The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An oil explorer has delayed the drilling of its first well in Bahamian waters until late May/early June to ensure the coronavirus crisis does not cost it “millions of dollars”.

Simon Potter, the Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business that pushing back the April 2020 target date by around a month was “really inconvenient and frustrating” but it had to keep in mind the potential health, financial and operational impacts created by the global pandemic.

“Our rocks have been there for hundreds of millions of years, and are not going anywhere, so let’s keep this in perspective,” he said, noting that there were “many people in deeper trouble” as a result of the health and economic fall-out worldwide.

Mr Potter explained that the various travel bans implemented to delay the virus’s spread threatened the ability of BPC’s oil rig to maintain a 45-60 day exploratory drilling programme for its first well, named Perseverance One, as they would disrupt the logistics flows of manpower and equipment required for such an operation.

“I don’t think anybody could have foreseen this or planned for this,” he told Tribune Business. “We have been gearing up for the past eight months to execute this project in terms of the drilling phase. We anticipated it would have been underway in April, and simply had to adjust the schedule to May/June time.

“Drilling is a complex project that involves a lot of people and equipment, and bits and pieces, and a lot of that comes from all over the world. To operate the rig efficiently, it has to certainly be in place for 45 to 60 days in our case. The virus makes it much more challenging to get people and equipment to the rig in the timing we need...

“If we were half way through and can’t get people to the rig, there’s a lull and interruption. That’s millions of dollars, which is fine for an oil major’s point of view, but from our point of view - and a health and safety point of view - we don’t want a delay while the rig is there.”

Setting aside the financial pitfalls, Mr Potter said an oil rig was no different from a cruise ship in that just one infected worker could pass the coronavirus on to hundreds in a confined environment. “You’ve got 200 people on the rig in close proximity to each other,” he explained. “It only needs one person to infect many.”

The BPC chief said many elements of its plans relied on “just in-time” provisioning, meaning that the certainty of being able to get manpower and equipment to the rig just when it is needed is critical to its operations.

BPC, in a release to shareholders explaining the rationale for the drilling delay, said the coronavirus pandemic had created an “extraordinary, unprecedented” operating environment for both itself and other businesses.

Should the pandemic continue such that the May/June timeline for drilling Perseverance One not be met, the exploration outfit said its alternative timeline would be late 2020 after the August-October hurricane season peak. It pegged this as mid-October, given that its licence with the Government requires it to spud an exploratory well before year-end 2020.

“The company considers that safe, responsible and cost-effective drilling can best be delivered by ensuring continuous operations throughout the entire period of the drill plan,” BPC explained.

“For this to occur, the company, its major contractors, and all relevant staff and personnel must be operationally ready, with all necessary equipment available, all provisioning organised and a logistical plan completed, such that all aspects of operations can be safely executed uninterrupted throughout the duration of intended drilling activities.

“The company’s well planning to-date has thus involved putting in place arrangements for reliable access to the range of globally-sourced equipment, goods, services and personnel required to execute the designed well continuously for the 45 to 60-day critical period of anticipated drilling activity,” BPC added.

“For this reason, the company has also sought to plan for drilling to occur outside of the peak risk period for hurricanes in The Bahamas (being August to October), given that any unexpected downtime during operations introduces additional commercial risk, as from the company’s perspective downtime periods have to be paid for at essentially the same day rate as normal drilling operations.

“Any such downtime periods would therefore materially impact the overall cost of operations, and consequential business loss insurance is not available to cover such scenarios.... According to most global commentators, it now appears likely that this high level of operating uncertainty will continue to prevail for at least the next eight to 10 weeks, which unfortunately runs right through the company’s currently scheduled drilling window, thereby introducing a risk to the company’s ability to operate continuously, responsibly and within currently established guidelines, timelines and, as a consequence, budgets.”

Mr Potter added in a statement: “We have made consistent progress toward drilling of the company’s 100 percent owned and operated Perseverance No.1 well, targeting recoverable prospective resources of 0.7m to 1.4bn barrels of oil. As a prudent operator our primary objective is a safe well, best delivered by the ability to drill uninterrupted by external events for the period of the drill plan.

“Such a continuous operation is also the most cost effective. It is in this context that we have had to reassess the timing for commencement of drilling given the widespread disruption being caused by the global response to the Covid-19 virus.

“Whilst incredibly frustrating given all the hard work undertaken to get to the current state of drill-readiness, the responsible thing to do is to slightly reschedule commencement of operations, to later in the second quarter 2020, to a time when continuous delivery of operations can be better assured whilst also still enabling operations to be completed before the peak risk period of the Bahamian hurricane season. Pleasingly, farm-out discussions in the context of our overall funding strategy continue to advance. We will update shareholders as appropriate over the coming weeks.”

BPC added that its financing remained in place to cover anticipated well costs of between $25m to $30m, with “potential contingencies” possibly adding a further $5m in expenses.