State role in oil industry
- 3 March 2026
- Posted by: Mikki Hall
- Categories: energy, energy excellence
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Authors: Anthony (Tony) Paul and Darrian Paul
In the 1990s, Trinidad and Tobago’s Ministry of Energy quietly abandoned a long-standing policy that required every new exploration and production (E&P) licence or Production Sharing Contract (PSC) to include participation by the State through its national oil companies (NOCs).
This participation, structured as a “carried interest”, ensured that the State retained a direct stake in petroleum development without bearing risk during the costly exploration phase. Two reasons were cited for discontinuing this practice, one pragmatic, the other, as this article will argue, deeply misguided.
The pragmatic reason was the financial constraint faced by the NOCs of the day, first Trintoc and Trintopec, and later Petrotrin, which struggled to raise capital to finance their share of development and production costs once discoveries were made. Yet this rationale overlooks a fundamental point: under the “carried participation” structure, the State’s contribution became due only when production began generating cash flow, or when financing was needed for development, not during the risky exploration phase. The inability to meet those obligations speaks more to weak financial management and policy inconsistency within the NOCs than to any flaw in the State participation mechanism itself.
This issue remains strikingly relevant today, as seen in the 2025 Deep Water Bid Round and the recent ultra-deepwater contract signed with ExxonMobil, both of which proceed without meaningful State participation. The question therefore persists: have we forgotten the strategic logic that once guided Trinidad and Tobago’s petroleum policy?
That logic was forged in the crucible of crisis. In the wake of Independence, when BP and Shell abruptly exited the local industry in the 1960s, the country was forced to act decisively to preserve its production base. The government established Trinidad Tesoro, in partnership with Tesoro of San Antonio, from BP’s relinquished assets, and later Trintoc, to manage Shell’s. These were not ideological experiments, they were strategic interventions to safeguard national production, jobs, and technical capability.
The framers of the Petroleum Act of 1969 understood that as a small, resource-dependent nation, Trinidad and Tobago had to capture maximum value from its finite hydrocarbons. The Act required that producing companies maintain their assets in operable condition and transfer them to the State, free of charge, upon licence expiry, ensuring continuity of production and local control. They also recognised that maximising value meant using every molecule efficiently: discouraging gas flaring, establishing the first ammonia and fertiliser plant in 1959, and later forming the National Gas Company (NGC) to monetise gas previously wasted by Amoco. The downstream industries that followed stand as enduring proof of that foresight.
Reframing the “carried participation” narrative: a case for equity in petroleum partnerships
The phrase “carried participation” has, over time, acquired an unfortunate connotation, one that suggests the State, or its national oil company, is being carried as an act of investor generosity. This framing misrepresents reality. In substance, carried participation is an equitable commercial arrangement, a means by which the resource owner (the State) allows an investor to farm-in to a national asset, just as oil companies routinely farm into one another’s licences.
This article challenges the outdated perception of carried participation as a burden on investors. Instead, it reframes it as a legitimate expression of sovereign equity, the mechanism through which the people of Trinidad and Tobago, as resource owners, retain a rightful stake in the value derived from their natural endowment.
The misconceived objection: financial burden or fiscal myopia?
The principal objection raised in the 1990s against maintaining State participation was that it placed an undue financial burden on the State. Proponents of this view argued that, once a commercial discovery was made, the government, through its national oil company, would be obligated to contribute substantial capital for development. They pointed to the precarious financial positions of Trintoc, Trintopec, and later Petrotrin, as evidence that the State could not sustain such commitments.
This reasoning, however, conflates two distinct issues: (1) the principle of participation, and (2) the capacity of the participating entity. The fact that the NOCs were poorly capitalised and hampered by inefficiencies did not invalidate the principle of State participation itself. Instead, it highlighted the need for institutional reform, better fiscal planning, and creative financing models, not the abandonment of national equity.
Many oil-producing countries faced similar challenges yet found innovative ways to retain their stake. Malaysia’s Petronas, Norway’s Statoil (now Equinor), and Brazil’s Petrobras each emerged during periods of fiscal constraint but thrived precisely because their governments viewed participation as a strategic imperative, not a luxury. They used carried or deferred financing, back-in options, and production-based cost recovery to maintain a presence in their own resources. Trinidad and Tobago’s retreat from that approach, by contrast, represents a policy regression rather than a fiscal necessity.
From a purely commercial perspective, carried participation offers a rational balance of risk and reward. The private investor bears the exploration risk, including seismic surveys, drilling, and appraisal, in exchange for the right to recover costs and share in production if successful. The State’s participation “kicks in” only once value is proven and cash flow exists. This structure therefore aligns incentives without imposing an upfront fiscal drain.
In essence, what Trinidad and Tobago once had, and later abandoned, was a low-risk, high-leverage mechanism to maintain sovereign equity in its petroleum sector. To discard it on the grounds of short-term financial weakness was not prudent budgeting; it was fiscal myopia that traded long-term national benefit for administrative convenience.
This column continues next week. Stay tuned for part two.
Towards a more strategic energy future
The decline in Trinidad and Tobago’s gas production is not simply a cyclical downturn, it is a structural inflection point. It underscores the need for clearer policy choices, stronger institutional capability and more disciplined commercial frameworks that balance sovereign equity with investor confidence.
If the region is to secure long-term value from its hydrocarbons while advancing a credible transition pathway, it must move beyond rhetoric. This requires practical collaboration among national energy companies, smarter risk allocation in upstream contracts and commercially grounded approaches to financing, participation and project development.
Future Energy Partners works with governments, national oil companies and private sector investors to design commercially resilient energy strategies. We advise on partnership structures, fiscal frameworks and transition models that protect national interests while remaining attractive to capital. Our approach is pragmatic, commercially informed and grounded in the realities of today’s energy markets.
If you are reviewing your participation strategy, evaluating upstream opportunities or seeking to strengthen the commercial foundations of your energy portfolio, we welcome a conversation.
First published in trinidadexpress.com 28 February 2026