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THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO Oil & Gas Contracts in the
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
Oil & Gas Contracts
in the
Upstream Petroleum Sector
in
Trinidad and Tobago
EITI Forum, 26 th Sept 2011
Agenda THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO A.   Oil & Gas
Agenda
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
A.   Oil & Gas Contracts: An EITI PerspecBve
B.   IntroducBon
C.   LegislaBve Framework
D.   Contractual Framework
E.   Current Fiscal framework
F.   Access to Resources
i.   CompeBBve Bid Rounds
ii.   Its Benefits and ObjecBves
G.   Development of Contractual Arrangements
H.   Fiscal/Tax Arrangements
I.   Conclusion
THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO Oil & Gas Contracts: An EITI
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
Oil & Gas Contracts: An EITI
PerspecHve
q   The enBre chain of managing extracBve industry resources
is important—from how access to those resources is
granted, to monitoring opera5ons, to collec5ng taxes, to
sound macroeconomic management and distribu5on of
revenues, and to spending resources effec5vely for
sustainable growth and poverty reduc5on.
q   One of EITI’s major steps is expanding the scope of the
iniBaBve to achieve transparency in contracts and licences
for producBon and exploraBon.
Introduction THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO q   Governing the operations
Introduction
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q   Governing the operations and management of
upstream oil and gas sector in Trinidad and
Tobago are as follows:
q  Legislative (Regulatory) Arrangements
q  Contractual /Licensing Arrangements
q  Fiscal Arrangements
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Legislative Framework v  Petroleum Act and Regulations Chap. 62:01 •  Regulations effective from 1969 and
Legislative Framework
v  Petroleum Act and Regulations Chap. 62:01
•  Regulations effective from 1969 and Act enacted in 1970 to monitor and
regulate the oil industry
v  Petroleum Production Levy and Subsidy Act
Chap. 62:02
•  Payment made by oil producers to offset subsidy of petroleum products in
T&T
v  Environmental Management Act (EMA) 2000
•  Responsible for the management of the environment
•  Certificate of Environmental Clearance
v  Occupational, Safety and Health Act (OSHA)
•  Monitor and regulate health and safety standards within organizations
Contractual/Licensing Framework Ø  Exploration and Production Licences - Exploration Licence; E & P (Public
Contractual/Licensing
Framework
Ø  Exploration and Production Licences
- Exploration Licence; E & P (Public Petroleum or Private Petroleum Rights)
Ø   Production Sharing Contracts
- 1974 Model
- 1995 Model (Developed by World Bank)
- 2005/6 Taxable Model PSC Model
Ø   Farmout Agreements
- introduced for the exploration and exploitation of small inactive blocks
- full acreage is leased to the farmee
Ø   Lease Operatorship Agreements
- Introduced for the reactivation of idle wells
- Lessor derives an over-riding royalty from the crude oil sold
- oil and gas reserves are booked by Lessor
Current Fiscal Framework v  Petroleum Taxes Act Chap. 75:04 Ø  Petroleum Profits Tax (50% of
Current Fiscal Framework
v  Petroleum Taxes Act Chap. 75:04
Ø  Petroleum Profits Tax (50% of Chargeable Profits)
Ø  Supplemental Petroleum Tax
v  Income Tax in Aid of Industry Act Chap. 85:04
Ø  Capital Allowances
v  Unemployment Levy Act Chap 75:03
Ø  (5% of Chargeable Profits before loss offset)
v  Income Tax Act Chap 75:01
Ø  Withholding Tax
v  Green Fund Levy (0.1% on gross sales or receipts)
v  Foreign Investments Act Chap. 70:07
THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO How Is Access Granted to the
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
How Is Access Granted
to the Resources
CompeHHve Bid Rounds
EvaluaHon Process
&
NegoHaHon Process
Of Bids
CompeHHve Bid Order, CBO Ø  CBO clearly outlines the terms and condiHons under which companies
CompeHHve Bid Order, CBO
Ø  CBO clearly outlines the terms and condiHons under
which companies are to submit bids for such categories:
Ø   Work Programmes ,
Ø   Share of Profit Petroleum and
Ø   Technical & Financial Ability
Ø  The point allocaHon for the respecHve areas
Ø  Time frame for submission and approvals
Ø  Model ProducHon Sharing Contract
Ø  Prior to the closure of a bid round, Cabinet approves the
establishment of the establishment of two commiQees:
Ø  Technical CommiQee (Technocrats from the Ministries of Energy,
Finance, and Central Tenders Board)
Ø   Overview CommiQee (Ministers and Advisors)
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Benefits of 2010 Bid Process Ø   CompeHHve environment Ø   Greater transparency and clarity,
Benefits of 2010 Bid Process
Ø   CompeHHve environment
Ø   Greater transparency and clarity, so that potenHal
investors will be able to evaluate themselves
Ø   Shorter process Hme.
Ø   Less complexity. ReducHon of biddable items to two/
three with other items being fixed in the contract
Ø   PrequalificaHon of bidders, so that companies are aware
to their status either as PotenHal Operators or not
Ø   NominaHon of blocks, so that companies can indicate
their areas of interest (Final decisions rest with MEEA)
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ObjecHves A.   To determine the bidder that presents the best proposal that: 1.  
ObjecHves
A.   To determine the bidder that presents the best
proposal that:
1.   Offers an opHmal work programme with respect to
1.   Amount and quality of seismic data and other
geophysical data
2.   Drilling programme i.e. the number of wells and depth of
each well
2.   Maximizes the revenues to the Government via its proposals
with respect to GORTT’s Share of Profit Petroleum (Crude Oil
and Natural Gas)
3.   Is technically experienced and financially equipped to
undertake the required exploraHon programmes
FuncHons of Technical CommiQee Ø   Detailed Point AllocaHon system Ø   Bids are opened
FuncHons of Technical CommiQee
Ø   Detailed Point AllocaHon system
Ø   Bids are opened
Ø   Formal presentaHons of bid proposals are made by
companies
Ø   ClarificaHon on some maQers, if required, is requested of
bidders
Ø   Evaluate and analyze bids
Ø   Final Report prepared and sent to Overview CommiQee
FuncHons of Overview CommiQee Ø  Overview CommiWee considers the Technical EvaluaBon’s Report and makes
FuncHons of Overview CommiQee
Ø  Overview CommiWee considers the Technical
EvaluaBon’s Report and makes recommendaBons
Ø  Its recommendaBons together with the report from
the Technical CommiWee are forwarded to Cabinet
FuncHons of Cabinet Ø  Final decisions with respect to successful or unsuccessful bidders are taken
FuncHons of Cabinet
Ø  Final decisions with respect to successful or
unsuccessful bidders are taken by Cabinet.
Ø  Ministry of Energy noBfies companies of their status,
whether successful, unsuccessful or given an
opportunity to improve its bid offer to GORTT
Development of Petroleum Contractual Arrangements In Trinidad and Tobago 15
Development of Petroleum
Contractual Arrangements
In
Trinidad and Tobago
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History of Contractual/Licensing Regime Concession / (Tax/Royalty) / E&P Type Agreement Ø  The concession
History of Contractual/Licensing Regime
Concession / (Tax/Royalty) / E&P Type Agreement
Ø  The concession agreement is the direct descendent, in the international arena, of the
original Drake Lease in Pennsylvania. It is the first type of contract used internationally
and still persists today.
Ø  In the early concessions, the contractor undertakes exploration, drilling and
development at its sole risk and cost
Ø  Title to the mineral rights is held by the contractor under a concessionary system
Ø  Revenue to the host government is paid via rentals, taxes and royalties – seldom in oil
Ø  Lost popularity as nationalism grew or countries sought to take charge of their natural
resources
History of the Production Sharing Contract THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO
History of the Production Sharing Contract
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q   In 1960, Indonesia Law No. 44 promulgated the Production Sharing
Contract (PSC). The first PSC was signed in Indonesia with Mobil in 1966.
Amoco followed shortly after in Egypt.
q   PSCs differ from concessions in that the state retains title to the minerals
throughout exploration development and production.
q   The company contracts with the government for a share of production of oil
and gas, as payment for costs incurred, a return on its investment and/or
services provided
q   PSCs vary widely as these are negotiated between the companies and
governments.
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1900 – 1970’s Oil Mining Leases / E&P Licences Ø  Limited or no management by
1900 – 1970’s
Oil Mining Leases / E&P Licences
Ø  Limited or no management by host governments
Ø  Royalties
Ø   Depreciation
Ø   Consolidation
Ø   Long concession periods (Option to renew for
further 30 years)
Ø   Large contract areas granted
Ø  No relinquishment
1970’s – Mid 1990’s PSCs E&P Licences v   Petroleum Profits Taxes Act v  
1970’s – Mid 1990’s
PSCs
E&P Licences
v   Petroleum Profits Taxes Act
v   Supplemental Petroleum Taxes
v   Petroleum Production Levy &
Subsidy Act
v   Unemployment Levy Act
amended (oil & gas companies)
v   Royalties
v   Capital Allowances
v   Consolidation
v   Fiscal Incentives (Downstream
Plants)
v   No relinquishment
v   First signed in 1974
v   No Cost Recovery
v   Gov’t took % share based
on production
v   Ring-fenced
v   Contractors’ Taxes paid out
of Gov’t Share
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Mid 1990’s – Mid 2000’s 1995 PSC Model v  New Model E&P Licences- 2005 v
Mid 1990’s – Mid 2000’s
1995 PSC Model
v  New Model E&P
Licences- 2005
v   Cost Recovery introduced
v   GORTT Shares in Profit
Petroleum
v   Contractors taxes paid out of
GORTT’s Share
v   Minimum Work ObligaHons
v   Holding Fee
v   Clear Provisions for Natural Gas
v   Financial ObligaHons- Signature
Bonus, R&D, Training, Technical
Equipment
v  Relinquishment Provisions
v  Minimum Work
Programmes
v  Tighter Abandonment
Financing Provision
v   Local Content Policy
v   Financial ObligaHons and
Bonuses.
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Mid 1990’s – Mid 2000’s 2005/6 Taxable PSC v  Cost Recovery v  GORTT Shares in
Mid 1990’s – Mid 2000’s
2005/6 Taxable PSC
v  Cost Recovery
v  GORTT Shares in Profit Petroleum oil (in lieu of
royalty, SPT, oil impost, Petroleum Levy)
v   Contractor pays taxes (PPT, UL, & GF)
v   Consolidation – 2 regimes: land/shallow marine and
deepwater
v   Assignment/Transfer Fees
v   Financial Obligations
v   Windfall Profit Feature introduced
v   40% uplift for exploration expenses in deep water
projects
2010 -2011 for PSCs THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO q  ConvenHonal
2010 -2011 for PSCs
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q  ConvenHonal styled PSCs, for Shallow (< 400 m), Average (400<W<1000m) &
Deep(>1000m) water depths
q  Ring-fenced
q  Contractor’s liabiliHes for PPT, UL, SPT, Petroleum Levy, Green Fund Levy to
be made from GORTT’s Share of Profit Petroleum, with excepHon of the
payment of Withholding Taxes and Stamp Duty
q  GORTT to make payments on behalf of Contractor
q  Gross up mechanism will apply instead of propose tax mechanism
q   Financial ObligaHons to be fixed
q  Cost Recovery set at 50%, 55% & 60% for shallow, average and deep water
q  Profit Share matrices opened
q  Profit Shares and work programmes are biddable
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THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO Management of Licences and PSCs q
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
Management of Licences and PSCs
q   EffecHve management, monitoring and
regulatory control of the operaHons of
these licences and PSCs are undertaken by
the MEEA in accordance with the respecHve
terms and condiHons
Fiscal/Tax Arrangements 24
Fiscal/Tax Arrangements
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Fiscal Features THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO q  All companies operating
Fiscal Features
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q  All companies operating under E&P as well as
PSCs are required to file their tax returns and
meet all fiscal obligations in respect of SPT, PPT
UL, Royalty, Green Fund Levy and Withholding
Tax.
q  In the case of the majority of PSCs, the
companies’ tax obligations are met from
GORTT’s Share of Profit Petroleum.
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THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO Taxes/Levies Administered by Ministry of Finance
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
Taxes/Levies Administered
by Ministry of Finance
Crude
Gas
Taxes applicable
Rate
Income
Income
Supplemental Petroleum Tax
Sliding Scale
Petroleum Profits Tax
50% / 35%
Unemployment Levy
5%
Green Fund Levy
0.10%
Withholding Tax
5%
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THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO Taxes/Levies Administered by Ministry of Energy
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND
TOBAGO
Taxes/Levies Administered
by Ministry of Energy
Crude
Gas
Taxes applicable
Rate
Income
Income
Petroleum Impost
Petroleum Levy
4%
Royalty - Crude
10% - 12.5%
Royalty - Gas (Current)
0% - 15%
Royalty - Gas (New)
10% - 15%
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Basic Structure PSC Gross Revenues: Total Revenues Concessionary Gross Revenues: Total Revenues Less Less Costs:
Basic Structure
PSC
Gross Revenues: Total Revenues
Concessionary
Gross Revenues: Total Revenues
Less
Less
Costs: (As defined under the Accoun0ng
Procedure of the PSC)
Costs: (As defined under the PTA and
Income In Aid)
(OperaBng, ExploraBon, DepreciaBon
AdministraBve costs, Unrecovered costs (C/F))
(OperaBng, SPT, Royalty, ExploraBon, Levy, Depr,
AdministraBve costs, Unrecovered costs (C/F))
(Costs limited as % of Revenues)
Net Taxable Profits
Profit Petroleum
PPT &UL
55%
As per Profit
Share Matrix
45%
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GORTT Take Gross Take from PSCs < Gross Take from Concessionary Arrangements ü  Share of
GORTT Take
Gross Take from
PSCs
<
Gross Take from
Concessionary
Arrangements
ü  Share of Profit
Petroleum
ü  Financial Obligations
ü  Withholding Tax*
=
* (Where excluded in some
PSCs)
ü  Royalty
ü  SPT
ü  UL
ü  Petroleum Levy
ü  Oil Impost
ü  Green Fund Levy
ü  Withholding Taxes
>
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Audit Provisions THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO q   All fiscal
Audit Provisions
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q   All fiscal arrangements of companies are audited for
accuracy, compliance and revenue generaBon:
q   In the case of E&P operaBons this is undertaken by the
Ministry of Finance
q  In the case of PSCs, this is undertaken by the Audit Unit
within the Ministry of Energy & Energy Affairs
q   The Ministry of Finance through, the Permanent
Petroleum Pricing CommiWee can review and
determine fair market values in respect of non-arms
length transacBons.
Conclusion THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO q  Oil & Gas contracts
Conclusion
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
q  Oil & Gas contracts for the upstream sector are
managed under legislaBve, contractual and fiscal
frameworks that provide for transparency and
clarity.
q  ConBnuous review and revision of these frameworks
ensure that current and industry best pracBces are
adopted to improve the overall management and
sustainability of the sector
THE GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO THANK YOU 32
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO
THANK YOU
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