The Tribune

* Drilling halt would threaten licences renewal

* And cost potential $2.4bn jump in their value

* BPC chief warns of Bahamas reputation hit

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company (BPC) has warned that its "major $100m asset will be extinguished", thereby threatening its survival, if the Supreme Court halts its oil drilling activities.

Simon Potter, its chief executive, revealed in a December 11, 2020, affidavit that 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.

Justice Petra Hanna-Weekes is due to rule tomorrow, on Christmas Eve, whether to grant permission for the action by Waterkeepers Bahamas and the Coalition to Protect Clifton Bay (Save the Bays) to proceed.

Despite not being named as a party to the case, BPC has decided to leave nothing to chance by filing a mountain of legal papers with the Supreme Court as it seeks to intervene and protect its rights as an interested party in the outcome.

Mr Potter's affidavit, filed as part of this effort, argued that any halt could cost BPC a $2.4bn increase in the value of its Bahamian licences - presently pegged at $100m - were it discover commercial quantities of oil in this nation's waters.

Many observers will likely regard this $2.5bn valuation, which Mr Potter said had been calculated by financial analysts and brokers, as speculative to say the least given that no oil has been discovered. Yet Mr Potter argued that, applying just a 20 percent success probability to BPC's chances, "the potential consequential economic loss would be in the order of $500m or more".

The BPC chief, though, was especially concerned about the impact any Perseverance One halt or delay would have on its licence renewals, as the results and findings from its first exploratory well are inextricably bound up with the decision to apply to the Government for an extension.

"Apart from the large direct financial losses, costs and penalties associated with suspending activities (and, thereafter, the costs associated with restarting activities, even if possible), any extended delay occasioned by the grant of a stay that ultimately operates to prevent completion of well activities by March 2021 will have the effect of preventing completion of the project all within the currency of the exploration period of the southern licences, which are set to expire on June 30, 2021," Mr Potter revealed. "This is for three reasons as follows."

With the Stena IceMAX drill ship and other contractors booked out on other commitments following Perseverance One's completion, Mr Potter said "I am not confident" they could be brought back to complete the job if the Supreme Court ordered a drilling halt.

"Secondly, any application to renew the licences must be made by March 31, 2020," he added. "There is no confirmation the Government would consider any application for renewal if the results of the exploratory drilling were not available.

"BPC would also not be in a position to make an informed decision as to whether to make a renewal application if the analysis of the drilling is not available. Thirdly, the drilling operation takes between 45-60 days to complete, and a period of time after completion of drilling is required for demobilisation and analysis of drilling.

"A stay of any significant duration would thereby frustrate BPC's ability to comply with its obligations under the southern licences. In those circumstances, the southern licences would expire and BPC's major asset would be extinguished," Mr Potter continued.

"The consequential economic loss to BPC occasioned by an extinguishment of [its subsidiary's] licences without having had the opportunity to drill the Perseverance One well would be extreme. Specifically, on a pre-drill basis, the southern licences are valued, as implicit in the valuation ascribed to BPC on the London Stock Exchange, at around $100m.

"If the Perseverance One well, once drilled, successfully identifies commercial quantities of hydrocarbons, that value, as independently assessed by numerous financial research analysts and broking firms in the UK could rise to as high as $2.5bn. This, therefore, represents the total financial loss to BPC that may result from a delay to the project."

Mr Potter said the publicity surrounding the Judicial Review challenge "saw an immediate eradication" that wiped more than $60m from BPC's market value on London's Alternative Investment Market (AIM) as investors sold down its shares upon the negative news. Besides the loss of investor and regulator confidence, he added that any delay would also hit BPC's ability to raise capital.

"In summary, therefore, I believe that any delay to the Perseverance One well programme from the current schedule would result in substantial direct economic losses to BPC of at least $25.1m, potentially as much as $29m, and even more substantial indirect economic loss of value and potential value of up to $500m," Mr Potter argued.

"It would lead to the expiry of the southern licences without the opportunity to drill the Perseverance One well and therefore would cause irreparable harm to BPC, its employees and shareholders, and possibly threaten the operational and financial viability of the company as a whole."