26-08-09 Petrotrin's chairman Malcolm Jones admits that the oil giant has encountered serious problems with its billion-dollar upgrade projects. He blames "bad timing" and, in the case of the gas-to-liquids (GTL) plant, the wrong choice of contractor, for the delays in completing the projects, as well as cost overruns.
The multifaceted upgrade, comprising at least six projects, is aimed at "the construction and revamping of several major units in the Pointe-a-Pierre refinery, aimed at increasing gasoline quality and quantity".

Jones, who as president of the company, presided over the start of the massive gasoline optimisation upgrade, said all the initiatives were necessary if the refinery was to position itself to meet new standards of its products required in today's markets.
"With heavy emphasis on environmental concerns and cleaner fuels, we simply had to fall in line," he said. "If we were to remain a competitive supplier of our products, we had no choice."

Kenneth Allum, the man who succeeded Jones as president, told that the company suffered marginal loss of market to Venezuela's PetroCaribe initiative.
"Surprisingly, in the entire Caribbean region, where we sell around 50,000 bpd of a mix of petroleum products, we lost just about 5,000 bpd. But in order to position ourselves to enter the US or European markets, the upgrade and gasoline optimisation projects were a prerequisite. There was no way we could sell on those markets finished gasoline and diesel, for example, that the refinery currently produces."

Petrotrin's products include three grades of motor gasoline, aviation fuel, Avjet kerosene, diesel/heating oil, fuel oil, LPG and sulphur.
Jones said: "With specific reference to new markets we are seeking to penetrate, we need to meet environmental compliance levels and reduced carbon monoxide and particle emissions. These were compelling reasons for us pursuing the many upgrade projects we started back in 2005."

Allum said there were several reasons for cost overruns and failure to complete the projects in a timely manner.
"The main challenge occurred after most of the projects got underway. First, there was the overheating of the energy sector, with oil prices leaping to the sky. As an oil producer and refiner, Petrotrin benefitted from high oil and gas prices. But we also suffered when the price of steel and other construction material went through the roof. Almost all materials used in the upgrade experienced huge price increases. And we faced longer lead times in securing critical material and engineering services, among other components."

He pointed out, too, that because of a global industrial plants construction boom, world class contractors were "stretched beyond their limits".
"Bear in mind there is a limited number of specialist contractors who are capable of conducting the works Petrotrin undertook. So our costs increased, and our time lines went awry. But we are not the only oil company that suffered these constraints that we did not cater for when we conceptualised and implemented the projects. It happened to most companies worldwide."

With specific reference to the GTL plant, a joint venture involving Petrotrin (49 %) and World GTL (Trinidad), and which ought to have come on stream by the end of 2008, Jones said there were additional problems.
"That project holds great promise of fantastic returns on investment. But it was badly handled almost from the beginning," he said. "The plant was based on World GTL's technology of using mothballed methanol plants, refurbishing and reconfiguring them, and using cheap, flared gas to make a high quality product. However, the contractor who handled the assembly, Ventech, an American company, lost its way in the technical designs and engineering."

He said the plant was now 80 % complete from a mechanical perspective after designs were altered. But along the way costs went much higher than anticipated-a burden Petrotrin was made to bear.
"We'll recover our costs, we have no doubt about that," Jones said. "And when it becomes operational, we'll also make decent profits. But there were unforeseen problems we admit to that."

That plant is the first of its kind US-based World GTL invested in. It is designed to produce 2,250 bpd of GTL, a synthetic fuel, using an estimated 21 mm cfpd of natural gas, much of it currently flared (wasted) by the refinery.
Allum said while delays in the start-up of the GTL plant are of concern to Petrotrin, the new Prefactionation Unit/Isomerisation Unit has gone operational while the Continuous Catalytic Regeneration (CCR) Platforming Unit was almost complete.

The other new plant, the Alkylation/Acid Plant, will be operational in the first quarter of 2010, Allum added.
"Together, these plants position our refinery to produce the quality of fuels that will become standard in most markets in the world over the next few years. Even here at home, we are seeing the move towards the universal use of cleaner-burning gasoline and diesel. Similar standards will be requiredin the rest of the Caribbean, as they already exist in the USA and Europe."

Turning to cost overruns and the need for Petrotrin to go on the global market recently to raise $ 850 mm (on top of $ 750 mm secured back in 2007), Allum said not only was the additional capital necessary, but acquiring it proved that Petrotrin remained a good business model.
"Bear in mind some of the international rating agencies had downgraded Petrotrin. We had to go out there, meet with close to 50 investors, and convince them that our business plan was sound. In the end, I am proud to say, the funding offer was over-subscribed. We had offers of up to $ 5 bn. We needed only $ 850 mm. That speaks volumes for investors' confidence in Petrotrin."

Allum said there was still much work to be done to bring the refinery to optimal production of superior products.
"We recently looked at the Cat Cracker, where we need to do much work even as it remains operational. But by October 2010 we would have re-configured the refinery to produce between 150,000 and 168,000 bpd of premium products. As president of the company, I have confidence in the refinery's future. We shall enjoy good returns on our multi-bn dollar investments. We shall also be in a position to service our debts. And in spite of the volatility of the oil and gas industries today, we expect to return to making good profits sooner rather than later."