The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AN OIL explorer has downgraded The Bahamas to a “non-core” jurisdiction and closed its office in this nation after its first exploratory well failed to strike commercial quantities of ‘black gold’.

Challenger Energy Group, the former Bahamas Petroleum Company (BPC), said this nation will only play a fringe or peripheral role in its operations for the foreseeable future after it staved off potential insolvency via a £7.3m fund-raising that recapitalised the company.

In a statement issued to shareholders and the capital markets late last week, Challenger said its Bahamas interests - namely the four exploration licences it is seeking to renew in negotiations with the Government - will now be overseen by its Trinidad & Tobago operations.

Trinidad, rather than The Bahamas, has become Challenger’s operational hub and focus following a change in strategic direction that has seen the company pivot away from high risk, high reward exploration jurisdictions such as this nation to instead focus on existing productive oil fields that can drive immediate cash flow and potential shareholder returns.

“Existing higher-risk assets (the projects in The Bahamas, in Uruguay and in the south-west peninsula of Trinidad and Tobago) will be retained but considered non-core,” Challenger told investors. “That is, retention of these projects for the foreseeable future will be only on the basis of the relevant project requiring limited work and limited capital expenditure.

“No material work or capital expenditure is thus planned in respect of ‘legacy’ exploration assets in The Bahamas, Uruguay or the south-west peninsula of Trinidad and Tobago beyond routine work required to maintain the relevant licences in good order and progress discussions relating to farm-out and/or other monetisation options. The costs associated with such activities during 2022 are expected to be minimal.”

And, in a further sign that The Bahamas is now far less important to Challenger after its Perseverance One well failed to strike commercial oil reserves in waters 90 miles west of Andros, the company confirmed that it has closed its New Providence office and gave no clue as to whether it may eventually re-open.

“Various other non-essential staff positions have been eliminated,” Challenger said of its belt tightening. “The Company’s operating office in The Isle of Man has been shut and replaced with a corporate service provider.

“The company’s operating office in The Bahamas has been shut, and any residual Bahamian operations going forward will be serviced from Trinidad and Tobago. The company has established a small (serviced) London office to act as a central hub for coordinated operational activity.”

Challenger said these moves will make it “leaner and more cost-effective”, cutting operating expenses to $2m per annum. While hailing these developments as “good news for The Bahamas”, environmental activists and other opponents of oil exploration in Bahamian waters said they are not letting their guard down just yet.

Casuarina McKinney-Lambert, the Bahamas Reef Environment Educational Foundation (BREEF) head, told Tribune Business: “Now is definitely the time to move forward with a ban on drilling in The Bahamas.”

While Challenger’s position was “good news for the marine environment and for the people who depend on a healthy ocean for tourism and fisheries”, she added: “We are now a full year on from the completion of the failed exploratory oil drill and we still haven’t seen the drill report.

“Also, Challenger Energy Group recently stated cryptically that the insurers (Lloyd’s of London) may be seeking a top-up insurance premium that apparently has not been paid. This is cause for concern for The Bahamas and neighbouring countries.”

Nor has Challenger completely abandoned its hopes of discovering commercial oil quantities beneath Bahamian waters. It reiterated its previously stated ambition to renew the four remaining oil exploration licences via negotiations with the Government so that it can then monetise, or get a return, on these investments by finding a joint venture partner for a second exploratory well.

With the Perseverance One well’s findings suggesting commercial oil quantities could be present at even deeper levels below the Bahamian seabed, Challenger said: “The technical findings from Perseverance One well thus support a forward programme focused on deeper Jurassic horizons.

“As such, the company has initiated a farm-out process to seek a suitable partner for the next phase of activity in The Bahamas. In parallel, in March 2021, the company notified the then-Government of The Bahamas of its intent to renew the four southern licences into a third three-year exploration period.

“A new government was elected in The Bahamas in September 2021, and the company is engaging with the new administration on the renewal process.” No update was provided on the progress of negotiations with the Davis administration, which was previously thought more sympathetic to oil exploration in Bahamian waters than its predecessor.

However, Prime Minister Philip Davis QC, upon his return from the global COP26 climate change conference, suggested that while the Government might support oil exploration it would not approve commercial production or extraction. Instead, should there be a commercial discovery, The Bahamas would seek to monetise this via carbon credits or some other mechanism.

Challenger appears unlikely, though, to drill another exploratory well in The Bahamas by itself. It will proceed only if it can find a joint venture or ‘farm in’ partner to share some of the technical, financial or other risks, thereby enabling it to “monetise” its licences, or sell the rights to them outright.

Meanwhile, Challenger confirmed that it is due to pay the remaining $1.3m owed to creditors who provided services to support its Perseverance One well by March 17. “The company has entered into binding settlement agreements with relevant creditors, under which the approximately $11.3m of the liabilities are to be settled by way of a cash payment of approximately $2m,” it said.

“Approximately $0.6m was paid in November and December 2021, and the remaining balance is to be settled by payment of a further approximately $1.4m - approximately $0.1m payable by no later than January 31, 2022, and the balance of approximately $1.3m by no later than March 17, 2022.

“A payment of approximately $0.1m was made on January 31, 2022, and the proceeds from the conditional placing are expected to be utilised to make payment of the balance.” No mention was made of whether there are any Bahamian companies or creditors due to receive a portion of the remaining $1.3m.

And, in a nod to Mrs McKinney- Lambert’s concerns, Challenger added: “It is noted that, as a result of the ultimate cost of the Perseverance One well, a ‘top-up’ premium amount for well control insurance may be claimed by insurers in relation to the final overall cost of the insurance, although the amount of such claim (if any) is presently unknown.

“The matter remains subject to negotiation with the insurers given the outcome of the creditor settlement process, and further given that the well was completed safely and without incident more than 12 months ago.”