Member Info for LayLadyLay

27 September

Costs have now been reduced to approximately €15,000 per month, instead of the previous burn-rate of around
€60,000 per month, although the Spanish legal/tax/regulatory system generates additional costs from time to time which need to be met.

10 October

In Q3 2018, there was no material activity in Spain. The Company continues to maintain the Ayoluengo Field on a "care and maintenance" basis whilst awaiting the commencement of a new tender by the Spanish authorities.

The Company incurred costs of approximately US$0.40 million in maintaining its obligations in Spain during Q3 2018, with this including US$0.17 million of taxation payments to the Spanish authorities relating to the staff redundancy process undertaken in Q2 2018 and a further US$0.15 million placed in escrow relating to a historical legal issue which the Company is challenging.

Following the announcement by the Company of the completion of the acquisition (the "Acquisition") of Steeldrum Oil Company Inc ("Steeldrum") on 8 October 2018, the Company has incorporated Steeldrum's business performance into Columbus' financial accounts with effect from 13 July 2018, the effective date of the Acquisition.

Does anyone think that costs are reducing?

Further reduction of G&A costs with significant downscaling of London office to now just support administrative and technical/engineering requirements.

The combined Operations team to be co-located in the San Fernando office is planning the use of short-term cashflow growth-based prioritisation tools to high-grade the wellwork activities across the fields.

Integration of Columbus and Steeldrum to be completed by end Q4 2018, with Steeldrum sub-surface team immediately joining the Columbus sub-surface team at the Company's expanded Trinidad office in San Fernando, optimising co-ordination across all seven fields/assets.

Now we know why there was an almighty rush to complete the acquisition so that Steeldrum production could be included in the quarterly figures. This despite not having got approval from Petrotrin.

"In completing the purchase of the Steeldrum, the Buyer (Columbus Energy (St Lucia) Limited) waived the requirement of Petrotrin's consent to the transaction ("Petrotrin's consent"). Petrotrin's consent applies to the Innis-Trinity Field IPSC and the South Erin Farmout Agreement. Pursuant to the terms of the relevant agreements, Petrotrin's consent is not required prior to completion. Columbus will continue to seek Petrotrin's consent post completion. There is a risk that Petrotrin may not consent to the Steeldrum transaction and seek to terminate the relevant agreement although the Company does not expect this to be the case and will continue to liaise with Petrotrin to seek its consent. "

Garnhiem - The 2018 Lind Facility specifically contemplates the ability to draw down US$1.25 million (of the US$3.25 million) to repay a US$1.25 million loan taken out by Steeldrum with North Energy Capital AS ("North Energy" and "North Energy Loan"). However, as you pointed out, the First Tranche is only US$1.0 million so does this mean they will also have to drawdown the Second Tranche?

Correction

HH - Lind don't need to convert to make money from the loan. If the sp does get above the conversion price then that is a bonus for Lind. In the meantime, if the sp gets above the conversion price and convert any part of the loan to shares then that would be more dilutive for shareholders than converting at the prevailing rate. The only beneficiary from the fixed conversion rate is Lind. There's no benefit for shareholders because Lind are not going to convert at 8.1p if the sp is lower. They will happily continue to take cash or shares at the prevailing rate of conversion if CERP elects to make a payemnt in shares.

HH - Lind don't need to convert to make money from the loan. If the sp does get above the conversion price then that is a bonus for Lind. In the meantime, if the sp gets above the conversion price and CERP decide to make any repayments in shares then that would be more dilutive for shareholders than converting at the prevailing rate. The only beneficiary from the fixed conversion rate is Lind. There's no benefit for shareholders because Lind are not going to convert at 8.1p if the sp is lower. They will happily continue to take cash or shares at the prevailing rate of conversion if CERP elects to make a payemnt in shares.

Spot on Joe. People saw 8.1p mentioned and interpreted that as a new base for the sp. Even when it's explained they reject the explanation. Try to help people understand and you are a deramper. I expect there are some here who do understand but are happy to prolong the myth.

Without knowing the specifics of the dispute between Steeldrum and North Energy it's difficult to assess the risk of this issue dragging out and maybe even ending up in litigation. The wording from CERP does not fill me with confidence that a payment of US$1.25 million will guarantee that the issue is resolved. If Steeldrum is in default then the remedies available depends on the nature of the loan agreement between Steeldrum and North Energy, who may be in the box-seat.

Hopefully a fuller explanation will be forthcoming on Wednesday evening.

In completing the purchase of the Steeldrum, the Buyer (Columbus Energy (St Lucia) Limited) waived the requirement of Petrotrin's consent to the transaction ("Petrotrin's consent"). Petrotrin's consent applies to the Innis-Trinity Field IPSC and the South Erin Farmout Agreement. Pursuant to the terms of the relevant agreements, Petrotrin's consent is not required prior to completion. Columbus will continue to seek Petrotrin's consent post completion. There is a risk that Petrotrin may not consent to the Steeldrum transaction and seek to terminate the relevant agreement although the Company does not expect this to be the case and will continue to liaise with Petrotrin to seek its consent.

The 2018 Lind Facility specifically contemplates the ability to draw down US$1.25 million (of the US$3.25 million) to repay a US$1.25 million loan taken out by Steeldrum with North Energy Capital AS ("North Energy" and "North Energy Loan"). Steeldrum is currently in dispute with North Energy over the North Energy Loan and may be in default of the North Energy Loan. The Company expects to resolve the dispute by repaying the North Energy loan by drawing down US$1.25 million from the 2018 Lind Facility. North Energy holds security over the shares in the company that owns the Innis-Trinity field ("Innis-Trinity Security") and also Talon (defined below). Upon repayment of the North Energy Loan, the Company expects the Innis-Trinity Security to be released.

Posters often do fag packet calculations of revenue based on changes to the oil price but operational costs are rarely taken into account when calculating potential profit.

LGO operates the Goudron Field on behalf of the Petroleum Company of Trinidad and Tobago Limited (Petrotrin) and has 100 percent working interest. The Incremental Production Service Contract (IPSC) for the Goudron Field was originally signed by Cameron Oil and Gas Company Limited and Petrotrin in November 2009. LGO acquired the rights and the IPSC was amended in 2013 effective August 1, 2013.

The amendment states a contract term of 10 years with five year extensions permitted after that point.
No truncation of production has been forecast to account for the IPSC not being extended as it is expected this will occur as required.

Prior to LGO taking over the operating of the Goudron Field, there were 147 wells on the license, LGO has since drilled 15 wells in 2014 and 2015. There are a total of 92 wells targeting the shallower Goudron Mayaro sand and 70 wells targeting the deeper C-sand with only a total of 67 wells currently producing. The production data for the field is limited with only cumulative production recorded prior to 2010 and no reservoir production allocation data for the wells.

The IPSC for the Goudron Field allows for LGO to receive a service fee as compensation for operating the field, which is calculated in the following way:

Service Fee = Market Value – Royalty – Notional Overriding Royalty – Facilitation Fee – License Fee – Miscellaneous Deductions

The Market Value is the value of the oil delivered to Petrotrin not including the first tranche.

The following burdens are applicable to this field based on the details of the IPSC:

First tranche oil (1,221 bbl/month) is given directly to Petrotrin and LGO received $9/bbl as a handling fee; this is scheduled to end in November 2019

12.5 percent royalty is applied to all oil revenue

Notional overriding royalty (NORR) that fluctuates according to the following schedule:

$/bbl 50-90 Base NORR 23% Enhanced NORR 17%

The base NORR is applicable to all production beyond the first tranche up to 4,590 bbl per month. The enhanced NORR is applicable to all production beyond the base.

A fee of $1.25/bbl of production to cover abandonment costs as all wells and facilities will remain the property of Petrotrin.

Supplemental Petroleum Tax of 18 percent is paid when the oil price is greater than $50/bbl.

Facilitation fee is paid on all oil, excluding the first tranche, at a cost of 2.70/bbl escalating at five percent per year.

The following license fees are to be paid to Petrotrin:

License rent $4.25/ha Escalated at 6% per year

Surface rental $6.25/ha Escalated at 6% per year

Training fee $7,360 Escalated at 6% per year

R&D fee $7,360 Escalated at 6% per year

Scholarship fee $50,000 No escalation

CERP receives a netback per barrel produced. The oil is owned by the Government of Trinidad & Tobago not CERP so your idea of CERP selling Goudron oil outside of the IPSC agreement is fanciful at best.

Petrotrin is the state oil company and the IPSC agreement is between CERP and Petrotrin. Royalty rates and SPT are determined by the Ministry of Finance. Whether or not there will be any changes as part of the restructuring of Petrotrin is speculative. The budget for 2018/2019 was announced on Monday and the tax regime as it affects CERP was unchanged. SPT and royalty rates were not even mentioned in the budget.

Petrotrin is the interface between the government and CERP so what happens to Petrotrin will have some knock on effect. Maybe the transformation of Petrotrin will be seamless but it has the potential to be chaotic and we should not ignore this possibility and how it could affect cash flows if there is any interruption to normal business.

The situation at Petrotrin should be a matter of concern as CERP receives the bulk of its revenue from Petrotrin.

The OWTU (Oil Workers Trade Union) are in court today trying to get an injunction to prevent the shutdown.

If the worst came to the worst and the government stopped funding Petrotrin then this could impact CERP.

STATE-OWNED oil company Petrotrin has reportedly discovered three acts of sabotage at one of its rural production fields.

The company was thrust into the national spotlight after its board decided to shut down the refinery and retrench all the workers. The company is scheduled to cease operations on November 30.

In a media statement, Petrotrin said at 11.45 pm on Tuesday, production personnel doing routine checks at its Central Los Bajos Field discovered “three incidents” at the North Palo Seco Tank Battery No 1. Investigations later revealed the three incidents were the result of sabotage, it said.

https://newsday.co.tt/2018/10/04/company-claims-sabotage-at-rural-field/

NicotineNelly - exactly so, the government has been looking at the tax regime for the last two years but not seemed to be inclined to make changes to SPT although royalty rates were tweaked. I suspect that the revenue is needed to offset the losses attributable to Petrotrin. Perhaps they will look at this issue again as part of the restructuring.

On Monday, in his budget statement, Imbert said of Petrotrin ...

Madam Speaker, survival of the company was only possible through the non-payment of $3.5 billion in taxes and royalties, in breach of the law, and the procuring of Government Guarantees in the amount of $1.5 billion for loans from financial institutions which have significantly increased the public debt.

This has placed a severe burden on the Treasury and on taxpayers, especially in view of the fact that PETROTRIN
extracts 40,000 barrels per day of taxpayers’ oil, at a value of $6.0 billion per year, for which taxpayers receive NO benefit.

Notwithstanding self-serving and uniformed commentary, the truth is that PETROTRIN is tottering on the brink. Action must be taken now.

As recently as last month, PETROTRIN approached the Ministry of Finance for financial support by way of another Government guarantee in the amount of US$56.0 million, or TT$380.0 million, to purchase a cargo of crude oil, since the shipper refused to discharge the cargo without a guaranteed letter of credit.

And just last week, PETROTRIN approached the Ministry of Finance for more financial support to refinance debt instruments totalling a further US$180.0 million (TT$1.2 billion) as they become due for payment.

To put things into perspective, it must be underscored that the PETROTRIN refinery has been consistently losing over $2.0 billion a year for the last several years, a fact hidden from the public by the previous Government. Indeed, the huge and unsustainable losses in the refinery were being camouflaged by the income from oil production, and concealed through creative accounting and non-payment of taxes, a fact well known for years by all senior personnel at PETROTRIN.

He goes on to say that the cost of termination packages for displaced employees at Petrotrin amounts to $2.6 billion. He believes that the restructured Petrotrin can be successful. Only time will tell on that.

SPT was not mentioned in the 2019 budget on Monday so as it stands the tax regime remains unchanged .

The SPT was originally introduced as a windfall tax kicking in when oil prices reached $50 a barrel or higher. As a result of inflation over the years, together with oil market changes, $50 a barrel is no longer seen as exceptionally high price level. Since the SPT is levied on revenue, not profit, it is seen as particularly onerous. Companies say at prices of under $40 a barrel (as experienced during early 2016) they have difficulty operating profitably. Things begin to improve as prices rise above $40, but in the $50-60 range the extra tax burden of the SPT kicks in and pushes them into a “poverty trap” from which they cannot escape until prices move up beyond the $60 a barrel mark. This creates significant uncertainty over the financial consequences of the eventual oil market recovery. A recovery which sees prices hovering consistently around the $50-60 range would intensify the negative poverty trap effect. For this reason the Energy Chamber of Trinidad and Tobago, which represents companies active in the sector, has been suggesting potential amendments to SPT. One solution might be to taper the tax rate, so that the poverty trap effect is reduced.

At current oil prices (WTI oil was $73.43 per barrel this morning), and with current fuel prices, the fuel subsidy in 2019 is estimated to cost the Treasury $1.5 billion, Madam Speaker money which we simply do not have.

Painful as it is, we must reduce this cost, otherwise it will threaten our ability to provide medicine and healthcare in our hospitals, pensions, subsidized public transport, subsidized housing, social services, subsidized water and electricity rates and free education, among many other public goods and services.

Madam Speaker, it should also be noted that if oil prices remain above $70 in the coming year, the fuel subsidy will exceed $1.5 billion in 2019, if there is no adjustment to the retail prices of fuel at the pump. It must also be emphasised that rising oil prices do not benefit us in the way that they should, because PETROTRIN, which produces almost 60.0 percent of the country’s oil, simply does not pay its taxes or royalties, and thus makes no positive contribution to the Treasury at this time.

It is also noteworthy that when the importation of fuel begins within the next few months, the diesel fuel sold in Trinidad and Tobago at a heavily subsidized price will be of a much higher quality than the diesel produced by the PETROTRIN refinery, with a substantially lower sulphur content.

Source: Ministry of Finance Budget Statement 2019

Royalties Changed

A sign of the government’s willingness to review the fiscal regime came in March 2016, when officials agreed to modify the royalty structure for the small onshore Goudron oil field, operated by LGO Energy and the Morne Diablo, Beach Marcelle and South Quarry fields, operated by Range Resources. Changes were possible because of the type of farm-out and work-over contracts held by the two firms, which permit variation of fiscal terms. This differs from the majority of contractual arrangements, where the terms are applied uniformly to all operators and modifications require parliamentary approval. In the case of Goudron, the royalty rate was cut by 40% to under 10% when international oil prices are below $50 per barrel.

LGO Energy’s chief executive Neil Ritson said that the change was equivalent to a 10% reduction in costs at less than $50 per barrel and that “LGO has responded by increasing the level of ongoing investment… and this will be good for the company, its investors and for Trinidad generally”.

“The reduced overriding royalty rates are particularly encouraging for operators like Range who are committed to growing their production in Trinidad over the coming years and are a welcome incentive introduced by Petrotrin during this period of sustained lower commodity prices,” said a statement from Range Resources released in May 2016, adding that the net revenue benefit on a production rate of 2500 bpd would be around 7%.
Fiscal Management

Industry executives suggest additional tax and contractual changes might improve industry performance for the benefit of all stakeholders. They note that there can be important differences in the geology of different oil and gas fields, and that applying the same fiscal regime uniformly to most of them may not be the best way to maximise investment and production.

Oil and gas companies active in particular basins usually focus on developing the largest fields first. The fiscal regime that encourages them to do that may need to be modified to incentivise them or others who may come in after them, to develop the smaller fields in a subsequent phase. It is suggested that one way of doing this might be to transfer some operations from production sharing contracts to more flexible exploration and production licences.

https://oxfordbusinessgroup.com/overview/new-formula-recently-elected-government-promising-reforms-observers-are-optimistic-country-can-adapt

It will be interesting to see if there are any significant tax changes in the upcoming budget.

This from 2016 ...

Tax Changes Sought

One priority for the industry now is to attempt to ameliorate conditions during the current low-price environment. A number of oil and gas companies have complained that, at the current low level of international prices, the Supplementary Petroleum Tax (SPT) has become a marked disincentive to their operations.

The SPT was originally introduced as a windfall tax kicking in when oil prices reached $50 a barrel or higher. As a result of inflation over the years, together with oil market changes, $50 a barrel is no longer seen as exceptionally high price level. Since the SPT is levied on revenue, not profit, it is seen as particularly onerous. Companies say at prices of under $40 a barrel (as experienced during early 2016) they have difficulty operating profitably. Things begin to improve as prices rise above $40, but in the $50-60 range the extra tax burden of the SPT kicks in and pushes them into a “poverty trap” from which they cannot escape until prices move up beyond the $60 a barrel mark. This creates significant uncertainty over the financial consequences of the eventual oil market recovery. A recovery which sees prices hovering consistently around the $50-60 range would intensify the negative poverty trap effect. For this reason the Energy Chamber of Trinidad and Tobago, which represents companies active in the sector, has been suggesting potential amendments to SPT. One solution might be to taper the tax rate, so that the poverty trap effect is reduced.

Richard Jeremie, chief technical officer at the ministry of energy, told OBG, “the government is setting up a committee to review the taxes and incentives that currently exist. The new government has recognised that in the current low-price environment a review is needed; we also need to examine what happens to the SPT as prices begin to go up.” While the government would be reluctant to see any further reductions in its revenues from the energy sector, Jeremie noted that it also had a strong interest in finding ways to incentivise private sector companies to boost production and investment.

Colm Imbert, minister of finance, set out that position earlier in his first presentation of the fiscal year 2016 budget in October 2015, when he committed the government to “a new and appropriate fiscal regime designed to encourage further exploration in fields on land, on shallow and on deepwater acreage”. In his April 2016 mid-term budget speech the minister said the review would be extended further to include the tax regimes for marginal fields and areas of so-called “stranded gas”. The statement marks a shift in previous thinking on taxes.