The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Petroleum Company's (BPC) chief executive is alleging it will incur extra costs of up to $400,000 per day if activists succeed in persuading the Supreme Court to halt its exploratory oil drilling.

Simon Potter, in a December 11, 2020, affidavit filed with the Supreme Court, said this would be incurred if the Stena IceMAX was forced to suspend drilling operations and sit in a "holding pattern" above the Perseverance One well in waters some 90 miles to the west of Andros.

"The cost of simply extending the Stena agreement and holding the vessel in readiness is estimated to be in the range of $350,000 to $400,000 per day," Mr Potter alleged. "Any interruption to the drilling execution schedule, no matter how small, adds considerable cost to the operation which can be measured on a daily basis.

"That said, it is unlikely that Stena would agree to such course of action for an extended period of time given that the drill ship is contracted for another offshore drilling campaign in Mexico, due to commence shortly after completion of the drilling of Perseverance One."

Mr Potter confirmed that BPC had spent $9.1m on contractual agreements with third party suppliers and contractors related to Perseverance One to-date, "and has non-cancellable commitments that will result in a further $13.1m of expenditure".

He added: "In addition, BPC has incurred considerable other costs in support of the project since February 2020 in terms of personnel and staff costs, legal fees, financing costs and so forth of approximately $2.9m. Thus, total direct costs incurred since February 2020, including non-cancellable commitments, stand at some $25.1m.

"Suspending the project would result in direct losses to BPC of approximately $25.1m. This does not include penalty and break fees that may also become payable, nor does it include the costs of re-securing the various services and items required to restart operations at a later date.

"By way of example, pursuant to the contract with a subsidiary of Stena Drilling for the provision of the IceMAX drill ship, if a stay on the drilling of the well were deemed a force majeure event the company would be required to pay Stena a force majeure day rate for a minimum period of 30 days before the contract could be terminated," Mr Potter continued.

"The force majeure rate is defined as 75 percent of the operating day rate of $185,000 and is therefore $138,750 per day. Over the contractual 30-day period this would result in a penalty payment of $4.2m by BPC to Stena for which it would receive no useful service of the drill ship."

The BPC chief said the company had already paid a $2m "mobilisation fee" to Stena to send the IceMAX across the Atlantic. He added that even if a Supreme Court-ordered "stay" was not deemed a "force majeure" event, BPC would be required to pay the drill ship owner a "full stand-by rate" for 45 days, incurring a net $2.8m extra charge above the commitments it has to-date.

With a $2m demobilisation fee also becoming due if drilling is halted, Mr Potter said: "Thus in total, if a stay prevented BPC from enacting its drilling programme as planned, and in the timeframe currently envisaged, direct losses to BPC are currently estimated at $25.1m with a further outlay of $4.8m if the Stena agreement had to be prematurely interrupted.

"Halting the exploratory drilling set for December 20, 2020, would cause very serious financial prejudice to BPC." Tribune Business previously revealed how BPC fears its "major $100m asset will be extinguished", thereby threatening its survival, if the Supreme Court halts its oil drilling activities.

This is because it would be impossible for the company to apply for the renewal of its five southern Bahamian licences by the March 31, 2021, deadline unless it is able to complete its Perseverance Once exploratory well within the targeted 45-60 days.

Disclosing that the results will be critical to determining whether BPC seeks to renew these licences, Mr Potter argued that the oil exploration outfit faced potentially "extreme" economic losses if environmental activists successfully persuade a judge to "stay" Perseverance One's drilling as part of their Judicial Review challenge to the project's approvals and permits.

And, ominously, he warned that any Supreme Court-enforced drilling halt that deprived BPC of its ability to rely on the Environmental Authorisation (EA) approval granted by the Government on February 25, 2020, could "impair The Bahamas' reputation as a reliable and predictable investment destination". And, "at worst", Mr Potter said it could spark multiple legal claims in numerous countries.