Mr Norman Christie, Regional President, BP Trinidad and Tobago.
A year ago I stood before you and said that our industry should not let a downturn go to waste. My colleagues from the Energy Chamber also addressed lower commodity prices during their speeches. I know that not everyone heard the message though, because I have recently fielded questions from several individuals asking why no one had mentioned the storm in the industry until a few weeks ago. Well, whether people heard before or not, the truth is we still have the opportunity to take advantage of the downturn because it continues and is likely to persist for much longer. Getting the most out of this downturn is for me wholly consistent with the theme of this conference, Energy and Development.
Warren Buffet once said that “a pin lies in wait for every bubble and when the two eventually meet, a new group of investors learn some very old lessons.” The energy sector understands this clearly. Personally, I learned the “old lessons” very early in my career because I joined Amoco in Chicago almost 30 years ago in the midst of a major downturn. I still clearly remember seeing workers leave the Amoco building with their boxes filled with their personal belongings. Fortunately, where there have been dramatic cases of bubbles bursting, prudent institutions have demonstrated that they can thrive even in the midst of casualties. Think about the institutions that have made it through bubbles bursting in recent times – companies in the internet, banking, real estate and auto industries all come to mind. This can also be the narrative for Trinidad & Tobago’s energy industry if we make the right decisions. And what are those right decisions? Instead of engaging in a theoretical exercise to answer that question, I will share four ways bpTT has been taking advantage of the downturn over the last 18 months.
#1: We are Sticking to our Values
First, we are sticking to our Values. We have five Values globally across BP: Safety, Respect, Courage, Excellence and One Team. Safety is our number 1 priority. There is never a good time for a safety incident. Concerns about the future of our industry and how that affects thousands of workers, provide major distractions for our employees. Research shows that distracted employees are more likely to make mistakes or skirt procedures. This is exactly the time when we are at greatest risk for safety incidents. We must mitigate these distractions and maintain focus. One thing must be clear, whether oil is priced at $100 a barrel or $1 a barrel, no amount of hydrocarbon is worth more than a human life.
In living out our Value of Respect, we are careful not to turn on others like crabs in a barrel. We are committed to showing respect to our employees, our contractors, our partners including the government and to the communities we work in.
I will not go through all five Values, but you get the message, we will not throw out our Values because times are tough. That would be inconsistent with taking advantage of the downturn.
#2: We are improving our Competitiveness
Second, we are improving our competitiveness. Across the industry, profits and cash flow have plummeted with prices. Investment capital is scarcer than ever. Against this backdrop, we are acting to ensure that Trinidad and Tobago becomes more attractive for continued foreign investment. It is particularly urgent that action be taken in this regard as countries around the globe are doing all they can to attract scarce new foreign investment to their shores.
At bpTT we have, therefore, been managing our costs by eliminating waste, becoming more efficient, reducing third party costs, prioritizing our activities, simplifying our processes, fine tuning our organizational structure, and reducing headcount as a last resort. Although it is natural for job losses to grab the headlines we have, in fact, been making significant progress in other areas. These efforts will allow us to balance our cheque book in the low price environment in the quickest time possible. We recognize that we are entrusted with the management of two of this country’s most important resources: people and hydrocarbons. We are committed to managing these with prudence and excellence because a sustainable sector needs sustainable companies.
To improve competitiveness, we are also using the opportunity of the downturn to intensify our efforts to collaborate with others, further nationalize our workforce, and strengthen our local content efforts with particular focus on retaining value in Trinidad & Tobago. These are activities we have always engaged in and they are good for all seasons but sometimes the strategic logic becomes even clearer to all stakeholders during downturns. We want to use this moment of clarity to accelerate our progress in these areas. As examples, in the area of collaboration we worked with Bristow and BHP to execute a helicopter sharing agreement and worked with EOG on a natural gas field development. To increase the nationalization of our work force we are repatriating T&T nationals who have been on developmental assignments abroad to replace expatriates here in Trinidad & Tobago. In the area of local content, we are increasing our attention on marine vessels and local diving capability to seek to maximize value retained in country. In all these areas we are not perfect but our continuous improvement efforts are driving us closer to perfection and the downturn is providing positive impetus.
#3 We are Focussed on the Future
Third, we are focussed on the future and view it with optimism. All commodities have price cycles and we intend to reap the benefits of higher prices whenever they return.
The good news is that the local energy sector has continued with significant investments and activities. Our aggressive drilling programme continues along with work on the Juniper field development, future new field developments and plans for exploration drilling. We will maintain our high investment levels once the country’s welcome mat stays out. And, we are not alone. It is encouraging to hear that despite low energy prices, there is much activity in the upstream including in the deep water; and the Government’s positive discussions with Venezuela can potentially lead to increased opportunities for both countries. These future focused plans are just what our industry needs to boost confidence.
Although we remain optimistic, I know that gas consumers in the downstream and Atlantic are today experiencing the pain of insufficient gas supply. This is as a direct result of a slowdown in upstream investments and drilling activity a few years ago, exacerbated by maintenance activity. No matter how tough the environment gets we must always learn the lessons of the past and try not to repeat mistakes. We must continue investing! We will, therefore, continue to advocate for adequate consultation on the gas master plan to ensure that investments are incentivized and risk and reward across the gas value chain are properly accounted for.
I will reinforce again that we remain very positive about the remaining resource potential in our acreage. As you have heard many times in this conference “below the surface things look cautiously optimistic” but above the surface we have some work to do to ensure that as a country we continue to incentivise the development of our natural resources and at the right pace.
As a testament to our confidence in the future, we are literally putting our money where our mouth is. bpTT spent close to US$1.5 billion in capital expenditures in 2015 and if the “above the surface” conditions are right, we plan on spending more than that in 2016 despite the significant negative impact of prices on our earnings and cash flow. If money talks, we are speaking loud and clear about our confidence in the future of the oil and gas industry in Trinidad & Tobago.
#4 We are Acting with Care and Empathy
Fourth and finally, we are acting with care and empathy. Lengthy downturns result in major dislocations for employees, contractors, communities, partners and the country. We view this downturn as an opportunity to demonstrate that our care for people is genuine. So, for example, while our focus on improving efficiency may result in job losses, we will consistently follow all laws and ensure that employees are treated with respect. We will continue to invest in our corporate responsibility programs targeted at education, arts & culture, enterprise development, and support for the underprivileged. While 3rdparty cost reductions are necessary, we engage our contractors in the spirit of partnership, and work together to identify opportunities for greater efficiency.
There is a popular sentiment that you can tell the character of a person or institution by observing how they react to hard times. I believe this is true but I also believe that you can better tell the character of a person or institution by observing how they use power. Even with our challenges most of us in this room from industry, government and other institutions have a lot of power. We must not use this power to hurt the vulnerable. At bpTT, we are doing our best to avoid this pitfall.
So there you have it, four actual things we are doing to take advantage of the downturn and ensure that energy supports development. We are sticking to our Values; increasing competitiveness; focusing on the future; and acting with care and empathy. This certainly isn’t a complete list of things to do. I haven’t, for example, addressed the crucial topic of diversification but I will leave that for another time and another forum. In the end, we at bpTT remain always guided by our aspiration which is to ensure that in all that we do there is mutual advantage for the people of this country and for BP. I used a quote from Warren Buffet earlier and it is appropriate to use another one as I close. “There is a lot of stuff to get too excited about in the markets, but if you stay sober (-minded), and focus on the long run, you’ll be OK.”
It is going to be tough but we will be OK!
I wish you a productive conference.