Juniper’s first gas date has been three years in the making. BP approved the project in mid-2014 and TOFCO started construction of the platform in November 2014. Its approval was predicated on many factors. The largely misunderstood accelerated capital allowances that were in the Finance Bill of 2014 played no small role. When it is up to its full production capacity, Juniper will produce 590 million cubic feet of natural gas per day which is an 18% increase in natural gas production. That is a significant increment of natural gas which will effectively end the recession albeit temporarily.
There has been much criticism of the fiscal incentives that were put in place during my tenure as Minister of Energy. Had the Government not intervened between 2011 to 2014 and made major changes to the fiscal regime we would not have a Juniper project nor would we have had the recently celebrated exploration success.
The Prime Minister is not a fan of these incentives. He is of course entitled to that opinion. On his return from Chile he said, “We disagree fundamentally with what they call incentives. We told BP (in Houston) that had the Government of Trinidad and Tobago been a People’s National Movement Government there was no way we would agree to that.” The Prime Minister perhaps forgot that the then PNM Opposition voted for these incentives on April 5th, 2014. In fact, during debate on that Finance Bill, on April 4th, 2014, the MP for Diego Martin North East (now Minister of Finance) said, “it is about time these fiscal incentives were put in place.” It is also noteworthy that while the PNM Government publicly disagrees with the accelerated capital allowances, they have left them on the statue books for 21 months.
The accelerated capital allowances and other major fiscal incentives are responsible for the upsurge in drilling and exploration activity in recent years. The Minister of Finance admitted as much when he spoke during the mid-year review on April 8th, 2016. In that speech he said, “The incentives, Madam Speaker, did what they were supposed to do, they stimulated investment. But the flip side of that is that with depressed oil prices these oil companies are now paying no income tax to the Government in fiscal 2016.”
On this issue Mr. Imbert is right and wrong. He is right that the incentives stimulated investment. On the issue of its impact on taxes he is inaccurate. It is a fact that some major oil and gas companies have not paid much taxes in 2015 and 2016. However, that has more to do with low prices and the fact that they recorded losses in 2015 and 2016. A company making losses has no profit and hence no “taxable income” against which they can apply capital allowances. So, the accelerated capital allowances did their job. They stimulated investment but should not be blamed for lower taxes from oil and gas companies.
What about Government revenue going forward in fiscal 2018? The Minister of Finance should know that there is the concept in tax of “carry forward losses”. This means companies can carry forward losses into the future, use them to lower taxable income and pay less taxes. Provision is made for this in Section 16 of the Income Tax Act. This will no doubt affect our revenue forecast for 2018 as Petroleum Profits Tax (PPT) are likely to be impacted by carry forward losses.
The other major tax in the oil and gas sector is Supplemental Petroleum Tax (SPT). This is calculated as a percentage of gross revenue and is only payable if oil prices average above $US 50 per barrel for an entire quarter. Some experts believe that oil is unlikely to get much higher than $US 50 per barrel anytime soon. The Minister of Finance should therefore not count on receiving any SPT in fiscal 2018. He has, in fact, received very little SPT in fiscal 2017 thus far.
In this low-price environment companies are in survival mode. The oil and gas industry is cyclical – feast or famine. With these low prices, it is difficult to contemplate how Petrotrin could survive without borrowing to fund operating expenditure. Petrotrin has one of the world’s highest breakeven cost for producing a barrel of oil. Any plan to address the future of Petrotrin must provide strategies for managing its costs downward.
Juniper’s first gas is much welcomed. I commend the work of BP but a lot more remains to be done if we, as a nation, are to weather the gathering storm.
FORMER MINISTER OF ENERGY AND ENERGY AFFAIRS, TRINIDAD AND TOBAGO
June 28 2017