The Tribune

By KHRISNA RUSSELL

Tribune Chief Reporter

krussell@tribunemedia.net

ATTORNEY General Carl Bethel assured Bahamians that the government intends to renegotiate the scale of royalty fees if commercial quantities of oil are found in the country.

His statement came the same day Bahamas Petroleum Company announced it had begun drilling its exploratory well in Bahamian waters.

Mr Bethel accused the Christie administration of “gross negligence” by “short-changing” the Bahamian people out of higher royalties from the deal it left in place before being voted out of office.

“I wish to assure the Bahamian people on behalf of the government of the Bahamas that, should commercial quantities of oil be found, and should permission to extract the same be given, the government will certainly renegotiate the scale of royalty fees which will be paid, both to the Consolidated Fund, but also to the Sovereign Wealth Fund, for the immediate benefit of every Bahamian,” Mr Bethel told the Senate yesterday.

He sought to address what he described as “certain erroneous statements” made by PLP Leader Philip “Brave” Davis recently in the House of Assembly that the Free National Movement government had issued the original lease and approvals for such exploration, and that the Progressive Liberal Party government had subsequently “improved” the terms of the approvals.

BPC, meanwhile, announced yesterday morning it had started drilling of the exploratory well, Perseverance #1. The company said the well was “spud” on December 20 at 6.30 EST. The well is anticipated to take 45 - 60 days to complete.

The Tribune reached out to BPC on Mr Bethel’s pledge to renegotiate royalties, but was told no comment would be made.

However, in a statement on the start of the drilling, BPC CEO Simon Potter said the company viewed it as a “momentous milestone”, adding the highest environmental and safety standards would be followed.

Mr Potter said: “We are very pleased to announce that the drilling of the exploratory well, Perseverance #1 has commenced – the well has been spud. This is a momentous milestone for both BPC and the Bahamas and represents the culmination of more than 10 years’ work by a team who have remained steadfast in their belief in this project throughout – that it is finally taking place is a testament to the application, skill and professionalism of many people over those years.

“The well will be drilled to the highest environmental and safety standards over the next 45 - 60 days. Our shareholders have been extremely patient, but we are now within a couple of months of understanding the scale of potential resource uplift that might be accessed within the licences: a potential uplift that is the traditional domain of the ‘oil majors’.

“More than a decade ago BPC secured several offshore hydrocarbon licences in the far-southern waters of the Bahamas. Convinced of the compelling prospectivity of those licences, the company has spent close to $120m bettering our technical understanding, continuing to de-risk the play, and ultimately preparing meticulously for exploration drilling.

“Our 3D seismic survey revealed structures that have the potential to contain a world-class, multi-billion barrel oil resource that, if present in the way we hope, could prove to be transformative – not just for our company, but for the nation and people of the Bahamas as a whole.”

Agreement

This comes on the heels of continued pushback by environmentalists.

Prime Minister Dr Hubert Minnis has also voiced his opposition to oil drilling in Bahamian waters, but said his administration met an agreement already in place.

Activists have applied for a judicial review in the Supreme Court to block the drilling, however, the matter has not yet been heard.

Yesterday, Mr Bethel said the original approval for oil drilling and leases of ocean floor areas for the purposes of oil exploration were given and executed by the first Christie administration on April 26, 2007 and not by the FNM.

The law firm which incorporated and acted for the oil company in 2007 was Davis & Co, Mr Davis’ firm.

“The renewal of those leases, with minor changes, was executed by the second Perry Christie administration, on the 8th June 2015,” Mr Bethel said.

“At no stage did any FNM government ever issue or renew any lease of ocean floor for the purposes of oil exploration or drilling. The renewal of the leases by the PLP government in June of 2015 incorporated and extended the original lease issued by the PLP government in April 2007. However, the only change in the renewed lease was an increase in the rental fee from $57,500 for each tract of ocean floor that was leased to $250,000 for each tract leased.

“Contrary to what was asserted by the leader of the opposition, the PLP merely ‘improved’ on this aspect of their grant to BPC; not on any grant by the FNM - which never granted anything.

“Significantly, what was not changed was the amount of ‘royalties’ which would be payable to the Bahamas government in right of the Bahamian people, should commercial quantities of oil be found.”

Mr Bethel said in 2016, the PLP passed a new Petroleum Act, which then specified two methods of calculating royalties.

Despite this, he said the same rate of royalties, based upon a low percentage of the “net petroleum won and saved from the licensed area” was maintained by the PLP, without any change.

“This original provision was not in accordance with the law under which it was purportedly issued, because the price from the well in the old Act was not tied to the ‘net value’ of petroleum. It set a basic rate of ‘not less than 12.5 percent on the selling value’ of oil produced at the wellhead. This was a royalty based upon the selling price, not the ‘net’ value.

“The PLP government in 2016 did not change the level of royalty payments, and apparently was content merely to receive between 12.5 percent and 25 percent of the value of extracted petroleum, after the oil company had deducted all their investment and production costs.

“Clearly the PLP government was content to be a subject to the accounting practices of the oil company, in calculating what they say was their costs of operation and return on investment; and content to accept a miserably low rate of taxation or royalties on that amount.”

He continued: “This raises some questions because in 2014 the PLP government had already received the advice of the Commonwealth Secretariat on how to maximise the revenue payable to the Bahamian government in right of the Bahamian people; yet, curiously, in 2015 when they renewed the leases, the PLP government did not change method of calculating the royalty fee, despite the advice received from the Commonwealth Secretariat, even though their attention had been specifically drawn to the low royalty fees contained in the original lease. The deal was simply renewed by the PLP government without any change; knowing full well that the Bahamas government and the Bahamian people were being short-changed.

“The terms of the original leases as to the amount of royalties payable, which were continued, without change by the PLP, either reflect gross negligence by the PLP government in 2007 and 2015, or they reflect something else. Was it intentional?”

Mr Bethel said in 2019, the government again consulted the Commonwealth Secretariat, who again advised that the royalty regime did not meet the international standard, which exceeded 60 percent of revenue from the oil well.

“In fact, the ‘profit share’ varied between 45 percent and 75 percent of the net selling value, with a global average of around 60 percent. But it could actually be as high as 75 percent of the profits. The PLP left the amount at a maximum of 25 percent, having been advised, as we were advised, that the correct rate on net petroleum revenue should be no less than 45 percent, and possibly as high as 75 percent.

“The PLP government had been advised by the Commonwealth Secretariat, as we were subsequently advised, that the global standard rate of royalty payments for oil production is between 45 percent and 75 percent of net value of any oil extracted.

“Yet in 2007 the PLP set a ridiculously low level, of an average of between 12 percent and 25 percent on a sliding scale, which was agreed. In 2015, the PLP increased the rent payment for the ocean floor but did not change the sliding scale for royalty payments. Again, this was an act either of gross negligence, or it points to something else. Was it intentional?

“. ..It is noted that the chief executive officer of BPC, Mr Simon Potter, has publicly indicated a willingness to review the amount of royalties payable in respect of any commercial quantities of oil found,” Mr Bethel said.