The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company (BPC) has “become more confident” in recent months over its chances of discovering commercial quantities of oil, its chief executive yesterday saying it could now resume previously “stalled” negotiations with up to 15 potential joint venture partners.

Simon Potter told Tribune Business that prior to the Government’s clarification on its planned oil exploration referendum, the uncertainty meant that BPC had been “somewhat thwarted” in its efforts to find a joint venture partner for its exploratory drilling.

Explaining that its potential ‘farm in’ partners had previously “held the whip hand” and been able to reduce the financial terms offered to BPC, Mr Potter said the Government’s announcement would enable them to turn the tables.

Acknowledging that some might regard the 20 per cent chance that commercial oil quantities will be found in the Bahamas as low, Mr Potter described this as “pretty darn good” given that this nation had no track record in the industry.

Tribune Business understands that this success ratio is around two to four times’ greater than the global oil industry’s average likelihood of success when it comes to discovering ‘black gold’ in virgin, undeveloped territory.

And Mr Potter said BPC had “become more confident” over its prospects for discovering commercial quantities of oil in the Bahamas, having busied itself while waiting for the Government’s clarification.

The BPC chief executive said the company had spent its time further interpreting the 3D seismic data it had shot, something that will enable the company to place its first $120 million exploratory well “in the optimum place”.

Indicating that the company would have been unable to move much further forward without the Government deciding to approve exploratory oil drilling prior to a referendum, Mr Potter told Tribune Business: “Without this clarification, commercial negotiations were essentially stalled.

“We’ve had 15 potential partners through the data room, but it was very difficult for third parties to engage us in discussions and negotiations. The fact they have made this clarification has allowed us to go back to potential partners and open up this whole topic again.

“Before, we can lay out the complete technical case, but historically, up to now, commercial negotiations have been somewhat thwarted,” he added.

“At least from the other side’s point of view, they had the whip hand and were able to discount the cash price because we lacked specific facts about when we could drill. This information has helped us, as we can be a lot more specific on the Government’s intentions going forward.”

Acknowledging that there was “no guarantees in life”, Mr Potter told Tribune Business that BPC believes its prospects of striking commercial quantities of oil in Bahamian waters was high - at least when compared to industry averages.

The 2011 Competent Persons Report, produced independently of BPC, placed the prospects of success in the Bahamas at about 20 per cent.

“People will look at one-fifth and say that is not very good, but for somewhere that hasn’t got commercial hydrocarbons [before], that’s pretty darn good,” Mr Potter told Tribune Business.

This newspaper understands that the oil industry normally puts its chances of discovering commercially viable quantities in areas where there is no history at between 5-10 per cent, so the Bahamas’ success prospects appear to be double the norm.

Referring to BPC’s prospects of success as “technical risks” (not environmental risks), Mr Potter added: “Have we become more confident about the outstanding technical risk? Yes, I’d say we’ve become more confident.

“From the 3D, you don’t spend $35 million and not expect to get something from it. The risks have come down from our perspective. From our assessment of the technical risks, we’re very confident of the technical work we’ve done, and have only improved on the initial work done on the 3D.”

BPC’s last round of commercial negotiations with potential joint venture partners took place in mid-2012, and Mr Potter said much work on interpretation of the 3D data had occurred since.

BPC’s drilling contractor had completed work on the first exploratory well’s design and engineering features, while the “resolution” of its 3D data was “that much greater”.

“What that does is reaffirm and reinforce the views of prospectability,” Mr Potter said. Apart from confirming seabed rock structures and reservoirs, the BPC chief executive added: “It makes the well safer, and allows you to put the well in the optimum place, so you don’t waste time and money.

“When it’s costing you $1 million a day, you need to press on with that effort and get it right first time, making it safe as well.”

Mr Potter said it would take about a year to get all the equipment necessary to drill a first exploratory well in place, meaning that “the earliest” one would be dug was early 2014 - ahead of hurricane season.

Much depends on when the Government gets the regulatory framework to govern oil exploration in place, and failing to beat the 2014 hurricane season would push exploratory drilling back to the end of that year.