UPDATE ON PETROTRIN. In the Context of the lower for longer price environment. Presented by Fitzroy Harewood Energy Luncheon 2017 May 10

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1 Petroleum Company of Trinidad and Tobago Limited UPDATE ON PETROTRIN In the Context of the lower for longer price environment Presented by Fitzroy Harewood Energy Luncheon 2017 May 10

2 Presentation Format 1. Company Overview 2. Lower for Longer 3. Petrotrin s Business Performance 4. Operating in the Lower for Longer Environment 2

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4 Governance Structure Government of the Republic of Trinidad and Tobago Ministry of Finance (Corporation Sole) Government of the Republic of Trinidad and Tobago Ministry of Energy and Energy Industries Shareholder Statutory Regulated Industries OSHA, EMA, Fire Services, Customs & Excise Petrotrin is the State-owned, integrated oil and gas company of Trinidad and Tobago, engaged in: The full range of petroleum operations including the exploration for, development and production of hydrocarbons The refining and marketing of petroleum products 4

5 MISSION and VISION OUR MISSION PETROTRIN as the national petroleum company operates to optimize the return from its resources for the benefit of its shareholders and the citizens of Trinidad and Tobago. OUR VISION A high performing energy organization, that delivers superior results to its shareholders every time, all the time. We will be a premier fully integrated petroleum-based energy organization, the preferred supplier in the Caribbean and Latin America, recognized for our responsiveness to our employees, customers, the State and other stakeholders. We will make Petrotrin innovative, dynamic, viable and efficient; safe in our operations and sensitive to the ecology; driven by customers, competent and empowered people, creative business ideas and appropriate leading technology. 5

6 Our Values PEOPLE: We respect and trust people and value their ideas, are committed to their development and have the highest regard for human dignity. All officers and employees must adhere to high ethical standards, honesty and integrity in the conduct of our business. PERFORMANCE: We strive constantly for professionalism, quality performance and continuous improvements through teamwork and technology, with the goal of providing products or services which meet or exceed the expectations of our stakeholders, at a cost which represents value. PROFIT: We strive to create profits since it is the fuel for survival, growth and viability. It keeps us in business, allows us to provide financial returns for our shareholders and meet our obligations to our employers, suppliers, lenders and the State. POSITIVE CHANGE: We will be open and honest in our communications so as to embrace and leverage on positive change, recognizing that every employee must be allowed to innovate and contribute to our learning organization. 6

7 Evolution of Petrotrin MERGER (Expanded Trintoc) (1985) UBOT ( ) SHELL ( ) ( ) ( ) TLL ( ) ( ) TPD ( ) APEX ( ) KTO ( ) BRITISH PETROLEUM ( ) TESORO ( ) TRINTOPEC ( ) TRINMAR LTD Trinidad Northern Areas (TNA) An amalgam of local and international oil companies 7

8 Petrotrin s Business Model (December 2016 Figures) Equity Crude Production Land, Marine and JV s: ~ 41 kbpd Imported Crude: ~ 102 kbpd Pointe-a-Pierre Refinery Refinery Throughput kbpd Inclusive of 22 Plants, Tanks and Port Facilities Refined Petroleum Products Customers: Local o ~ 29 kbpd Regional o ~ 32 kbpd Extra-Regional o ~ 47 kbpd International o ~ 48 kbpd Notes 1. At high oil prices, margins on equity crude are significantly higher than corresponding margins from imported crude since the cash lifting cost of equity crude is lower than market based price of imported crude. 2. As the price of crude falls the margin advantage provided by equity crude is eroded. i. At ~ US$44.00/bbl, the total lifting cost of equity crude makes the expected margin indifferent vis a vis imported equivalent quality crude. 8

9 About us Exploration & Production 43,030 BOPD (Equity Oil Production, 2017 February) 122 mmcfd (Equity Gas Production (2017 February) Land: 84 MMBO (proved reserves 2015) Marine: 46.6 MMBO (proved reserves 2015) BSCF (proved gas reserves 2015) Refining and Marketing 168,000 BPD full conversion capacity Net Acreage (2016 September 30) 189,004 acres onshore 810,892 acres offshore 9

10 We are a significant contributor to Trinidad and Tobago Contribution to the economy: Royalties & Taxes Net Foreign Exchange Earner Largest crude oil producer in Trinidad and Tobago Second largest real estate holder in the country Major purchaser of local goods and services Supplier to the local market with LPG, gasoline, diesel, aviation fuel and bunker fuel Support, sponsor and partner with organizations in sport, culture, education, environment and community empowerment 10

11 Government s Take (TT$MM) Total: : TT$ 49.0 billion (US$ 7.6 billion) 11

12 Market Environment Prices Lower for Longer o Persistent oversupply o Slowing demand due to slower global growth o Peak demand Growth of renewables Decreased demand for transportation fuels Increased fuel efficiency standards Penetration of hybrids and EV s in the automobile market The new normal??

13 Market Environment Margins o o o Not correlated to absolute oil prices Will stay healthy in short to medium term High capacity utilization Growth in gasoline and distillate markets Major disruption post Jan 2020 with implementation of Marpol 0.5% global sulphur cap for bunker fuels Significant decreases in spreads for high sulphur fuel oil Negative impact on refineries without deep conversion capacity

14 Drivers of Profitability In our E&P Business o Volume of crude oil produced o Price of crude o Cost to produce In our R&M Business o Refinery Gross Margins influenced by Product spreads (market driven) Throughput Utilization o Cost to refine o Debt service

15 Impacts on Petrotrin s Business: E&P Lower oil prices will impact o E&P revenue and profitability significantly o Ability to grow new oil volumes Infrastructure heavy capital projects deferred or reconfigured Partnerships and alternative commercial models Drilling Higher IP s needed for adequate return Critical assessment of Prospect Generation Process Improved QC, de-risking, peer reviews For offshore prospects shortened production time Reduced Exploration expenditure o Level of Opex In face of limited production growth, opex must be reduced

16 Impacts on Petrotrin s Business: R&M R&M better insulated from absolute oil prices; depends on gross margins R&M gross margins to be maximized o Increases in plant reliability Sustain high throughputs Increase refinery utilization ensuring optimal product yield from existing kit o o o Grow premium markets Regional and niche markets provide higher margins Stay in the market Complete ULSD plant. ULSD to become the de facto standard for road diesel Live within the margins Even though margins are good; high debt service and OPEX result in R&M deficits OPEX must be reduced

17 What does Good look like? 1. Increased Equity Oil Production 2. Lower Levels of Crude Import 3. Sustained Refinery Margin Feedstock Costs (including the headline price of crude oil) Refinery Economics - based on the margin between the two - not on absolute prices Product Values (Wholesale prices i.e. before Duty, VAT and so on) 4. Improved worker productivity and adequate skill and professional levels throughout the organization 5. Safe, reliable and environmentally compliant operations 6. Improved project execution 7. Good use of technology 8. Medium to low risk asset integrity facilities 17

18 Strategic Focus Beyond Compliance HSE Culture Assurance of Asset Integrity Building a Sustainable Business Learning Organization, Focused Competency Development Deployment of Enabling Technology 18

19 Beyond Compliance HSE Culture Initiatives Zero HSE related incidents and losses Proactive Safety Culture & 100% Environmental Compliance 19

20 Assurance of Asset Integrity Initiatives Implement Company Wide Asset Integrity Management System R&M - Upgrade Berths, Sea lines, Port Facilities, Tanks, Pipelines and Decommission Main Threats by Q3, 2021 E&P Division - Implement Repair Program for Pipelines, Tanks, Platforms and Abandon Wells and Decommission Main Threats by Q3, 2021 Improved Asset Integrity Assurance Zero Loss of Containment due to Asset Integrity by Q3, 2021 Achievement of Medium to Low Performance Risk on the DNV GL Assessment by

21 Building a Sustainable Business Upstream Managing old oil decline Increasing crude production and reserves through exploration and implementing IOR projects Completion of South West Soldado development and Jubilee appraisal Increasing 3rd party participation both onshore and offshore as well as pursuing strategic alliances outside of Trinidad and Tobago Reducing operating cost profile 21

22 Building a Sustainable Business Downstream Continued improvement in reliability and asset integrity works Reducing operating expenses Improving margin by pursuing opportunities to reduce fuel oil yield Completion of ULSD by Q

23 Building a Sustainable Business Finance, Corporate and Admin Support Reducing operating cost Liquidity management Accurate and timely financial reporting 23

24 Learning Organisation, Focused Competency Development Restructuring and Organisational Review Improve Competence and Leadership Strengthen Technical Capability Accountability 24

25 Operating in the Lower for Longer Environment At Petrotrin we have: Initiated Safety Culture review. Lowered Annual OPEX. Increased Crude Production (46,438 bpd April 2017) Increased Refinery throughput (158,100 bpd December 2017). Resumed Bunkering operations. Initiated Asset Integrity Improvements Initiated and Organizational Optimization exercise in collaboration with benchmarking studies. Lowered long term debt and pursuing debt solution with the Ministry of Finance. 25

26 Petroleum Company of Trinidad and Tobago Limited Through Our Strategic Focus and Strategic Initiatives Restoring the Business Consolidating for Growth 26

27 Petroleum Company of Trinidad and Tobago Limited UPDATE ON PETROTRIN In the Context of the lower for longer price environment Thank You. Presented by Fitzroy Harewood Energy Luncheon 2017 May 10