The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamas-based oil exploration firm’s search for a joint venture partner remains trapped by a “paradox”, its chief executive said yesterday, with just seven months left before its deadline to drill a first well expires.

Simon Potter, Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business that the exploration firm’s prospects had changed little in 2016 to-date, with its search for a joint venture (farm in) partner to mitigate the risks continuing.

While BPC’s likely well drilling costs had reduced by 50 per cent to around $50-$60 million, with rig rates down some 75 per cent, persistent low global oil prices were discouraging industry investment and exploration activities.

BPC’s ‘farm in’ partner search has been directly impacted by this negative trend, although Mr Potter said the scale of its Bahamas licenses, and likelihood of potential commercial discoveries, meant the company was better placed than most.

“There’s a sort of paradox here,” Mr Potter told Tribune Business. “While the actual costs of executing the well, based on the rig rates and other associated costs, is going down, we find ourselves at a time when the amount of capital for investors to invest in exploration is constrained by the market situation.”

The clock is now ticking down to the April 30, 2017, deadline for BPC to spud (drill) its first exploratory well in Bahamian territorial waters to the south of Andros.

Mr Potter would not be drawn to give a direct answer yesterday, when Tribune Business asked how confident he was that BPC would fins a joint venture partner in time and hit this deadline, and whether it would seek to negotiate an extension with the Government.

“We’re working very hard,” he told Tribune Business. “Clearly, the overriding issue is seeking a partner, but equally the other overriding objective is to plan everything effectively so that we execute a safe and responsible well.”

Mr Potter added that the global oil industry typically went through cycles, and added that “the $64 million question” was when prices would start to experience a sustained recovery.

While that is unlikely to benefit the Bahamian economy, and Bahamas Power & Light’s (BPL) business and residential customer, a sustained rise in global oil prices appears critical to BPC’s exploration and joint venture partner search.

Mr Potter, though, told Tribune Business that BPC’s prospects of discovering extractable, commercial quantities of oil in Bahamian waters were fat better than most exploration rivals, enabling it to stand out from the crowd.

“The market conditions are difficult, but the project is self-selecting at this time because it is a project with quite a substantial scale, and the ease of doing business in the Bahamas makes it more attractive than other far-flung places,” Mr Potter told Tribune Business.

“At times like this, when there’s a rationing of capital, the first thing that goes or finds itself constrained is exploratory drilling. While a number of projects globally are suffering, obviously the better ones float to the top.

“Those better projects re measured by the scale of the potential resource, and ability to execute the project. Our project in the Bahamas is differentiated by having substantial scale.”

The Bahamas’ proximity to the world’s largest oil consumer, the US, and existence of nearby infrastructure in both this nation and Florida, are further advantages for BPC, Mr Potter added.

When it came to costs for the first exploratory well, Mr Potter said oil rig hire rates had fallen from $1 million per day in 2012 to around $250,000 per day, due to the dearth of market activity.

He reiterated that BPC was now pegging costs for its first exploratory well at $50-$60 million, as opposed to the original $120 million estimate, a 50 per cent fall.

BPC, in its half-year results announcement for the six months to end-June 2016, said the passage of the Petroleum Act into law earlier this year, together with gazzetting of the regulations, had given potential joint venture partners the additional certainty to enter into negotiations.

“The Company’s strategy remains intact: To secure exploration funding from an industry partner, thus enabling the timely discharge of licence obligations,” Mr Potter and Bill Schrader, BPC’s chairman, told investors.

“In support of this strategy, meaningful discussions with a number of suitably qualified potential partners are ongoing. The positive attributes of our project mean we have continued to attract the attention of both major and independent operators, notwithstanding the overall subdued industry environment, although mainly due to the external market factors, the pace of progress has been less than we would desire.”

BPC suffered a $2.159 million operating loss for the 2016 first half, a figure than was down 8 per cent year-over-year, and an 11 per cent reduction on an annual basis.

“As at 30 June, 2016, the company had a total cash balance of approximately $2.5 million,” Messrs Potter and Schrader wrote. “Given that cash outflows over the remainder of the 2016 calendar year will be substantially lower than during the first half of 2016, due to the various cash savings initiatives implemented to-date as well as a reduced opening creditor position, the company projects a total cash balance of approximately $1.5 million as at 31 December, 2016.

“The reduced corporate cash ‘burn’ rate, and our ongoing determination to avoid all non-core cash expenditure in the coming period, is such that the Board is satisfied that these remaining funds are sufficient to see the company into the second half of 2017,without further capital intake, thus providing sufficient time to complete the ongoing process of securing a partner and the funding of future well operations.”

BPC has ‘capitalised’ the $47.967 million spent to-date on its seismic assessments and other exploration activities, with its four southern Bahamas exploration licenses having been extended until June 8, 2018.