One of the key factors affecting Petrotrin is the margins under which they operate, this according to Petrotrin head, Fitzroy Harewood in May at an energy luncheon held by the Energy Chamber. Harewood provided a frank look at the company’s future given the “lower for longer” price environment. He said that the only way for the model to work is keep the cost of the raw materials down, and maximise the cost of finished products. Fundamental to ensuring the margins at the refinery health he said, is increasing local oil production. Whatever the lifting cost is to bring that crude, represents the cost of production. When we buy crude, we are exposed to market forces.
At present, Petrotrin production is roughly 43,000 bbl/d and they have the import variance to maintain refinery throughput. He also revealed that at the end of April, Petrotrin improved their production to 46,000 bbl/day.
He reiterated that for Petrotrin to survive and succeed, local oil production needs to be increased. He said however that he understands the imperative for this to happen, but cautioned that it takes a significant amount of investment and Petrotrin will need to manage the technical aspects of it as well.
Harewood said that Petrotrin continues to closely monitor the margins at the refinery and each product in the portfolio of what is produced at the refinery. He said “we’ve seen a drastic reduction in margins. He said that Petrotrin has been hit in two ways in the current environment. Firstly, the company takes a hit from lower WTI prices and secondly, they are hit by lower margins, which he said is a double whammy.
He reiterated that the ability of Petrotrin to access crude that is available locally is imperative since buying large amounts of foreign crude to maintain throughputs places the company in a difficult position. He added that it is especially important when the WTI price increases as margins will be affected as well as the company’s liquidity.
Harewood indicated that there are therefore a few drivers for profitability. In the E&P business, the volume of crude needs to be increased in an economic and cost-effective way to reduce lifting costs.
Lifting costs (also called production costs) are the costs to operate and maintain wells and related equipment and facilities per barrel of oil equivalent (boe) of oil and gas produced by those facilities after the hydrocarbons have been found, acquired, and developed for production. He said that the lifting costs at Petrotrin can be reduced in two ways, through increasing output and also by reducing fixed costs which he said will be key drivers for profitability at the company.