“[…] As the oil price is expected to be in the low teens in this quarter, we are pursing a strategy of storage of oil production which will be sold as the oil market improves…”
The following are statements from the Heritage Petroleum Company and former Energy Minister Kevin Ramnarine on the collapse of oil prices:
This has been an unprecedented time for Trinidad and Tobago, the world and indeed the global oil industry. Heritage Petroleum Company Limited has not been insulated from all that is occurring. The precipitous drop in the world’s demand for oil and gas and the accompanying slowdown of economic activity due to Covid-19 also came with a simultaneous increase in supply as a result of the recent price war between Russia and Saudi Arabia.
These issues have led to a significant decline in world benchmark crude oil and gas prices. Even after recent negotiated cuts in oil production from OPEC + the oil price has remained stubbornly low.
Heritage is classified as a ‘water borne crude’ and is linked to Brent and normally trades slightly below that benchmark.
The Board of Directors and Leadership at Heritage recognises that this low oil price environment will continue for some time (lower for longer) and has implemented strategies to deal with this scenario.
This multi-faceted approach includes:
- Heritage has re-evaluated activity for the rest of 2020 in detail and has decided on risk-based reductions through optimisation of activity and project portfolios. We have also partnered with our Energy Service Companies to reduce their rates aggressively. These measures have resulted in a capital expenditure reduction of 49% and an operating expenditure reduction of 21% in the revised Heritage budget which will be constantly reviewed.
- The identification and implementation of additional cash-generating options such as the sale of obsolete assets including scrap iron and supply boats which we expect will yield significant revenue.
- A freeze on recruitment, save for critical jobs.
- Discussions and negotiations with financial institutions on financing arrangements and loan repayments arising out of legacy Petrotrin debt obligations.
- As per our 2020 plan, Heritage grew production to approximately 41,000 barrels of oil per day as we completed workovers and installed gas lift on offshore wells. Surface infrastructural activity including pipeline repair and replacement of motors added to production volumes as well. This means that Heritage now produces approximately 1.2 million barrels of oil per month. As the oil price is expected to be in the low teens in this quarter, we are pursing a strategy of storage of oil production which will be sold as the oil market improves.
At present, Heritage’s storage capacity is approximately 3.5 million barrels which will allow the company to store approximately 2.5 months of production as some storage is also needed for settling and treating of the production to attain the correct salable (sic) quality.
These measures, which will be in place for at least the remainder of the current fiscal year, have been taken in order to reinforce Heritage’s financial position. The first five months of the fiscal year was very profitable for Heritage. This leaves the company well positioned with the prudent management of our business, to meet out debt commitments and fund our activity for the rest of the fiscal year in this extremely challenging environment.
The measures that we have implemented will give us the opportunity to continue our mission to deliver value in a safe, profitable manner to our shareholder and to the people of Trinidad and Tobago. We remain confident that with continued focus and dedication we can emerge from this more nimble, innovative, resilient, and successful.
We appreciate the ongoing support of our shareholder, stakeholders and energy service providers as we refocus our operations to respond to these extraordinary times.
(Former energy minister Kevin Ramnarine)
Good morning. My phone is flooded with messages of the collapse in WTI oil prices. Just wanted to point out that Brent North Sea crude is trading at $14 more than WTI. While both prices are low the differential is big and warrants an explanation.
Here it is:
- Cushing, Oklahoma is the delivery point for West Texas Intermediate (WTI).
- Inventory levels at Cushing are monitored by traders and play in role in WTI price movement.
- Cushing is land locked and is running out of storage space. There are also limits on pipeline capacity for pipelines bringing oil into Cushing.
- As Cushing’s storage approaches tank tops, the price of WTI will collapse as it is doing now.
- Brent is the price fetched for North Sea crude produced at offshore oilfields such as Brent, Fortis located in British waters and Osenberg and Ekofisk located in the Norwegian north sea.
- Brent is easier to trade as the facilities are in the sea. As the oil is produced it is traded.
- Two thirds of all oil sales contracts use Brent as the reference. Brent is the global reference price for crude oil.
- This is just an explanation of the wide price gap but does not take away from the fact that both prices are at lows last seen around 19 years ago.