The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamas-based oil explorer yesterday revealed it was “within three weeks” of drilling its first well until COVID-19 intervened as it unveiled a revised timetable taking its operations into the 2021 first quarter.

Simon Potter, Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business the pandemic-enforced delay may have worked to its advantage after the company announced it had signed “a definitive contract” to secure the rig that will drill its first exploratory well in waters to the south-west of Andros.

Besides a 15 percent drop in the cost of BPC’s Perseverance One well, Mr Potter said the deal with Stena Drilling would now see the rig provided on an “unconditional” basis as opposed to the conditional terms attached to an earlier deal when it was targeting the 2020 first quarter to begin drilling.

He added that the new rig contract signing meant BPC is now committed to drilling a Christmas 2020 well in the 47-day “window between December 15, 2020, and February 1, 2021, which means that the Government will have to agree to extend the company’s licence terms beyond their current end-December expiry.

BPC previously invoked the “force majeure” contract in its licence agreement, which deals with “unforeseeable circumstances” preventing one party from fulfilling the terms of a contract, and said in its statement announcing the rig contract that it is seeking “clarification from the government” that its licence terms can be extended until “at least June 2021”.

The government has made no public comment on whether it has accepted BPC’s “force majeure” request or if it will agree to extend the licence beyond end-2020. Mr Potter confirmed that the government had acknowledged receipt of BPC’s request, but Romauld Ferreira, minister of the environment and housing, has not returned Tribune Business calls or messages seeking comment despite having ministerial responsibility for the matter.

Mr Potter, meanwhile, described the rig contract signing as “a decisive step” that removes “any kind of ambiguity”. He added that it should demonstrate to sceptics that BPC and its project were “real”, given the years and millions of dollars spent on investigating commercial oil prospects below The Bahamas’ seabed.

Recalling how close BPC had come to hitting its original April 2020 deadline to spud a first exploratory well, Mr Potter said the company had secured the drilling rig; the assistance of two major oil services companies, Haliburton and Baker Hughes; acquired the necessary funding, sourced all needed equipment; assembled the necessary workforce and opened an office in Houston.

And, with the required Environmental Authoristion obtained from the Government, he told Tribune Business: “With all that bottled together we were on the cusp of drilling the well. We were within three weeks of starting when COVID-19 intervened.”

He explained that the pandemic meant BPC was unable to guarantee the health and safety of the rig’s crew, while the closure of international borders threatened to impede the movement of staff in and out of the vessel. And the impending start of hurricane season on June 1 meant that all drilling activity had to be pushed back beyond its November 30 close to avoid further disruption.

“There were double gates that we had to pass through,” Mr Potter said, “which meant that when we packed up shop in March this year we wouldn’t realistically be able to drill the well until November-December this year because of COVID-19’s impact and hurricane season.”

He added that the rig contract with Stena Drilling had now “fixed a time window” between December 15, 2020, and February 1, 2021, when Perseverance One will be drilled. “It’s certainly a decisive step for us,” Mr Potter said of securing the rig. “We didn’t want there to be any kind of ambiguity, so we stepped forward and got the contract. It’s a fantastic ship; it’s one of the highest-spec rigs in the world. It’s a very modern, clean looking vessel.”

The BPC chief said rig costs had fallen by around 15 percent, from $25-$30m to now $21-$25m, while the timing and commercial terms were now fixed. And Stena had also been given the opportunity to invest its own money into BPC’s exploratory well project.

“Based upon the licence terms and prevailing regulations (and allowing only for the duration of disruption to operations to-date), the company expects that the current exploration period of its licences will extend until at least April 2021,” BPC said in its statement. “However, given the likely further continued COVID-19 related disruption, the company has sought clarification from the Government on an extension to at least June 2021.”

It added that the COVID-19 related delay had created “an additional six months of general working capital needs”. With $12m in cash holdings, BPC said that it would likely have $9m left when it came time to drill the first exploratory well.

“On the basis of this revised total well cost estimate of $21m to $25m plus potential contingencies, the company’s current funding ‘gap’ for Perseverance No.1 is in the range of $12m to $16m - plus a further $5m to $10m depending on the extent to which potential contingency/provisional costs may be required/opted for,” BPC added.

However, it pointed to two facilities - worth a combined $34m - previously arranged that are available to be drawn down as and when needed. One is described as a “£16m (approximately $21m) facility with a Bahamas-based family office investor for a zero-coupon”.

“Given current market conditions and the revised drilling timing, the company is now actively seeking to revisit all potential funding sources for Perseverance No.1 with a view to optimising the availability and cost of its funding,” BPC said.

“This includes continuing to pursue a farm-in, and farm-in discussions remain on foot with a number of parties. Stena Drilling has also been granted certain options to invest in BPC or the project.”

BPC’s oil exploration activities remain controversial with Bahamian public opinion split on the issue. Many observers continue to question whether the company is for real, while environmental activists and others fret about the impact any spill or pollution could have on the country’s environment and tourism industry when it re-opens following COVID-19.

Environmentalists recently celebrated what they saw as a major victory as multiple Florida congressmen and women, including some close to the Trump administration, wrote to US secretary of state, Mike Pompeo, urging that he oppose BPC’s oil exploration plans.

Others, though, argue that the economic crisis created by COVID-19 means that The Bahamas cannot afford to spurn the opportunity to discover whether commercial quantities of oil exist within its territorial waters given the potential positive impact this would have for the government’s fiscal position and country overall.

However, “if” remains they key word regarding any prospect of discovery for the time being, with any prospect of economic diversification from BPC’s activities still some way off regardless of whether oil is found. The company said the recent collapse in global oil prices will not affect its activities based on its belief the market will recover.