The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has confirmed that oil explorer Bahamas Petroleum Company (BPC) has fulfilled all its required licence and regulatory obligations, effectively renewing the oil explorer’s licences for another three years.

Tribune Business understands that BPC will this morning release a statement to the London capital markets detailing this, and that the Government’s desire to hold a referendum on whether to permit oil exploration in the Bahamas will release it from its obligation to spud a first well by April 26,2013.

The Government is understood to have provided the confirmation BPC has long been seeking via a letter from environment and housing minister, Kenred Dorsette, with the resulting clarity boosting its efforts on a variety of fronts.

For starters, the licence renewal will give BPC’s potential joint venture ‘farm in’ partners on the first well extra confidence as to the Government’s position, enabling negotiations to be conducted and concluded much more swiftly.

And, by clearing up the uncertainty over whether BPC’s licences were going to be renewed, the Government has also paved the way for the company to proceed with its Bahamian Depository Receipt (BDR) offering to Bahamian institutional and retail shareholders.

The renewal of BPC’s licences, which in theory expired on April 26, 2012, should have been a relative formality. Renewal was conditional on the company fulfilling its obligations, something it was always confident it had accomplished.

BPC at the time set it out thus: “The company confirms that its petroleum exploration licenses state that: ‘Where the licensee applies for renewal and has complied with the Act, regulations and the terms and conditions contained in this license, the Governor-General shall renew this ‘licence for a further period of three years.’

“Bahamas Petroleum Company believes it has significantly exceeded all license commitments and obligations, with cumulative expenditure in excess of $50 million.”

However, after oil drilling and exploration became a political issue in the May general election, the then-Ingraham administration refused to confirm the BPC licence renewals and returned the company’s fee payments to it.

Now, some four months after the general election, it appears that BPC has finally got the licence confirmation it has been seeking.

While the licences require BPC to ‘spud’ its first Bahamian well by April 26 next year, sources close to the company confirmed to Tribune Business this requirement was set to be waived due to the Government’s insistence on holding a referendum on oil drilling at an as-yet unknown date.

The confirmation has not come without minor hiccups, however. Prime Minister Perry Christie’s referendum comments last week are understood to have knocked 15 per cent off BPC’s share price after they became public the following day.

Simon Potter, BPC’s chief executive, could not be reached for comment last night by Tribune Business. However, in an interview with this newspaper last month, he said the company was “working on business as usual” when it came to its licences.

Adding that BPC had met the renewal conditions “many times over, many fold”, he said: “We’re very clear on what our obligations are, and are looking forward to working with the Government to ensure we achieve them as best we can, both from an environmental and economic point of view.”

In a presentation given to the Trades Union Congress (TUC) at end-July, BPC’s chief operating officer, Dr Paul Gucwa, said the Government could earn a collective $30 billion in royalty income during “the first 10 years of production” if projected quantities of oil are discovered in Bahamian waters.

Dr Gucwa said BPC’s activities over the next two years - if they were allowed to proceed and discovered the commercial quantities of oil forecast - “could help rebase the Bahamian economy”.

Noting that there was time to train Bahamians for the jobs that may be created, Dr Gucwa said that based on there being two billion barrels of oil in Bahamian waters, production would take place over three stages.

The first would involve drilling 15 wells, with production set to peak at more than 72 million barrels per year in the first year.

Explaining that this initial phase was designed to provide BPC with some income to offset development costs, Dr Gucwa said the second phase would involve a further 21 wells.

And production, according to his presentation, would peak at over 160 million barrels per year during the sixth-seventh years of drilling, encompassing a third development phase.

The TUC presentation showed that the Government would start earning royalty income, some 12.5 per cent of each barrel extracted and rising ultimately to 25 per cent, in the third-fourth year of BPC’s activities if exploration proved successful.

Collective royalty income, forecast as being between $3-$4 billion per year, was set to hit $30 billion over the 10-year period between the fourth and 14th year of BPC’s work, the company projected.