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Tough job ahead for Petrotrin board
Had it been operating in the real world of business, subject to global market forces and the vagaries of the energy sector, Petrotrin would have gone out of business long ago. Its operating model has long been unsustainable.
But it is a state-owned entity which has been given various lifelines over the years, mostly courtesy the nation’s taxpayers. However, as has been stated repeatedly by Government and energy sector officials over the last nine months, the energy giant must now be transformed into an efficient and productive company - there is no other choice.
It was therefore welcome news when Prime Minister Dr Keith Rowley, prior to his departure for the United States on a short vacation Friday, announced that the long-promised restructuring of Petrotrin has started.
Later in the day, confirmation from Government of a new board of directors for the cash-strapped company, headed by Wilfred Espinet, put into motion an exercise, estimated to take two or three years, that should transform Petrotrin into a profitable entity, once more contributing to the country’s GDP. The process that has just started will not be painless but if the right decisions are made, difficult though they may be, the national community will benefit.
The value of Petrotrin to T&T’s economic health cannot be underestimated. It is the country’s major oil producer, accounting for more than one-half of total oil production of about 72,000 barrels per day (bpd). The company is also is a net earner of foreign exchange and brought in an estimated $250 million a year in 2015 and last year, contributes to Government tax revenues and is a guarantor of the country’s energy security.
However, the company faces a high risk of catastrophic failure, particularly in the current challenging energy market of reduced prices, as it is saddled with an estimated US$850 million debt due in 2019 that it cannot pay, along with other onerous financial burdens.
The challenge for the new board chaired by businessman Wilfred Espinet is to significantly reduce Petrotrin’s annual operating costs of approximately $4.5 billion. This includes an unsustainable wage bill of $1.9 billion for more than 5,000 employees. In fact, wages alone account for close to 50 per cent of Petrotrin’s total annual operating costs.
Even as it seeks to cut the excess, Petrotrin also needs to attract capital for drilling and investment activities, including scheduled plant maintenance turnarounds in the refinery at a rate of approximately $2 billion a year, in order to reduce its exposure to asset integrity risk and abandonment liabilities. The company also needs to increase its crude oil production.
It cannot be over emphasised that the way forward for Petrotrin must include more focus on boosting oil and gas production on land and offshore. Unfortunately, over the last decade the company’s oil production has been allowed to skydive from some 64,500 bpd to some 45,000 bpd at present.
There is no easy way out of the crisis currently facing the company. Highest priority must be on stopping the haemorrhaging and taking every necessary step to stabilise Petrotrin within the shortest possible time. No doubt there will be push back from some stakeholders - primarily the Oilfields Workers’ Trade Union (OWTU)- to some of the cuts that are inevitable to guarantee the long-term survival of the company.
But there is no way around what needs to be done to transform the oil company, which, as Dr Rowley stated in an address to the nation earlier this year, “is so central to our fortunes.”
Indeed, given T&T’s continued dependence on oil and gas and no real prospects of diversification taking hold in the short to medium term, the nation’s economic fortunes continue to be tied in significant ways to a successful revitalisation of Petrotrin.
As the new board settles down to the restructuring challenge, the fervent hope is that they succeed in delivering to the nation a lean, efficient and profitable Petrotrin.