The 2019 shallow water bid round was the first offer of new acreage for oil and gas exploration in Trinidad & Tobago since the downturn in global oil prices in late 2014. The bid round, that closed earlier today, saw bp and Shell, the two major existing gas producers in Trinidad & Tobago jointly bidding on three of the six blocks on offer. The joint bp and Shell bids were received for the three east coast blocks on offer, with no other bids being received for the blocks. No bids were received for the two blocks off Trinidad’s north coast and for the one block on offer in the Gulf of Paria.
While it is disappointing that no bids were received on three blocks, it is encouraging that two major international oil and gas companies continue to express confidence in Trinidad & Tobago and are committed to further exploration activity.
While competitive bid rounds do not typically attract much media attention, they are very important activities for the future of our oil and gas industry and hence the future fortunes of the entire national economy. Traditionally, Trinidad & Tobago has followed a policy of inviting international oil and gas companies to bid on exploration blocks, with the intention of receiving the best possible offer available.
Under the production sharing contract system utilised in Trinidad & Tobago, companies make bids based on:
Commitments on exploration activity (e.g. the number of wells they will drill and their seismic data acquisition) and
The share of oil and gas production they will accept in exchange for developing any commercial discoveries.
The Ministry of Energy’s objective is to try to get the best possible offers for the people of Trinidad & Tobago, while oil and gas companies will make an offer that they think will still win them the block when competing against other companies. In addition to looking at the geology to determine the likelihood of a successful exploration campaign, companies will also assess the economics of the production sharing contracts being offered by the Ministry of Energy before deciding on whether to make a bid or not. In the case of acreage that is considered mainly gas prone (rather than oil prone) one of the major factors in a company’s decision to bid would be if they will be able to develop a market for any commercial discoveries.
The Ministry of Energy will now have to evaluate the joint offers from bp and Shell to determine if they meet their minimum expectations for the blocks and may enter into negotiations to come to a final agreement. For the other three blocks that received no bids, the Ministry will have to go back to the drawing board and determine if they need to make changes to the offer in order to attract bids in the future. This might include changes to the proposed fiscal terms and/or conducting further geological studies aimed at reducing the risk for any future exploration programme.