The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company (BPC) is hoping to slash costs associated with drilling its first exploratory well by up to 50 per cent “without compromising” health and environmental safety standards.

Simon Potter, BPC’s chief executive, told Tribune Business that the oil exploration firm was looking to exploit reduced oil rig rates and a better well design/execution plans to cut costs from around $100 million to $50-$60 million.

“The rig rates globally are under pressure and coming down, so the technical work we’re doing - looking at the well design, the execution plan - is trying to get those costs down close to $50-$60 million, instead of $100 million,” Mr Potter said.

“It’s a function of rig rates, well design, the location of the well, and the nature of the rocks and the condition of the rocks that we have to drill through.

“That’s not about cutting corners; it’s about being smarter. There’s no issue with compromising standards. It’s about taking the exact same standards and applying them to a drilling plan.”

BPC has to ‘spud’ an exploratory well by April 26, 2015, to meet its licence obligations, and Mr Potter yesterday said the company was “confident” that it would meet this objective in the waters 80-100 miles south-west of Andros.

The search for a joint venture (farm in) partner for the first exploratory well continues apace, with Mr Potter telling Tribune Business that an oil industry ‘major’ had just been through BPC’s ‘data room’ “the week before last”.

“The kind of companies we have pushed are majors and large independents, and they’ve been coming through regularly during the course of 2014 and, to a large extent, in the second half of 2013,” Mr Potter added.

“Really, it’s been since the Government clarified the issues surrounding the referendum and licence renewals.

“I think companies are looking to do due diligence on the geotechnical case and your assets. Anything that removes uncertainty is to our benefit and piques interest.”

`BPC’s five licences have been renewed for a further three years until 2016, while any referendum on whether to approve oil exploration and drilling in Bahamian waters has been delayed until it is known whether there are extractable, commercial quantities below the waves.

While one of BPC’s original northern licences required it to spud a well by end-April 2013, Mr Potter said the company had not pursued this since 2007-2008, having since established a strong case for starting oil drilling in its southern areas.

“The huge majority of the effort and expenditure has been focused on understanding and proving the technical case associated with those licences,” Mr Potter told Tribune Business.

BPC has neither seen, nor had input, into the other key part of the puzzle that is outside its control - the oil exploration legislation and regulations that environment minister, Kenred Dorsett, says are currently before Cabinet.

“We’re anxious to know what the final content of those regulations will be, but I don’t anticipate any issues with compliance,” Mr Potter told Tribune Business.

“Informally, in meetings with the Ministry [of the Environment], we’ve certainly given our views about current best practices across the world.

“As issues become prominent, we’d be happy to give our views as to which pieces of legislation are appropriate.”

Mr Potter told Tribune Business that BPC’s Environmental Impact Assessment (EIA) had drawn on historical oil industry lessons and met best international practices, which were also followed by the prospective joint venture partners coming through BPC’s data room.

Writing in BPC’s annual report, Mr Potter told its shareholders: “It has been observed that potential farminees (joint venture partners) could be waiting for final publication of new industry regulations prior to seriously considering final farm in negotiations.

“However, all preparations for drilling undertaken so far have been compiled on the basis of international best practices. Thus the introduction of new regulations is not expected to materially impact any of the work conducted to date.”

The formal execution of BPC’s five licence renewals has yet to occur, with the Governor-General’s signature still awaited.

As a result, BPC has yet to pay the $250,000 per licence fee, or collective $1.25 million, to the Government that is due fort 2013. BPC’s accounts say $287,500 in pre-paid rentals for 2012 were being used to offset this amount, leaving a net $962,500 balance owing.

“Individual licence fees are five times higher in the second period than they were in the first period,” Mr Potter told Tribune Business. “That’s quite a steep increase that we’ve had to bear.”

With $14.863 million in cash on the balance sheet, Mr Potter said BPC had “plenty of capital, plenty of juice in the company’s coffers to be able to cover those bills” and its exploration activities moving forwards.