In his 30th September 2016 budget statement the Trinidad and Tobago Minister of Finance, Colm Imbert, announced that the government was in the process of reviewing the country’s oil and gas taxation regime, using advice from experts from the International Monterary Fund (IMF) to help develop proposals. Minister Imbert summarised the main recommendations from the IMF, which involve the transformation of an existing tax against revenue that kicks in at US$ 50, known as Supplemental Petroleum Tax (SPT), with a new cash flow-based tax and the simplification and reduction of profit taxes. The IMF also recommended “a moderate fixed rate royalty in the order of 10-12%” to ensure a minimum income stream for the government.
The reform of the SPT has been a major call from the oil industry in Trinidad & Tobago for many years. As the tax kicks in as soon as oil prices average above US$50 per barrel, it places a major strain on oil producers when prices average just above this range. Oil companies operating in Trinidad have complained that they are better off when prices average in the high 40s, rather than in the US$50-60 dollar range. The smaller independent oil companies, such as Touchstone, have complained that this reality is hampering their ability to invest in new production.
With Trinidadian oil production falling to its lowest level in 60 years, the Minister of Finance placed a strong emphasis on measures needed to boost investment into the traditional oilfields, where significant reserves remain to be produced. The Minister of Finance estimated that there is as much as 3 billion barrels of “stranded” oil in mature oilfields that could be recovered with a suitably modified fiscal regime.
While the intention to change the fiscal regime has been welcomed by the oil and gas industry, some company executives have expressed frustration to EnergyNow at the slow pace of decision making. They have noted that a year ago the Minister of Finance announced that there would be consultations and a review of the taxation regime, but this formal consultation process never actually took place. In place of the industry consultation, the government utilised the services of the IMF.
The government is now stating that the IMF proposals are under active consideration. The industry will be pleased with the Minister’s promise that no changes will be implemented until the companies have been able to study the full implications of the proposed changes.
In addition to the changes in SPT and the rate of profit tax, the Minister of Finance has also proposed special incentives for small and marginal fields in addition to a review of the accelerated capital allowances that were introduced in 2014 (and which are due to expire in 2017). The Minister of Finance has expressed concerns about the impact of the 2014 accelerated capital allowances on numerous occasions over the past year, though in his budget statement, he did acknowledge that the previous changes to the fiscal regime had, by and large, had a positive effect.