MINISTER OF ENERGY KEVIN RAMNARINE
The matter for the consideration of Cabinet is the oral reply to Question 42 of the Fourth Session (2013/2014) of the Tenth Parliament asked by Senator the Honourable David Small.
The text of Question 42 to the Honourable Minister of Energy and Energy Affairs is as follows:
With regard to increased exploration activity and production, could the Minister inform this Senate?
(a) of the results/benefits and the expected outlook as a direct result of the incentives instituted in the past 2 years aimed at stimulating the increase in oil and gas production;
(b) of the Government’s position as to the efficacy of the measures at (a) above to date, in relation to the companies who have directly gained benefits and the concomitant gains to the state (if any); and
(c) whether the efficacy of the application of the measures at (a) above are being reviewed, and if so, how often and what reports, etc., have been generated as well as the key findings of such reports (if any exist)?
The Minister of Energy and Energy Affairs submits the following reply to Question 42:
Response to Question 42 (a)
Mr. President the question confirms what is obvious and that is that there has been a dramatic increase in exploration and production related activity in the oil and gas industry. This increase represents a turnaround in the upstream component of the energy sector which is the engine of the national energy sector.
Mr. President this administration in recognition of the urgent need to make the upstream component of the energy sector more competitive in the face of a rapidly changing world and external forces over which we have little or no control embarked on a strategy to reform the fiscal regime that governed the energy sector.
This effort was led by the Ministries of Finance and the Economy and Energy and Energy Affairs and was implemented by distinguished public servants at both these Ministries. In the last four years the Minister of Finance has imposed no new taxes nor has he increased taxes on the energy sector.
Mr. President, energy industry leaders have told me that the changes of the last four years should have been implemented a decade ago but there was stasis and ambivalence in energy policy for the period 2002 to 2010.
The restructured capital allowances and revised taxation regime as it relates to harmonization of SPT rates, allowances for mature fields, allowances for enhanced oil recovery provided over the period 2010 to 2014 have led to increased investment in the energy sector, increased activity and increased revenue from taxes.
Mr. President what are the facts? In 2010 there was 1 rig drilling in the waters around this country and by the end of 2013 there were 8 rigs drilling in our waters. Mr. President as a consequence both our main helicopter transport companies, National Helicopter and Bristow are in growth mode and are ordering new helicopters.
Mr. President, in 2010 the total number for rig days was 1332. In 2012 that number more than doubled as it increased to 2788. The increase in rig days translated into increased drilling activity which increased from 185,238 feet in 2010 to 381,164 feet in 2012.
Changes in the cost recovery rates as it relates to deepwater production sharing contracts have now opened up to exploration. Between 2012 and 2013 the Minister of Energy and Energy Affairs signed seven deepwater production sharing contracts with a collective work programme valued at $1.9 billion US dollars. Mr. President I invite Senators to read a copy of the Sydney Morning Herald of December 14 2013 to get an appreciation for how this country has moved forward.
Foreign Direct Investment grew from US$549 million in 2010 to US$2.5 billion in 2012. The increase in investment has led to new discoveries of oil and gas, such as:
- The EG8 discovery by Bayfield (now Trinity) of some 28 million barrels of oil in March 2012
- The Jubilee discovery by Petrotrin of some 48 million barrels of oil in March 2012
- The Savonette 4 discovery by BP of one trillion cubic feet in Octobber 2012
- The TGAL 1 discovery by Trinity in November 2013 which has estimated reserves of 50 million to 115 million barrels of oil.
In 2013 oil production averaged 81,200 bopd. This is a decline over the 2012 figure of 81,700 bopd by 0.7%. This compares to an average decline of 8.7% per annum for the period 2006 to 2012. This means that we have for all intents and purposes stabilized the decline in oil production. Taxes from oil and gas have increased from $17.8 billion in 2010 to $20.1 billion in 2013. These figures do not take into account corporation tax paid by companies at Point Lisas.
Response to Question 42(b)
Mr. President part (b) of the questions asks for “Government’s position”. This seems to be soliciting an opinion which is not in keeping with Standing Order 18(1) (h). Nevertheless I will provide an answer.
Fiscal incentives were aimed at attracting new investment in both onshore and marine blocks, in mature and marginal oil fields and in the development of proved reserves. The introduction of the restructured capital allowances and new fiscal incentives for supplemental petroleum tax and petroleum profits tax have been vindicated by the activity generated in the sector, the success of bid rounds both onshore and in marine areas, new discoveries and the increase in revenue from taxes.
The incentives provided have led to a major OBC (Ocean Bottom Cable) 3D seismic programme by the country’s largest natural gas producer BP which the preliminary results of which are with the Ministry of Energy and Energy and are extremely encouraging.
The incentives provided have led to an aggressive period of drilling by Repsol in its TSP acerage. At present two of the eight rigs in this country are working for Repsol these are the Rowan Gorilla III and the Seadrill West Freedom.
Response to Question 42 (c)
The impact and relevance of the fiscal measures are reviewed annually by a Petroleum Fiscal Review Committee comprising officials of the Ministry of Energy and Energy Affairs and the Ministry of Finance and the Economy. The mandate of the Committee is to review and make recommendations with respect to the fiscal regime for the petroleum sector to ensure this country remains globally competitive as well as to propose measures that would stimulate exploration and development on land and marine areas.