Trinidad Petroleum Holdings Ltd., formerly known as Petroleum Company of Trinidad and Tobago Ltd., has a “mutually beneficial” relationship with the government of Trinidad and Tobago as its majority owner, board member Nigel Edwards said in an investor presentation made public on March 1.
The company last year went through an operational restructuring in which it convinced the government to take “concrete steps” to “evolve and modernize” the company, he said. As part of the restructuring, the company closed its refinery and shifted focus to exploration and production, laying off 1,700 employees.
The government’s support for the company is shown by a loan of 1.2 billion Trinidad and Tobago dollars (about $178 million) provided to the company during the organizational restructuring, the presentation says.
The restructuring was a result of a fact-finding process that began in September 2017 after a new board was appointed, Edwards said. The new board discovered that the refinery was losing $130 million per annum in negative cash flows, while E&P operations were generating revenue of $700 million.
Petrotrin’s oil and gas business was initially hit during the commodity price declines in 2014. Even though most refiners benefit from lower oil prices, Petrotrin’s refinery margins still deteriorated, with Moody’s pointing out that an oil price recovery would pressure margins further.
The company has $850 million on its 9.75% notes maturing on Aug. 14. The notes are quoted around 97 with a yield to maturity of about 15%, according to Cbonds.
By comparison, Trinidad and Tobago’s 4.5% 2026 notes are also quoted at around 97 with a yield to maturity of about 5%.
Although Petrotrin is fully owned by Trinidad and Tobago, the bond prospectus says that
“the Government does not guarantee our obligations and has not guaranteed our obligations under the Notes.” Throughout the organizational reorganization, however, there has been an understanding that Petrotrin has not defaulted on its government guaranteed loans, nonguaranteed short-term loans or international bond obligations.
Sources told Reorg that, given the big difference in terms of ratings between the sovereign and the corporate, it would make sense for Trinidad to step in and offer guarantees on a new issuance. Another solution could be a consent solicitation in connection with an exchange of the existing bonds for longer dated paper. S&P assigned a BB rating to the new entity, while Trinidad and Tobago is rated BBB+ by S&P and Ba1 by Moody’s.
A default in August on what is understood to be a government issue could lead to political disruption ahead of general elections in September 2020, according to a trader note.
Debt at the Petroleum Company of Trinidad and Tobago Ltd. was vested to the current issuer, Trinidad Petroleum Holding Ltd. as part of the restructuring that began on Nov. 30. The corporate restructuring resulted in the realignment of Petrotrin into a new holding company, Trinidad Petroleum Holding Ltd., as the current issuer of the notes sitting above four subsidiaries in the corporate structure. The subsidiaries are:
- Heritage Petroleum, a new company focused on E&P;
- Paria Fuel Trading Co., a new company focused on storage and logistics;
- The Guaracara Refining Co. Ltd.; and
- The Petroleum Company of Trinidad and Tobago, the old company refinery.
Petrotrin’s organizational reorganization resulted in the company cutting over half of its workforce and incurring $400 million in reorganization costs, the company said. The new headcount represents 40% of the pre-reorganization level.
The refinery operations under the old company were completely wound down between Oct. 18 and Oct. 31, 2018. Laying out the reasons behind the restructuring, Edwards said the refinery was under-utilized, operating at 40,000 barrels of oil per day, or bbl/d, about 23% of full capacity. High working capital needs contributed to underinvestment in E&P, the presentation says.
The corporate reorganization resulted in Heritage as an E&P company with low-risk assets and significant asset coverage, which reduces refinancing risks, the presentation highlights. As part of the new business model, the company started a crude shipment every month since its launch in October.
Heritage represents an ongoing source of revenue for the government, the investor presentation states. In addition, there is “ample asset coverage” to service debt, which mitigates refinancing risks. Existing production assets are consistently replenishing reserves, the presentation says. The “low risk, low cost” legacy-producing assets include approximately 80% of 1P reserves being DPDs, according to the presentation.
Mark Wylie, the new CEO of the new company said net production is 38,000 bpd of crude and 110 million cubic feet per day. The company has 35 operated fields and about 2,158 wells. Wylie also highlighted underexploited legacy reserves, with PDP as a percentage of 1P reserves of 77.2% as of September 2018.
He added that the company is working on field-optimization processes that will reduce opex and require little capex.