The Tribune

* BPC chief: 'We're looking to get on with job'

* Aiming to settle outstanding licence fees

* Consultants to be posted on drilling vessel

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamas-based oil explorer yesterday said it will "pay double the royalties that the law provides for" to the Government should it strike success when exploratory drilling starts in less than a month.

Simon Potter, Bahamas Petroleum Company's (BPC) chief executive, speaking before the threatened legal challenge by environmental activists emerged (see other article on Page 1B), told Tribune Business that the company and Bahamian government will enjoy an equal 50/50 share of any proceeds should it discover commercial quantities of oil in this nation's waters.

Asserting that BPC's activities could produce up to a $5bn revenue windfall for the Government over the project's 10-20-year life, depending on the volume of oil found beneath the seabed, he reiterated the "tremendous difference" this could make to an economy afflicted by the ravages of COVID-19.

With BPC yesterday revealing that the Stena IceMAX vessel hired to drill its Perseverance One exploratory well is poised to leave the Canary Islands for The Bahamas by November's end, in preparation for a December 15, 2020, operational start, Mr Potter told this newspaper: "We're looking forward to getting on with the job we've been trying to do for the last ten years.

"The royalty structure is embodied in law and the licence. The law establishes a royalty that we have to pay for the production of oil and gas, and the licence we signed provides more royalties on top of that.

"It doubles the amount of royalties we'd pay under the law. We agreed with the government many years ago to pay more royalties than the law provides for. Depending on the volume of oil it could double the royalties."

BPC’s existing commercial terms with the Government involve a ‘sliding scale’ of royalty fees, with the rates tied to production (the daily volume of oil, measured in per barrel terms) that is extracted from Bahamian waters.

The royalty rates range from a low of 12.5 per cent for 75,000 barrels per day to a peak of 25 per cent for 350,000 barrels per day or more, with a production licence granted for 30 years.

And, using a market price of $80 per barrel of oil, BPC has said that once production costs - equal to around $40 of this sum - are taken out, the remaining $40 would be "split 50/50 between us and the Government".

While the discovery of commercial oil quantities remains an 'if', with much now depending on the results of BPC's exploration activities, Mr Potter again defended royalty rates and terms which have come under fire previously from some observers who believe they provide too little to the Bahamian people.

The BPC chief, who previously told this newspaper that the payments it faces are “30 per cent higher” than those paid by Gulf of Mexico oil drillers, pointed out that the company had taken on all the risk by investing more than $100m to-date just to reach the well-drilling stage without the Government parting with a single cent.

And, given that The Bahamas is effectively 'virgin' oil exploration territory, with no well dug for more than 25 years, Mr Potter said comparisons with the rates paid in established oil producers such as Trinidad & Tobago were not like-for-like.

"There's no financial risk to the Government," Mr Potter reiterated. "We have to bear the contributed capital burden of exploration, appraisal and development. That's the business we're in. We understand the rules of the game, and it's important to establish the rules of the game beforehand.

"That's the contract we signed with the Government. They contracted with us to explore, they contracted with us to drill a well, and in the event of success the Government and ourselves know who is getting what."

BPC, in its statement yesterday, said a successful Perseverance One strike will "substantially de-risk" a structure that extends for between 70 and 80 kilometres below the seabed, "has a mapped areal closure of over 400 square kilometres, and has a 'best estimate' aggregate recoverable resource potential in excess of two billion barrels".

"Perseverance One is a potentially basin-opening well, with the kind of scale and associated value uplift exposure rarely offered outside of oil majors," Mr Potter argued. "At the same time, our activities, in the event of success, have the capacity to be economically transformative for the nation of The Bahamas, and could ultimately contribute billions of dollars in royalty revenues to the national treasury at a time when the dual impact of recent hurricanes and the COVID-19 pandemic has been especially hard-felt by most Bahamians.

"Many other nations in the region such as USA, Mexico, Trinidad and Tobago, Suriname and Guyana have over the past decade safely and responsibly drilled offshore wells, developed or continue to develop offshore hydrocarbon resources, and reaped the economic benefits of an established or a whole new industry. Moreover, these other nations have been able to do so at the same time as seeing growth and development of existing industry sectors, such as tourism."

Mr Potter told Tribune Business that BPC's efforts could produce "$5bn in revenue over the 10-20-year life of the project depending on the volume we find", and added: "This is a resource to the nation, and could make a tremendous difference to the revenue base of the economy and generate significant revenues over the life of the project.

"With the economy struggling it could be a huge help to many and all Bahamians. What a difference it would be if we established this as a resource base for the economy."

Mr Potter added that BPC was still working with the Government to resolve the licence fees payable for its second exploration period. "We're still in discussions, that's the best thing to say there," he said.

"I think it's one thing we'd like to get settled. We've paid licence fees in advance in good faith in the last few years although we've been unable to further activity with the licence. But it's our obligation and we're prepared to stand up."

BPC yesterday said the Perseverance One well, which will be drilled in waters some 90 miles to the west of Andros, close to the maritime boundary with Cuba, is "targeting recoverable prospective resources of 0.7 billion barrels of oil, with an upside of 1.44 billion barrels".

With the Royal Bahamas Defence Force and US Coastguard briefed on the drill ship's operating and safety procedures, the oil explorer added that the Department of Environmental Planning and Protection has now been briefed on the precise well location as well as having issued further unspecified approvals.

To provide further environmental safeguards, BPC said officials from Black & Veatch, the US-based consultants that assisted the Government with assessing the company's applications, will be present on the drill ship to provide a further layer of oversight during the 45-60 day drilling period.

"The well site is located within the Santaren Channel, a deep-water seaway that is already a major oil transhipment thoroughfare through which oil super-tankers pass daily carrying millions of barrels of crude oil to oil facilities in The Bahamas and beyond," BPC said

"The Bahamas is already a significant player in the international oil industry, home to some of the world's largest oil storage facilities. The Perseverance One well site is located more than 90 miles from the nearest inhabited Bahamian islands, and over 40 miles away from the nearest uninhabited Bahamian islands...

"In accordance with the requirements of BPC's licences, BPC has formally notified the Bahamian Department of Environmental Protection & Planning (DEPP) as to the precise well location, as well as the specific details and technical specifications in respect of the Stena IceMAX drill ship, and has obtained the DEPP's consent to same," it added.

"BPC is currently working with the Government of The Bahamas' appointed third-party expert adviser, international environmental consultants Black & Veatch, on a number of technical items relating to the Perseverance One drilling programme.

"As agreed with the Government of The Bahamas, one or more Black & Veatch experts will be stationed onboard the Stena IceMAX during drilling operations, and will oversee the entire drilling programme, with a specific mandate to observe and report on specific tasks, activities and operations, including observing the baseline seafloor survey and testing of drilling fluids to ensure compliance with mandated safety requirements; oversight of environmental compliance activities during drilling activities and thereafter during decommissioning and abandonment activities; and monitoring drilling practices, procedures and activities to assure compliance with the Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP)."