The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will earn more than $20 billion in royalty revenues if the Bahamas Petroleum Company (BPC) discovers one billion barrels of oil in this nation’s waters, the company’s chairman revealed yesterday.

In what appeared to be a direct riposte to those who have argued that the Bahamas stands to gain too little from BPC’s activities, and that the deal should be renegotiated, Adrian Collins told the company’s shareholders that no other oil explorer had shown interest in the Bahamas for 25 years.

The current deal provides for the Government to earn royalties of between 12.5-25 per cent, linked to a sliding scale based on BPC’s oil production, and Mr Collins said the company was taking on 100 per cent of the risk and financing costs associated with exploration.

Implying that the Bahamas was not investing a single cent in the project, but stood to benefit financially if commercial oil quantities were discovered, Mr Collins wrote in BPC’s 2012 financial statements: “For over 25 years no other company has shown the interest, insight nor the commitment of your company in bringing to the attention of the Government, at no financial risk or cost to it or its people, the potential that may reside in Bahamian waters.

“The company will continue to emphasise the direct benefits of Government royalty income from the very first day, indeed the first barrel of production. This government income is modelled at the level in excess of $20 billion from a one billion barrel discovery, whilst it is the oil company that bears the entire cost and financing of development and operations, as well as the risk that production is sustained over time as projected.”

Meanwhile, Simon Potter, BPC’s chief executive, last night told Tribune Business that the company was “not looking to raise a particular amount” from its proposed Bahamian Depository Receipt (BDR) offering to local institutional and retail investors.

With $21.312 million in cash on BPC’s balance sheet at year-end 2012, the proceeds raised from the BDR offering - which will be listed on the Bahamas International Securities Exchange (BISX) - are not material to the company’s fortunes.

Mr Potter confirmed as much, telling this newspaper: “We won’t be looking to raise a particular amount.

“We’re fully funded in terms of running the business. This is simply an opportunity for Bahamians to invest in a Bahamian-asseted company.”

Mr Potter added that the BDR issue, which will be placed by RoyalFidelity Merchant Bank & Trust, was still awaiting approval from the Central Bank of the Bahamas and Securities Commission.

The Government’s recent policy ‘U-turn’ on its so-called referendum on oil drilling, which will permit exploratory drilling prior to any public ‘vote’, has paved the way for the BDR issue.

“The issue of the referendum was obviously germane to that kind of decision for the Central Bank and the Securities Commission,” Mr Potter said. “The same uncertainty that inhibited discussions with partners was also, I believe, on their minds.”

BPC’s annual financials for the year to end-December 2012, perhaps unwittingly, reveal that it took just six months for the Christie administration to mount its spectacular ‘oil referendum’ u-turn reversal.

The documents showed BPC was told by the Government on September 7, 2012, that a referendum “would be held prior to any exploration drilling being permitted in Bahamian waters”.

Come March 10,2013, the Minister of the Environment announced that exploratory drilling would be allowed to determine whether commercial quantities of oil did exist below Bahamian waters.

Many believe the latter decision was ultimately the correct one, as a referendum would have been meaningless without knowing if there was something (commercial quantities of oil) to have a vote on.

Elsewhere, Mr Collins revealed that Dr Paul Gucwa, BPC’s chief operating officer, had chosen not to renew his contract.

The Bahamas-based executive would “pursue faster paced opportunities where his skills can add the most value, given the company’s shift from early stage exploration activities to drilling”, Mr Collins wrote.

Mr Potter confirmed that BPC would “fill his very big shoes”, although not with a direct replacement. The new recruit, he added, would have skill sets demanded by BPC’s immediate term activities - engineering and drilling structures.

The BPC chief executive, in his own statement to shareholders, said exploratory drilling would start between the 2014 mid-year and year-end, with a starting point closer to the latter more likely.

“A key priority this year will be to close the farm-out discussions as soon as possible and review options over drilling rig selection,” Mr Potter said.

“Ongoing work will continue with a greater focus on drilling as we progress with designing and planning the exploration well in the context of the new environmental regulations, which we wholly support.”

He told Tribune Business last night: “We’ve articulated the way forward as seeking a funding partner, an industry partner, to help us with the well exploration. Follow-up discussions are ongoing.”

BPC is still placing the cost of its first exploratory well at between $100-$120 million, and Mr Potter said the Government’s referendum decision had “re-energised” negotiations with potential joint venture partners.

“From when people last talked to us, we’ve received fully processed 3D seismic data, and the Government clarified the referendum,” Mr Potter told Tribune Business.

“It’s given the discussions new impetus, but we’ve done a lot of work over the last six-nine months, so those will need to catch up. It’s a very involved process.”

Mr Potter told BPC shareholders that elements of the company’s Environmental Management Plan (EMP) were “60 per cent complete”,

His chairman, Mr Collins, added that BPC and its activities had become “heavily politcised” in the run-up to the 2012 general election, but the Government’s referendum decision had “restored our mandate to drill, which is now contingent only on the adoption of imminent environmental regulations by the Bahamian Parliament.

“The company is currently working with the Government to quantify a revised deadline for drilling obligations under the licence terms, and we will update shareholders as and when appropriate.”

For 2012, BPC saw its operational losses decrease by 39 per cent to $6.3 million, aided by a 50 per cent reduction in employee expenses.

Some $8.6 million was invested in capital expenditure last year, chiefly seismic data processing costs, bringing BPC’s total investment to $45.7 million.