Home' Trinidad and Tobago Guardian : July 10th 2014 Contents JULY 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
State-owned Petrotrin will have
to reduce its refining and mar-
keting costs, including the
amount of money it spends on
wages and salaries, if it is to
make the refinery profitable.
Both the Energy Chamber and economist
Dr Ronald Ramkissoon say company cannot
avoid dealing with the amount of money it
spends on workers.
In an e-mailed response on Tuesday, the
Energy Chamber said like many other refineries
in the Western Hemisphere, it was facing chal-
lenges because of the poor refinery margins.
This, the Chamber notes, must force refineries
to reduce costs.
"Like any company facing lower margins,
Petrotrin must examine its cost structure and
try to reduce costs. One of the major cost ele-
ments is imported crude. Domestic crude can
be purchased at cheaper prices due to lack of
transport costs. This is why increasing domestic
crude is crucial to the refinery.
"However, there are other important costs
that need to be considered, including human
resource costs, contractor costs, financing costs
associated with the fuel subsidy, the subsidy
on LPG directly paid by Petrotrin and the high
tax burden on the company. These issues all
need to be addressed if the refinery is to be
profitable in the challenging global environ-
Ramkissoon said it was a difficult decision
on what to do with the Pointe-a-Pierre refinery.
He said you had to see Petrotrin as an integrated
oil, gas refining and marketing company. He
said in doing so, one had to be careful there
was no masking of inefficiencies and, in that
context, Petrotrin had to deal with its efficiency
issues, including its personnel costs.
He said the feasibility of having the refinery
and the company s future viability had to be
placed on the table and a clear strategic plan
Last week, the Business Guardian reported
that Petrotrin has been forced to significantly
reduce its production of refined products as it
tries to limit the losses at the Pointe-a-Pierre
refinery and avoid it going out of business like
two other refineries in the Caribbean.
Company president Khalid Hassanali admitted
that well into the future, Petrotrin s production
is likely to remain at less than 130,000 barrels
or product a day as refinery margins remain
soft due to the US shale gas revolution and dis-
counted crude prices.
"You know that the shale revolution in the
United States has allowed their refineries to
have energy at a very cheap price. In addition,
there are the issues of discounted prices which
have hurt all the refineries in the Caribbean. So
we are surviving, but we have to optimise the
refinery and not maximise production. So we
have deliberately reduced our refinery throughput
and I don t see up getting back to those numbers
any time in the foreseeable future."
The more than 25 per cent reduction in pro-
duction is hurting the company s cash flow
and its overall finances, but Hassanali insisted
it is an integrated company and at this stage,
it is exploration and production (E&P) that is
carrying the company.
Earlier this year, Mado Bachan, head of refin-
ing and marketing, talked about the significant
challenge Petrotrin s refining and marketing
business faced. He explained that Petrotrin has
had to import 60 per cent of the crude it uses
to refine products and the other 40 per cent
comes from domestic production. Bachan said
this means the company has been importing
crude at high prices and then has to refine it
and make a profit.
Margins are essentially the difference between
the cost of a barrel of crude oil and the money
you can earn from a barrel of product, inclusive
of cost of producing the product.
Bachan explained that margins are reflective
of the global spare refinery capacity. In 2014,
that spare capacity is averaging close to 20 mil-
lion barrels of refined products.
"The amount of spare capacity will put a
cap on margins globally because if you have
this amount of spare capacity you want to run,
but as you start to run, you have all this product.
So that with slow demand, you have all this
excess capacity. The issue is how do you treat
with this surplus capacity at a time when mar-
gins are weak?"
"As you know, it s your gross margins that
affect your profitability because it is from your
gross margins that you have to find money for
your operating costs, including utilities, inputs,
labour and so on," Bachan said.
Bachan said the closure of refineries in the
Caribbean was not necessarily the global trend
because there continues to be construction of
modern, highly efficient refineries. He pointed
to Saudi Arabia building additional capacity as
that country seeks to refine even more of its
For Bachan the real threat to Petrotrin is the
shale revolution in the US, which has led to
millions of barrels a day of crude oil being pro-
duced but not exported.
Several small- and medium-sized contrac-
tors could be left holding the proverbial bag
as they are owed more than $60 million by
a British firm, HS Ocean Group Ltd, which
has now left T&T without paying its bills.
Further, HS Ocean Group is now saying it
does not have a cent to pay the contractors
and has even warned the local contractors
that should they try to recover their money
in the British courts, they will find they are,
in effect, dealing with a paper company and
will have little chance of recovering their
In a letter from HS Ocean Group s Lon-
don-based attorneys, Cope and Company,
dated June 6, the contractors are being told
that unless HS Ocean is paid in full by the
owners of the Rowan Gorilla III Rig, then they
will not be able to pay the contractors.
Cope and Company wrote, "The company
does not have any other source of income or
any assets of value. Accordingly, the company
is unable to make any payment of its sub-
contractors until the Rig owner pays in full
the sums due and owing to the company."
The lawyers also warned it would not be
a good idea to go to court.
"Should any sub-contractor instigate formal
recovery proceedings, it will inevitably lead
to the liquidation of the company which would
result in creditors receiving little, if any, pay-
ments towards the sum owed to them," read
the lawyers letter.
In November 2013, the Rowan Gorilla Jack
Up Rig arrived in T&T and was moored at
the Labidco Port owned by Deo Gosine. The
rig was brought to T&T by Repsol, EOG and
Trinity to drill a minimum of seven wells on
their various acreages with a possible extension
of another year s worth of drilling.
While at the Labidco port, the rig had to
be serviced and supplied so it could embark
on the drilling campaign and Rowan Gorilla
Drilling Company hired HS Ocean to contract
with local companies to do the work and pro-
vide the supplies. In following the money,
EOG, Repsol and Trinity agreed to pay Rowan
Gorilla Drilling Company US$160,000 a day
or more than $1 million a day to drill their
wells. Rowan then hired HS Ocean and HS
Ocean hired the local companies.
More than that, the Business Guardian has
also been informed that the British High Com-
mission, led by its High Commissioner Arthur
Snell, were involved in lobbying for HS Ocean
to get the job and even visited the Labidco
port to meet with Gosine.
Gosine told the Business Guardian, "When
a company like Rowan Gorilla Drilling and
the British High Commissioner, who visited
my company, recommend HS Ocean, I had
confidence that the company was one that
is reputable and to find out that they have
left owing me $20 million."
Attempts to reach Snell were unsuccessful
up to press time. However, the Energy Cham-
ber s deputy chairman Dwight Mahabir said
the chamber had been in touch with the
British High Commission on the matter and
it has expressed concern about how this
could damage the reputation of British com-
According to documents obtained by the
Business Guardian, HS Ocean is claiming it
has not been paid most of its money by
Rowan Gorilla Drilling, a claim Rowan denies.
In another letter dated June 13, HS Ocean s
attorneys said their client was entering into
arbitration with Rowan and was hoping it
can be settled.
They wrote, "The company will shortly
enter into arbitration with the rig owner in
an attempt to recover the outstanding pay-
ments that are due and owing to it which, if
successful, will hopefully result in a payment
being available for the company s creditors.
Ultimately, and as set out in our June 6 letter,
without such payment being made by the rig
owner, the company does not have sufficient
assets to make any payment to its creditors."
The letter of June 14 went on to say that
HS Ocean understands their frustration, but
also advised local contractors should not con-
tact HS Ocean directly, to communicate instead
through their lawyers.
In a telephone interview, Mahabir said
Rowan Gorilla had in its possession goods it
has not been paid for. He said Rowan cannot
adopt the approach it is not involved because
it did not contract directly with the suppli-
ers.Further, Mahabir said there is a need for
companies to do due diligence before agreeing
to a contract.
Petrotrin needs to trim
salaries to be profitable
British firm owing millions to T&T contractors
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