The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company’s (BPC) efforts to secure a joint venture exploration partner have been hit by increasing “suspicions” over the Government’s delay in releasing the new regulatory platform for the sector, it was revealed yesterday.

Simon Potter, BPC’s chief executive, confirmed to Tribune Business that the “most frequent” question asked by BPC’s potential partners concerned the content of the Government’s proposed legislative/regulatory package, and when it would be publicly released.

While firms had been impressed by the ‘technical case’ for oil exploration in Bahamian waters, as set out in the data room provided by BPC, the promised regulatory regime’s absence remained a “key constraint” to sealing a joint venture partnership.

“The key constraint for companies visiting the data room is the obvious lack of any tangible progress by the Government with regard to producing modernised and strengthened petroleum regulations as promised,” Mr Potter told BPC’s shareholders in the company’s half-year results announcement, released yesterday.

“Whilst the Ministry [of the Environment] has reinforced many times that the work is ongoing, the longer this task has gone on the more suspicious visitors have become as to the reasons for the delay.”

This is also causing frustration among BPC’s international investors, with the exploration firm’s chairman, Bill Schrader, having to manage shareholder expectations and explain that the delay is understandable given that this is a new industry for the Bahamas.

“Although a number of shareholders have expressed their frustrations to me at the pace of progress, I remain convinced that we as industry players must remain aware of, and sympathetic to, the concerns of the local community that exploration be undertaken as safely as possible. It must be governed by regulations embodying global best practice,” Mr Schrader said in his half-year report to investors.

Mr Potter, too, was more sanguine about the regulatory regime “delay”, saying BPC was prepared to wait and would be “in full compliance” with its obligations to spud a first exploratory well in waters south-west of Andros come April 2015.

This date, though, is likely to be pushed back as a result of the wait for the regulations, which are the immediate obstacle to proceeding with oil exploration in Bahamian waters.

Mr Potter told Tribune Business that companies passing through BPC’s data room were “very keen to get involved” as joint venture partners, based on the likelihood of striking commercial quantities of oil in Bahamian waters.

Yet, while BPC had made the ‘technical case’, Mr Potter revealed: “The most frequent question on their minds, unfortunately, is the regulations and the extent to which they will be promulgated.

“From all the public indications by the Minister, this should be done very soon. That’s what they’re [potential joint ventre partners] asking for in regards to the farm out.

“We have talked to the companies in a very technical way, but the answer they want is what the regulations look like. From a farm out point of view, companies do their commercial due diligence, and the big question they want to know is what regulations will pertain.”

Apart from a new Act to govern all oil exploration and petroleum-related activities in the Bahamas, Mr Potter said the proposed reforms also dealt with regulations impacting the environment and Health and Safety.

Acknowledging that the Christie administration had plenty on its plate, Mr Potter told Tribune Business: “There’s a packed legislative agenda at the moment, and hopefully we’ll get as far up the queue as we possibly can.

“We want to see the regulations as soon as possible, and I’m sure the Government is in the position as well.

“At the end of the day, the rocks are not going anywhere, the oil has been there for millions of years, and we can wait for another couple of months.”

Mr Potter added that BPC supported the Government’s regulation plans, and would provide help wherever it was needed.

“Liaison between the company and the Ministry has picked up recently, and all the indications are that a draft of the new regulations will be available for public consideration and consultation imminently,” Mr Potter said.

“Following adoption of revised offshore regulations, the company expects to receive formal execution of the licence renewal from the Governor-General and confirmation of a revised drilling deadline, nominally 12 months from renewal execution.”

He told Tribune Business that “one of the silver linings to the delay” was the ability for BPC to exploit changing global market conditions and hire its first drilling rig at substantially lower rental rates than previously thought.

BPC is aiming to slash costs for its first exploration well by up to 50 per cent via the increased availability of drilling rigs, as Mr Schrader’s comments to investors make clear.

“My main concern has been focused on the need to deliver options for realising a deliverable well cost of roughly $60 million,” he told shareholders.

“When I joined the company, a preliminary FEED (front end engineering design) study had been undertaken which assigned a $100-$120 million price tag to our first exploration well - expensive by any measure, although not uncommon in offshore exploration.

“I have encouraged management to consider how the well design and location could be improved to deliver the best chance of success for the most reasonable price, rather than to wait for a farminee to apply their experience and expertise in this regard. “

As a result, BPC is moving its first exploratory well location further north west along the same structure , in a bid to both reduce costs and technical risks..

“At the same time, the shift in the US to onshore unconventionals, coupled with a global decline in exploration activity, has led to overcapacity in the global offshore rig market, resulting in increased rig availability and decreased day rates. This has further supported the effort towards a target well cost of $60 million,” Mr Schrader added.

Mr Potter told Tribune Business that hitting the $60 million target would further reduce entry costs for joint venture partners, providing an extra incentive for firms to partner with BPC.

He explained that the rig would be moved slightly, but still drill on the same structure - a move intended to ensure it encountered more favourable geology.

“With the time we’ve had, we’ve not just been sitting on our hands,” Mr Potter told Tribune Business. “We’ve improved our technical understanding of what’s down there.

“It’s finessing. We’ve been able to move to a lower error bar..... I’m pretty sure we’ll be compliant with our obligations under the licence.”