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Bahamas 'Ass Backwards' Over Oil Negotiations

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known attorney yesterday said the Bahamas had done an “ass backwards” job in negotiations with the Bahamas Petroleum Company (BPC), arguing that the country should receive “no less than 60 per cent” of the proceeds if commercial quantities of oil were discovered.

Craig Butler, head of the C. F. Butler & Associates law firm, told Tribune Business that the 12.5-25 per cent ‘sliding scale’ royalties agreement negotiated with BPC was similar to arrangements “Third World” states had reached with oil explorers.

Recalling the research he conducted on the matter in the run-up to the May 2012 general election, Mr Butler said most countries had negotiated terms where they received between 25 per cent to 90 per cent of the proceeds from any oil exploration/production.

He added that BPC was being “disingenuous” and seeking to recover all its development and exploration costs upfront, the moment commercial oil quantities were found, whereas most such deals allowed exploration firms to recover such costs over the lifetime of their leases.

And Mr Butler called for the Bahamas to create a non-political National Commission to re-negotiate the deal with BPC, and introduce more “transparency” into the process.

“All the countries that aren’t good at negotiating deals got the thin end of the stick,” Mr Butler said of the findings produced by his research. “The more developed countries tend to take a larger part of the pie in terms of the profits.”

Simon Potter, BPC’s chief executive, told Tribune Business yesterday that the financial agreement was effectively a 50/50 split between the company and the Government.

Based on oil selling at $80 per barrel, BPC presentations have shown that while half that revenue sum - $40 - would cover costs, with the remaining 50 per cent or $20 each going to the company and the Government respectively.

Yet Mr Butler argued: “BPC is being disingenuous, making it seem as if they are taking an amazing risk. They are, but that is what business is all about. They’re looking to recoup their costs right away.”

He suggested that typical oil exploration deals allowed companies to indeed recover their costs, but over the lifetime of their lease agreements.

Mr Butler said that if BPC’s development costs worked out to be $20 billion, it seemed to want to recover that “off the bat” if commercial oil quantities were found, based on its agreement with the Government.

As a result, the Bahamas would not see any benefits for three-four years.

“With the greatest respect to these negotiators, we are still enamoured that we possibly have oil, natural gas, and this money is coming in,” Mr Butler said.

“We’re looking at it as if the country is benefiting by $10 billion, $20 billion, and we’re salivating. We’re not thinking long-term, thinking this is the Bahamas’ last opportunity to become the first world country it wants to be.”

He added that Trinidad & Tobago had also squandered its oil and natural gas inheritance, with the financial terms benefiting the explorers, and proceeds concentrated in the hands of a few.

“If this is a national resource, if we are putting our tourism industry at risk, the Bahamas as a whole needs to benefit from this,” Mr Butler told Tribune Business.

“My research has shown that generally, the initial financing is paid back over a period of time, 10-20 years at a reasonable interest rate. Profits are then split. Going rates are anywhere from 25 to 90 per cent. Clearly, the better your negotiating team, the better the country’s deal.

“In other places, companies pay a large fee to come in and prospect. All the burden is theirs. And their licenses have determinable periods,” he added.

“It appears as though in the Bahamas we’re always ass backwards. We should be receiving no less than 60 per cent, and all infrastructural and economic costs should be paid back over 20 years at 3 per cent. Take it or leave it. If it were put that way, they’d [BPC] jump to take it.”

Describing 25 per cent and 90 per cent as the respective low and high ‘ends of the scale’ in terms of what sovereign countries received, Mr Butler said the Scandinavian nations received the latter.

“Twenty-five per cent tends to be the Third World places like Belize that have no idea how to negotiate a contract,” he added. “Nigeria has 70 per cent. If Nigeria has 70 per cent, why can’t the Bahamas negotiate 60 per cent?”

Asked about the way ahead, Mr Butler told Tribune Business: “What I would like to see is a National Commission appointed, not just PLPs but a cross-section of respected people in society, 15-20 of them, who can go in and negotiate these contracts on our behalf.

“It’s the only way we can go to have any transparency. It it’s completely political appointees, we’re doomed.”

He urged that ‘new faces’ be appointed to this Commission, along with several experts on the international oil industry.

Comments

SP 6 years, 8 months ago

Mr. Craig Butler's perspective is a real concern worth serious follow up. Indeed our politicians have proven to be untrustworthy, totally incompetent and well known for doing things "Ass Backwards".

This point is proven repeatedly by other stupid deals that were struck by politicians with other National assets.

Not to mention the almost total failure in every sphere of our country leading to a near failed state conquered by foreigners’ that never had to fire a single shot!

Successive Governments have run the country from a "deep sea fishing position". Meaning, while the country is in perpetual forward motion, they are seated looking backwards which only enables them to deal with a situation after the fact and constantly putting out fires.

The appointment of a National Commission consisting of a cross-section of respected "BUSINESS AND CIVIC" individuals in society to negotiate these contracts on behalf of Bahamians at large would definitely be the best solution and the only way a proper deal could be struck to the advantage and best interest of our country, people and future generations.

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GilbertM 6 years, 8 months ago

THE BAHAMAS GOVERNMENT NOR THE BAHAMIAN PEOPLE WILL SEE A DIME OF THAT MONEY: There are a few considerations. When you "find" oil, you amongst the 1000s of issues there are two important ones: a. How you get it and the costs, b. and the market price of oil per barrel, which affects the previous costs. So therefore, here is what is likely to happen: The lead firm will confirm its find and say to the government we will pay you a royalty. Let's suppose the royalty is 90% of profits, just to be overly optimistic. The government would never see a dime. Why? Because the firm with the rights in the Bahamas, will sell the rights to the proven reserves to a larger company. That company will determine what it costs to pump the oil from the depths. The government will only gain income, even if its on the gross, from oil that passes the Relief Valve. But nothing will. Because when the large Company buys the rights, they will Cap the Wells immediately. That is because, oil prices would need to be over $200 dollars per barrel to make its economically feasible to pump it. So Caping is like storage until the market price makes pumping feasible. A final point: if the oil has a high sulfur content, (Sour), then that adds refining costs too. There are lots of oil finds all over the world. The question is, is it financially feasible to pump it. If the find in the Bahamas was a "monster find" (and it could become that), the question will be the cost of pumping - including environmental protection costs - relative to the profit yield based on the market price over time."

Professor Gilbert NMO Morris

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