Senior Counsel Ramesh Lawrence Maharaj has blamed the former Board of Petrotrin, led by businessman Wilfred Espinet, for the debacle that resulted in A&V Oil and Gas Ltd being removed from the Casthill oil field in Rio Claro, then winning its arbitration against the State Owned company and eventually settling for over $100 million.
According to Maharaj, Espinet’s Board relied on an internal report that was brought about due to faulty equipment, failed to sufficiently consider a supplemental audit report and the experts that Petrotrin relied on were basing their finding on the very faulty internal audit and did not themselves carry out independent investigations.
“They did not conduct any independent investigation into whether the information in the internal audit report was correct or not…It follows that if the data in the internal audit report or any information supplied by Petrotrin was inaccurate the opinions given by these two firms would also have been inaccurate,” Maharaj insisted.
He added: “It is therefore wholly improper for Mr Espinet to try to avoid responsibility by shifting the blame to Petrotrin’s experts when these experts relied on Petrotrin’s own faulty measurements and data contained in the internal audit report.”
According to Maharaj, to compound the situation the Espinet Board refused on several occasions to give A&V an opportunity to explain any perceived discrepancies and clear the issue thereby avoiding the unseemly events and litigation.
He also blasted the Leader of the Opposition, Kamla Persad Bissessar, for her role in making the initial audit finding public in an effort, Maharaj claimed, to score political points.
The Senior Counsel said A&V had been wronged and called for the entire decision of the Arbitration panel to be made public and laid in the Parliament.
The Business Guardian has copies of all of the reports and documents including the Gaffney Cline and Associates Report, the decision of the Arbitration Panel, the internal audits, the Kroll Report, the data from the Ministry of Energy and internal memos.
To know how we got here it is necessary to understand that there are several companies (operators) that produce oil on behalf of the then Petrotrin and now Heritage.
This came about because it was found that there were many fields that the state-owned company, because of its high overheads, could no longer produce economically. However smaller operators with lower overheads and who had the financial and technical capabilities may be able to work the fields. This meant a win win situation for everyone. Firstly the country gets more oil, initially for the Point-a-Pierre Refinery, then to export as Petrotrin closed its doors, government gets more taxes and royalties, private operators make millions, workers get jobs and service contractors make money. So there is good reason for the contracts to go to companies like A&V Oil and Gas.
One of the challenges that Petrotrin and Heritage face is how do you ensure that you are getting what you are paying from.
Documents which the Business Guardian have, show that in 2017 the Refining and Marketing Division raised concern about a shortfall of crude they were receiving at the refinery relative to the numbers they were being told they should be getting.
An investigation revealed that the problem was likely occurring at the Barrackpore collection station and therefore the shortfall was from the Eastern operations that included areas like Moruga and Rio Claro.
This is where the internal audit that Persad-Bissessar referred to started and gave rise to the eventual termination of A&V drilling.
According to that internal audit a review of the production data for the 18 fields in the Eastern District for the period January 2017 to June 2017 showed that all of the fields except the Catshill field had relatively constant production during that period. The Catshill field showed a huge increase in production during this period from 60,034 barrels in January to 149,741 barrels in June, an increase of almost 150% in just six months.
Further analysis showed that there was a positive correlation between the shortage in crude reported by R&M and the increase in production by the Catshill field (operated by A and V Oil and Gas Limited).
“Internal Audit has concluded that the custody transfer process at Catshill was compromised during the period January 2017 to June. The evidence suggests that there has been fraudulent activity in the Catshill field in that the Operator in collusion with a Petrotrin employee has been overstating Catshill’s production for at least 6 months.” The initial report read.
According to the internal report Catshill’s production increased significantly from 2017 January to June.
BG has checked the records of the Ministry of Energy and Energy Industries and they show the spike in land production for the said period.
The first Internal Audit warned the Espinet Board of the damage that was being done if the findings were in fact accurate.
The first audit said it meant Petrotrin has been paying the Operator for oil that has not produced which it calculates at over USD $11.5 million.
Petrotrin would have had to pay royalties of approximately USD $1.86 million to the government for crude oil not received during the period January 2017 to June 2017.
Petrotrin would have overstated its crude oil production and sent inaccurate well test and production information to the Ministry of Energy and Energy Affairs.
Maharaj said the problem with this report is that it is based on faulty equipment and instead referred to both the expert testimony that A&V relied on and which was accepted by the arbiters as the real findings and rubbished the first internal audit.
He however did not say if the same equipment which he deemed faulty was used in the second audit. He also said the Arbitration panel found there was no evidence that A&V defrauded Petrotrin.
So what conclusions did the Arbitration panel come to? The judgement that Maharaj wants the Government to lay in Parliament.
Well the Business Guardian has a copy of the decision and this is what the Arbiters said: “Having considered the submissions of the Parties and all the evidence, both oral and documentary, that was placed before it, the Tribunal now makes these findings for the reasons set out in the Appendix hereto:
(i) The Respondent (Petrotrin) has failed to establish that the Claimant was engaged in seal tampering or any other inappropriate practice in the process of the delivery of crude oil to the Respondent during the period from April 2016 to July 2017.
(ii) The Respondent is not entitled to treat any of the crude oil delivered to it by the Claimant during that period as not having been delivered by it in pursuance of Article 14.15 of the IPSC.
(iii) The Respondent did not have reasonable grounds for suspecting that the Claimant had misconducted itself or otherwise been involved in wrongful or fraudulent activity entitling it to terminate the Agreement under Article 29.1 of the IPSC.
(iv) The Claimant is entitled to damages for the wrongful termination of the Agreement, but its claim for future loss of earnings cannot be extended beyond 18th November, 2024.”
The Business Guardian does not have the transcripts of the Arbitration proceedings including when the evidence was subject to cross examination but what BG does have is the terms of the Gaffney Cline engagement which showed that contrary to what Maharaj claimed, the company was expected to do its own on-site investigation and not just rely on reports.
The internal document engaging the foreign company reads: “GCA will conduct an independent investigation into the crude oil production and sales reported by Contractor and received by Petrotrin.
This will include on-site inspection of the crude oil gathering facilities, testing facilities, pipelines, and receiving locations. GCA will also investigate the reporting and administrative processes and procedures of the Contractor if they are disclosed. GCA will opine on the possible causes of any overstatements. GCA will also describe any steps that could be employed to correct the issue if possible. In case GCA discovers any inappropriate actions by Contractor, GCA will provide a list of options available to Petrotrin.”
Faced with the allegations and the conclusions of two respected international firms did the Espinet Board err as has been suggested by Maharaj and acted without giving A&V a fair chance to respond.
Well Michael Quamina, the new Chairman of Heritage, himself a well known Attorney at Law and the head of the board that settled with A&V does not share Maharaj’s view.
He said: “I do not hold the view that this is a case where any individual or body of individuals is to blame. Simply put, Petrotrin had been serviced for far too long by inadequate measuring systems, which is what led to this dispute. In other words, better systems would have avoided the complexities that have been associated with this particular dispute, whether in one party’s favour or the other. The Board at the time, which it should not be forgotten, is to be credited for where TPHL is today, acted on information that was before it, and it cannot be faulted for so doing.”
Quamina added: “Everyday, there are winners and losers in litigation, with parties commencing or participating in same on the basis that that is the correct thing to do, and I do not doubt that was the case in this matter. Both parties agreed to submit the matter to arbitration, both parties agreed to the arbitrators, and what needs to be done at this stage, is to accept, no matter how difficult, that those arbitrators have arrived at a determination, and now proceed to make decisions having regard to the cold hard facts, that Petrotrin put its best foot forward, and was not successful.
“Unfortunately, in litigation, this happens almost everyday, and this is not one of those now all too common and tiresome occasions where we must find someone to blame. On this occasions, an antiquated measuring system is to blame, a system which unfortunately Heritage is still wrestling with, but is in the process of addressing in a comprehensive manner.”
So can this recur? Maharaj was asked what happens if A&V goes back into the field and the numbers are no where close to what it was claiming to producing that what conclusion should one draw.
He told BG: “I think you are approaching this thing very wrong because you are leaving out about aggressive drilling, you are leaving out what were the movement of the fields at the time you are leaving out all of the evidence about how these fields react, and experts were able to look at this and they brought the evidence before the tribunal, and what it was found is that the field has the capacity to produce the oil but in order to produce oil money has to be invested and there has to be curtail drilling programmes etc.
So if a field is producing a lot of oil and for some reason there is no money of nobody doing aggressive drilling on the field there would be a different performance of the oil wells.”
He added: “You are asking me a very hypothetical question and I think what you should do is you should wait until he goes back into the field and if you have any questions to ask then, well I will be prepared to answer it. But I think what you are asking with the greatest respect, all of this was assessed and evaluated by the arbitrators. “
According to sources in the company to prevent recurrence with any operator Heritage has done the following:
1. Independent metering to validate volumes received (in addition to traditional tank dips and witnessing approach).
2. Robust isolation (via isolation valve integrity checks, locks, plugs, seals, etc.) to eliminate possibility of passing valves and unauthorised connections.
3. Reviewed and supplemented current procedures and processes.Developed specific Custody Transfer and fiscalisation SOPs.
4. Auditing of transfers (at defined frequency).
5. Verification of receipts at Barrackpore.
6. Installation of surveillance cameras at strategic locations
Time will tell if A&V was right and if its return to Catshill will be a bonus for the country’s oil production.