T&T strengthens laws to extract greater profits from oil and gas sector

Jun 06, 2022 News

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By Davina Bagot

Kaieteur News – Guyana’s fellow Caribbean Community (CARICOM) member state, Trinidad and Tobago, has progressed on amending its fiscal policy for the oil and gas sector, to ensure the country remains competitive and enjoys the benefits of its natural resources.
The Minister of Energy and Energy Industries, Stuart Young, during the twin island’s Energy Conference, hosted at the Hyatt Regency in Port of Spain between May 31 and June 2, last provided an update on the policy being pursued.

According to the Minister, “In the 2022 National Budget the Minister of Finance announced that the Ministry of Finance in consultation with the Ministry of Energy and Energy Industries would be undertaking a review of the fiscal regime for the upstream petroleum sector to ensure this country’s competitiveness , with emphasis on three main petroleum taxes, namely Petroleum Profits Tax, Supplemental Petroleum Tax and Royalty, both onshore and offshore, in the deep water and shallow water, for large and small producers.”
To this end, he explained that the process commenced by inviting proposals from stakeholders in the energy sector. Already, these proposals have been evaluated and an amended fiscal policy is being drafted for the country’s Cabinet consideration. “On completion of this process, it is intended to put in place a fiscal regime which maintains Trinidad and Tobago as a competitive and preferred location for upstream investment. We recognize the need to be a competitive province in a global energy environment where the fight for capital expenditure is becoming more difficult,” Young explained to conference delegates.
During the opening ceremony of the T&T Energy Conference, Prime Minister, Keith Rowley said that he will be going after better petroleum profits tax, supplemental petroleum tax and better royalty rates, which will be applied to all onshore, shallow water and deepwater projects.
Expounding on this latest development, he said, “Unrealised potential is of no value to anyone, not to the resource owners that are the people of Trinidad and Tobago or to interested investors if that resource remains out of reach, undeveloped or unexploited. Accordingly, Government has been in dialogue with upstream companies to expedite Final Investment Decision for known reserves.”
Dr. Rowley continued, “As regards potential and undeveloped resources, the Government has been soliciting proposals from upstream operators on the incentives required to stimulate activity for the exploitation of these resources.”
The United Kingdom recently slapped its oil companies with a one off windfall tax of 25 percent on all oil companies operating in that jurisdiction in order to also partake in the sweeping profits being had by the operators as a result of the escalating oil price on the world market due in large part to the war being waged between Russia and Ukraine.
As such, the US is looking to follow suit, having already hiked its royalty payable by oil companies there to above the 18.75 percent in December last. Through a proposed legislation, namely the Federal Gas Tax Suspension and Windfall Profits Tax Act, government will suspend the federal gas tax – which currently stands at 18.3 cents per gallon – through December 31, 2023.
It was noted that to ensure the Highway Trust Fund is still robustly funded, the suspension would be paid for through a new 50 percent tax on Big Oil’s windfall profits.
Meanwhile, British Columbia (B.C.), Canada’s westernmost province, appears to be following in the footsteps of the United States of America (USA) as it has announced that it will be increasing royalty rates to raise additional money annually for its people.
Kaieteur News understands that the changes came after it was found that the royalty system was failing the people of British Columbia. This newspaper learned from the Vancouver Sun—a daily newspaper which dates back to 1912— that royalties had topped a billion Canadian dollars a year for almost a decade starting in 2000, largely from natural gas. Gas royalties then peaked in 2005/06 at CAD$1.92 billion, but by 2010 royalties had plummeted to sometimes less than CAD$150M, even though gas production was rising.
In light of the deep losses, the government said a new minimum royalty rate of five percent will replace the old rate of three percent.
The new rate will be in effect while companies pay off costs of newly drilled wells. Once that point has been reached, the royalty rates will slide between five to 40 percent, depending on the price of natural gas.
While governments across the world take such measures to ensure the benefits of the natural resources trickle down to its people, Guyana’s leaders have been holding onto the sanctity of the 2016 Petroleum Agreement in which it merely receives two percent royalty from oil proceeds, along with a 50/50 profit sharing split but not before 75 percent of earnings is deducted as cost oil.

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