One of the things that was very clear from our recent event on increasing oil production in Trinidad and Tobago is that the leadership of Heritage Petroleum (Heritage), the new Trinidad and Tobago state-owned oil and gas production company, are very bullish about the belowground assets that they now control. The company is clearly excited about the prospects of not only revitalising production from their existing fields, but also about new exploration success, especially in the Gulf of Paria. This is positive news from a sector that has for far too long seemed in terminal decline. 

Going after this asset is not, however, going to be easy. Realistically, if we do not get to these potential oil assets soon, we run the very real risk of leaving currently valuable resources in the ground as the world hits peak oil demand and we see long-term downward pressure on prices (meaning only the cheapest and easiest to exploit fields will be able to attract investment). 

Heritage needs significant inflows of billions of dollars of capital for investment if it is to successfully and profitably go after these oil resources in the near term. It needs to invest in new exploration activity, drilling new wells, revitalising existing reservoirs and significantly upgrading its platforms, pipelines, tanks and other production infrastructure. Given the fact that Heritage’s holding company, Trinidad Petroleum Holdings Limited, has taken on the task of servicing the very heavy debt burden from the former Petrotrin and that they have taken on the challenge of doing this without government guarantees, it is going to be more or less impossible for the company to raise this capital through further borrowing. The successful sale of the refinery could raise some significant capital to help repay debt, but the company needs to quickly refinance its existing borrowings that are due for repayment this year. Successfully doing this will mean that the company has to use the oil in the ground as the assets to leverage financing. 

Heritage will also have to pay significant royalties and supplemental petroleum tax to the government, even if it is not profitable. It can no longer offset taxes from the upstream side of the business against losses from the refinery. This will place a significant cash flow burden on Heritage and it is unlikely that the company will be able to find the capital needed for investment from its ongoing operations.

All of these factors point to the need for Heritage to access equity capital if it is to go after the oil reserves under its control and the potential exploration resources many geologists believe are yet to be found in its acreage (and other adjacent areas as well). For its mature land assets, Heritage could further expand the successful lease-out/ farm-out arrangements and make acreage available to the smaller, nimble oil companies able to profitably produce oil from these areas. For the offshore acreage, Heritage might well need some bigger strategic partners able to mobilise the large amounts of capital needed to go after significant new oil reserves. 

Having managed to throw off the previous effective veto power of the Oilfields Workers’ Trade Union (OWTU) over the implementation of any strategic joint venture or similar arrangements, the leadership of Heritage should now be free to make the right strategic decisions about equity investments in their assets. If the leadership of Heritage move in this direction, as I suspect they will, I hope that opposition voices will not jump on the old bandwagon of ‘selling off the national patrimony’ as a political ploy. Our patrimony is in the rocks thousands of feet under the surface and is worthless if it cannot be profitably produced. We face a significant risk that this oil patrimony will never be monetised if peak oil demand does indeed come to pass in the next few years (as many people predict). 

As an aside, it is notable that since the closure of the refinery, the OWTU seems to be a convert to the idea of introducing equity financing to the old Petrotrin assets and has reportedly been actively working with international investors to put together a bid for the refinery. An idea that they once rejected outright now seems to be their preferred solution. 

Contractors and service companies in south Trinidad have suffered significant losses with the closure of the refinery and the lack of activity in the oil sector in the recent past. It is vital for these companies, their employees and the communities which they support, that there is renewed activity in the oil industry, and Heritage is the major player in this sector. Activity can only pick up pace if the capital for investment is available and it is important that Heritage has the ability to access the financing that it needs as soon as possible. The problem is not the presence of oil in the ground, it is the capital needed to invest in producing the oil. This is a problem that can be solved and for the good of the entire country needs to solved with urgency