribbean markets. Secondly, we want to improve our plant efficiencies. With regards to increasing our market share, our product trading initiative is due to be completed later this year. We are considering acquiring some assets within the Caribbean in order to vertically expand in that market. We are also looking at the whole aspect of investing outside of the region [in places like] Guyana, Suriname and some potential long-term investment in Africa, particularly Ghana to optimise the performance of their gas plant.

What is the likelihood of cross-border gas developments with Venezuela becoming a reality?
It is well publicised that NGC has been in active negotiations with PDVSA to monetise a portion of the gas from Venezuela’s shallow-water Dragon gas field. The government has asked for the gas field agreement to be completed by the end of July of this year.
Since I was a little boy, I have heard about the potential of Venezuela gas coming to Trinidad, however this is the closest we have ever come to materialising this goal.
My belief is that this agreement will be finalised and that both Trinidad and Tobago and Venezuela will eventually reap the benefits. If Dragon does [move forward] then it may open up other opportunities to monetise additional gas reserves off the East Coast of Venezuela.

What has been the outcome of TTNGL’s additional public offering (APO), introduced in June 2017?
Similar to the initial public offering (IPO) in 2015, the APO was oversubscribed. Under the APO, NGC offered 40.2 million shares of its shareholding in TTNGL, which is a shareholder of PPGPL. The Board of NGC and PPGPL together with our employees and advisors were very meticulous in its approach to the APO and the result that was achieved is a function of the quality of the work done.

What are the key factors behind the success and interest from both existing as well as new investors?
TTNGL is the highest yielding stock on the Trinidad stock market right now. In 2016, the dividend yield on that stock was 7.14%. The company has over USD 400 million in cash reserves. Even if PPGPL did not pay a dividend for the next five years, TTNGL could maintain its dividend distribution profile.
In 2016, TTNGL shareholders agreed to an amendment to its by-laws so that the directors can elect to pay dividends in US dollars because TTNGL gets its dividends from PPGPL in US dollars. It will make it the only company on the stock market that pays dividends in US dollars. Because of the scarcity of US dollars in Trinidad, institutions and individuals would benefit tremendously from receiving dividends in US dollars.
Of course, the success of TTNGL is a result of the success of its underlying asset, PPGPL

Do you see room for any additional public offerings within TTNGL?
I don’t think there will be any additional public offerings from TTNGL. At TTNGL, shareholding is done in two classes, Class-A and Class-B. What NGC has done is that it has sold all of the Class B shares, which constitute 75% of the share capital. However, NGC has retained [ownership of Class-A shares. By retaining ownership of Class-A shares they retain control of TTNGL, and consequently control of PPGPL. If they lose Class-A shares they would lose control of PPGPL, which is not something that I foresee.

What can the market and investors expect from PPGPL in the years to come?
PPGPL conducts a resilient business. If a company manages to deliver 15% growth in earnings in a year when prices were down, that says something about the resilience of the business. It says a lot about the capacity of the employees to overcome challenges, and it says a great deal about the board of directors [ability] to provide the right guidance and direction to the business to achieve what it has achieved.
The business is resilient and will continue to be so, but we will also continue to compete with other jurisdictions present in our markets. We will make sure that the safety of our employees is important and that the satisfaction of our customers remains high. We are here to stay, and we are here to be resilient.

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