What percentage of energy sector revenue comes from oil?

Updated On: Jan 7th 2015

A note from Dax Driver, CEO of the Energy Chamber:
7th January 2014

The estimates of Government revenue from the Trinidad & Tobago energy sector for the 2013-14 financial year were set at TT$ $21.223 billion, using an oil price of US$ 80 and a wellhead gas price of US$ 2.75. We know what has happened to oil prices and the fact that they are significantly below the budgeted prices. But to what extent will these lower oil prices have effected overall revenue, given the fact that we produce about nine times more gas than oil on an energy equivalency basis? My estimate is that about a third of the energy sector revenue comes from oil.

Determining the relative share of oil versus gas revenue can never be more than an estimate, given that companies pay most taxes based on profits rather than production, or on a split of profit from production sharing contracts. Luckily we now have much more data available about energy sector revenue because of the excellent and detailed data available in the reports of the Trinidad & Tobago Extractive Industries Transparency Initiative (available at www.tteiti.org.tt).

As an aside, the Energy Chamber has been a long-term advocate for Trinidad & Tobago to become EITI compliant and I am a past member of the national steering committee, on which we are still represented. A former member of my staff, Sherwin Long, is now running the T&T EITI Secretariat. We always supported the EITI precisely because we felt it would give people in the country access to the sort of data I have used in this analysis. As a further aside, the global Chair of the EITI, Clare Short, will be a feature speaker at the T&T Energy Conference on the 26 – 27 January 2015.

The T&T EITI report for 2011-12 financial year (the most recent publication) shows that the total energy sector revenue in that year was TT$ TT$ 20.9 billion. The annexes to the T&T EITI report give very specific data about the revenue payments of each company and the specific categories of taxes, royalties, dividends or fees paid by the company. For the production sharing contracts the T&T EITI report breaks-down the revenue for each specific company set-up for each PSC. The biggest tax payer in 2011-12 was bpTT (41%), followed by the National Gas Company (14%).

Using the EITI data it is possible to make some estimates of what percent of the total revenue was from gas and what percent from oil. Firstly we can assign all of the Supplemental Petroleum Tax (SPT) to the oil slice, as SPT is only paid on oil and is a production rather than a profit tax. SPT accounts for 11% of the total pie.

We can also add all the revenue received from companies who only produce oil (and those who produce minuscule amounts of gas). We can also assign NCMA related payments to the gas side of the ratio, as this is dry gas production with little condensate. This takes the “oil slice” of the pie up to 23% of the total.

This still leaves 74% of the revenue that comes from companies producing both oil/condensate and gas. For these we need to make some educated guesses. For bpTT, BG (ECMA), EOG Resources and BHPB, I combined production data (from the Ministry of Energy) and published wellhead gas price data to make a determination of what split in those companies revenue came from oil/condensate and what percent from gas. The split per company varies greatly based on their production profile. I then used this split per company to assign the company (non-SPT) tax payments to oil or gas. I know that this is not a particularly accurate method and is based on huge assumptions, but it does at least give some estimate of the importance of gas verses oil to Government revenue.

For the National Gas Company, I assigned some of the revenue to oil based on the specific categories of payments and assumptions I made about the production this would have represented.

The final figure I came out with was 34% from oil and 66% from gas. There is also a small amount of revenue that comes from companies with no production (in the exploration phase). This relates to commitment fees and other payments under the PSCs.

This is a very rough and ready “back of the envelope” calculation, but it does highlight the continued importance of oil to government revenue.