THE

GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Oil & Gas Contracts

in the
Upstream Petroleum Sector
in
Trinidad and Tobago

EITI Forum, 26th Sept 2011

Agenda

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

A.
B.
C.
D.
E.
F.

Oil & Gas Contracts: An EITI PerspecBve

IntroducBon
LegislaBve Framework
Contractual Framework
Current Fiscal framework
Access to Resources

i.
ii.

CompeBBve Bid Rounds

Its Benets 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

PerspecHve

qThe enBre chain of managing extracBve industry resources

is importantfrom 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 eec5vely for
sustainable growth and poverty reduc5on.

qOne of EITIs major steps is expanding the scope of the

iniBaBve to achieve transparency in contracts and licences
for producBon and exploraBon.

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Introduction

q Governing the operations and management of

upstream oil and gas sector in Trinidad and
Tobago are as follows:
qLegislative (Regulatory) Arrangements
qContractual /Licensing Arrangements
qFiscal Arrangements

Legislative Framework
vPetroleum Act and Regulations Chap. 62:01

Regulations effective from 1969 and Act enacted in 1970 to monitor and
regulate the oil industry

vPetroleum Production Levy and Subsidy Act

Chap. 62:02

Payment made by oil producers to offset subsidy of petroleum products in

T&T

vEnvironmental Management Act (EMA) 2000

Responsible for the management of the environment
Certificate of Environmental Clearance

vOccupational, Safety and Health Act (OSHA)

Monitor and regulate health and safety standards within organizations

Contractual/Licensing
Framework
Exploration and Production Licences
- Exploration Licence; E & P (Public Petroleum or Private Petroleum Rights)

Production Sharing Contracts

- 1974 Model

- 1995 Model (Developed by World Bank)

- 2005/6 Taxable Model PSC Model

Farmout Agreements
- introduced for the exploration and exploitation of small inactive blocks

- full acreage is leased to the farmee

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

vPetroleum Taxes Act Chap. 75:04

Petroleum Profits Tax (50% of Chargeable Profits)

Supplemental Petroleum Tax

vIncome Tax in Aid of Industry Act Chap. 85:04

Capital Allowances

vUnemployment Levy Act Chap 75:03

(5% of Chargeable Profits before loss offset)

vIncome Tax Act Chap 75:01

Withholding Tax

vGreen Fund Levy (0.1% on gross sales or receipts)

vForeign Investments Act Chap. 70:07

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

CBO clearly outlines the terms and condiHons under
which companies are to submit bids for such categories:

Work Programmes,

Share of Prot Petroleum and

Technical & Financial Ability
The point allocaHon for the respecHve areas

Time frame for submission and approvals

Model ProducHon Sharing Contract

Prior to the closure of a bid round, Cabinet approves the

establishment of the establishment of two commiQees:

Technical CommiQee (Technocrats from the Ministries of Energy,

Finance, and Central Tenders Board)

Overview CommiQee (Ministers and Advisors)

Benets of 2010 Bid Process

CompeHHve environment
Greater transparency and clarity, so that potenHal
investors will be able to evaluate themselves

Shorter process Hme.

Less complexity. ReducHon of biddable items to two/

three with other items being xed in the contract

PrequalicaHon of bidders, so that companies are aware

to their status either as PotenHal Operators or not

NominaHon of blocks, so that companies can indicate

their areas of interest (Final decisions rest with MEEA)
10

ObjecHves

A. To determine the bidder that presents the best

proposal that:

1. Oers 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 GORTTs Share of Prot Petroleum (Crude Oil
and Natural Gas)
3. Is technically experienced and nancially equipped to
undertake the required exploraHon programmes

FuncHons of Technical CommiQee

Detailed Point AllocaHon system
Bids are opened
Formal presentaHons of bid proposals are made by
companies
ClaricaHon on some maQers, if required, is requested of
bidders
Evaluate and analyze bids
Final Report prepared and sent to Overview CommiQee

FuncHons of Overview CommiQee

Overview CommiWee considers the Technical
EvaluaBons Report and makes recommendaBons

Its recommendaBons together with the report from

the Technical CommiWee are forwarded to Cabinet

FuncHons of Cabinet

Final decisions with respect to successful or

unsuccessful bidders are taken by Cabinet.
Ministry of Energy noBes companies of their status,
whether successful, unsuccessful or given an
opportunity to improve its bid oer to GORTT

Development of Petroleum
Contractual Arrangements
In
Trinidad and Tobago

15

History of Contractual/Licensing Regime

Concession / (Tax/Royalty) / E&P Type Agreement
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.
In the early concessions, the contractor undertakes exploration, drilling and
development at its sole risk and cost
Title to the mineral rights is held by the contractor under a concessionary system
Revenue to the host government is paid via rentals, taxes and royalties seldom in oil
Lost popularity as nationalism grew or countries sought to take charge of their natural
resources

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

History of the Production Sharing Contract

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.

17

1900 1970s
Oil Mining Leases / E&P Licences
Limited or no management by host governments
Royalties
Depreciation
Consolidation
Long concession periods (Option to renew for
further 30 years)
Large contract areas granted
No relinquishment

1970s Mid 1990s

PSCs

E&P Licences

vFirst signed in 1974

vNo Cost Recovery
v Govt took % share based
on production
v Ring-fenced
vContractors Taxes paid out
of Govt Share

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

19

Mid 1990s Mid 2000s

1995 PSC Model

v Cost Recovery introduced

v GORTT Shares in Prot
Petroleum
v Contractors taxes paid out of
GORTTs Share
v Minimum Work ObligaHons
v Holding Fee
v Clear Provisions for Natural Gas
v Financial ObligaHons- Signature
Bonus, R&D, Training, Technical
Equipment

vNew Model E&P

Licences- 2005
vRelinquishment Provisions
vMinimum Work
Programmes
vTighter Abandonment
Financing Provision
v Local Content Policy
v Financial ObligaHons and
Bonuses.

20

Mid 1990s Mid 2000s

2005/6 Taxable PSC
vCost Recovery
vGORTT 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

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

2010 -2011 for PSCs

qConvenHonal styled PSCs, for Shallow (< 400 m), Average (400<W<1000m) &
Deep(>1000m) water depths

qRing-fenced

qContractors liabiliHes for PPT, UL, SPT, Petroleum Levy, Green Fund Levy to
be made from GORTTs Share of Prot Petroleum, with excepHon of the
payment of Withholding Taxes and Stamp Duty

qGORTT to make payments on behalf of Contractor

qGross up mechanism will apply instead of propose tax mechanism

q Financial ObligaHons to be xed

qCost Recovery set at 50%, 55% & 60% for shallow, average and deep water

qProt Share matrices opened

qProt Shares and work programmes are biddable

22

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Management of Licences and PSCs

q EecHve 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

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Fiscal Features

qAll 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.
qIn the case of the majority of PSCs, the
companies tax obligations are met from
GORTTs Share of Profit Petroleum.

25

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Taxes/Levies Administered
by Ministry of Finance
Taxes applicable

Crude
Income

Gas
Income

Rate
Sliding Scale
50% / 35%
5%
0.10%
5%

Supplemental Petroleum Tax

Petroleum Profits Tax

Unemployment Levy
Green Fund Levy
Withholding Tax

26

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Taxes/Levies Administered
by Ministry of Energy
Taxes applicable

Crude
Income

Gas
Income

Petroleum Impost
Petroleum Levy
Royalty - Crude
Royalty - Gas (Current)
Royalty - Gas (New)

Rate
4%
10% - 12.5%
0% - 15%
10% - 15%

27

Basic Structure
PSC

Concessionary

Gross Revenues: Total Revenues

Less

Costs: (As dened under the Accoun0ng

Procedure of the PSC)

(OperaBng, ExploraBon, DepreciaBon

AdministraBve costs, Unrecovered costs (C/F))

Gross Revenues: Total Revenues

Less

Costs: (As dened under the PTA and

Income In Aid)

(OperaBng, SPT, Royalty, ExploraBon, Levy, Depr,

AdministraBve costs, Unrecovered costs (C/F))

(Costs limited as % of Revenues)

Profit Petroleum
As per Prot
Share Matrix

Net Taxable Profits

PPT &UL
55%

45%

28

GORTT Take
Gross Take from
PSCs
Share of Profit
Petroleum
Financial Obligations
Withholding Tax*
* (Where excluded in some
PSCs)

<


=


>

Gross Take from

Concessionary
Arrangements

Royalty
SPT
UL
Petroleum Levy
Oil Impost
Green Fund Levy
Withholding Taxes

29

Audit Provisions
THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

q All scal 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
qIn the case of PSCs, this is undertaken by the Audit Unit
within the Ministry of Energy & Energy Aairs

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.

THE GOVERNMENT OF
THE REPUBLIC OF
TRINIDAD AND TOBAGO

Conclusion

qOil & Gas contracts for the upstream sector are

managed under legislaBve, contractual and scal
frameworks that provide for transparency and
clarity.

qConBnuous 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

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