The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company (BPC) yesterday said its exploration activities have been made “more attractive than ever” by the recent oil price crash, and it will “break even” with a much smaller oil field than previously thought.

Simon Potter, BPC’s chief executive, told shareholders in yesterday’s annual results announcement that the company would cover its costs, even at a $30-$40 per barrel global oil price, with a discovery of less than 200 million barrels.

BPC’s initial assessments suggest there are potentially billions of barrels of oil beneath the Bahamian seabed, leading Mr Potter to forecast that the company will deliver “robust profitability” should it find commercial quantities of ‘black gold’ that can be recovered.

The BPC chief executive reiterated that while events were developing “not at the pace we would have liked”, the Christie administration had both extended its active licences for a further three years and made progress on the regulator regime that will govern oil exploration activities in the Bahamas.

These developments, Mr Potter added, together with the extension of the time BPC has to drill its first exploratory well until April 30, 2017, had given the company the necessary clarity to help attract a joint venture partner for that $50-$60 million project.

Meanwhile, William Schrader, BPC’s chairman, said the 50 per cent decline from a $100 per barrel oil price that occurred over an eight-month period had “paradoxically” impacted the company’s operations in a positive way.

He explained that this had slashed the costs associated with drilling BPC’s first exploratory well by around 50 per cent, while also making North American shale and sand oil drilling projects - which require oil prices of $60-$80 per barrel - economically non-viable.

With BPC’s competition potentially reduced, Mr Schrader told shareholders that reduced global oil prices meant industry players needed to discover new petroleum reserves to maintain “long-term viability”.

This, the BPC chairman implied, also plays into the company’s hands by motivating potential joint venture partners to strike a deal with it for the first exploratory well.

“To summarise in straightforward terms, at Bahamas Petroleum we have a petroleum prospect inventory that we believe is substantial, both in terms of its scale and its economics,” Mr Schrader said.

“Somewhat paradoxically, we therefore consider that the current market environment makes our company’s projects more attractive than ever to major oil producers.

“That is, the risk/reward proposition of financing an exploration well with a comparatively low break even cost and exposure to so much upside is, we believe, unparalleled.”

Mr Potter, meanwhile, said much of the uncertainty that had affected BPC’s progress in 2012 and 2013 had been resolved last year via the new regulatory regime’s progress and the company’s licence renewals/extensions.

With the Petroleum Bill and Sovereign Wealth Fund Bill having begun their passage through the legislative process, Mr Potter reiterated that the improved financial terms they set out for the Government would not apply to BPC.

“Fiscal terms in the Bahamas are specified in each of the individual license agreements, and thus are therefore not altered by the new legislation,” Mr Potter wrote.

“Notwithstanding the above, our existing licences are clarified as being grandfathered under the existing Petroleum legislation, based upon the savings provisions in the new Bill, such that the company therefore has no statutory impediment to the commencement of an exploration well.”

The four licence renewals cover BPC’s key exploration areas, and require that the company pays $1 million per annum in rental fees to the Government - $250,000 per licence.

Some $287,500 in pre-paid rentals that were submitted to the Government in 2012 have been “offset” against this sum, leaving BPC to pay a net balance of $712,500.

However, BPC is in negotiations with the Government over the single licence it held in northern Bahamian waters. It wants its obligations under this licence to be “deferred”, as engaging in exploration activities in this area is “not justified” currently.

“Renewal of the Miami licence is under review, pending negotiations with the Government of the Bahamas regarding the work commitment and annual rentals associated with entering into a further three-year licence period,” BPC said.

“Should the results of these negotiations be unsatisfactory, the Group may elect not to renew this licence.”

BPC has also reduced the previous extra five licences it applied for to three, so that the proposed Cay Sal National Marine Reserve is excluded.

Mr Potter added that BPC now has “a very clear mandate” to move forward with oil exploration in the Bahamas.

He added that an analysis conducted in 2014 by Fluid Inclusion Technologies, which assessed data from three historic wells that “offset” BPC’s fields, confirmed the presence of seabed rock structures that could produce large oil volumes.

And BPC’s updated economic assessments suggested that “the minimum field size for an economic development is less than 200 million barrels (versus current resource estimates measured in billions of barrels), with an estimated break even oil price of $30-$40 per barrel”.

As a result, “the project would thus offer robust profitability even in a lower oil price environment”.

Mr Potter said: “In conclusion, we continue to face many challenges for our company, not least of which is the prevailing market sentiment towards oil exploration, and progress as ever is slower than we would desire.

“Nonetheless, as chief executive I can report to shareholders that during 2014 we continued to make progress, and achieved a number of significant milestones.

“Technically we have de-risked the project substantially, and all indications are of a multi-billion barrel economically robust project,” he added.

“In a commercial and regulatory sense, we now have clarity on the extended tenure; timings as well as terms and area of our licences. When combined with the recently demonstrated commitment of the Bahamian government to our industry, along with the legislative clarity provided by the savings provisions of the new Petroleum Act with regards to our existing licences, we believe this now provides the level of certainty needed to attract high quality industry partners.”

Mr Potter said BPC’s main task in 2015 would be to secure financing for the first exploratory well, with its preferred solution being to find a joint venture partner.

And, talking up the benefits to the Bahamas, Mr Schrader said: “We consider that the creation of a successful petroleum industry will be transformative for the nation of the Bahamas.

“Exploration activity will create immediate opportunities, and subsequent commercial success will generate long-term national wealth, providing the ability to reduce sovereign debt, boost domestic investment and diversify the economy.

“Our industry has the potential to be a ‘game changer’ for the Bahamas, and we are extremely proud to be at the forefront of seeking to realise that potential.”