The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday unveiled plans to “maximise” its revenue share from oil exploration activities, although it is unclear whether its increased take will apply to the current licensee.

Simon Potter, the Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business that the financial terms for its exploration activities were already “embedded” in its licence agreement with the Government.

BPC’s licence bases the Government’s revenue share on a 30-year “sliding production scale”, with the Treasury’s royalties earnings increasing from a minimum 12.5 per cent to a maximum 25 per cent depending on the oil volumes extracted.

But Kenred Dorsett, minister for the environment and housing, in unveiling the legislative package to regulate oil exploration in Bahamian waters, detailed a radically-revised regime for determining how the financial benefits are to be shared.

While the royalties and their calculation method remain largely unchanged, Mr Dorsett told the House of Assembly that the Petroleum Bill and accompanying regulations would introduce ‘profit sharing’ and what he described as a ‘Petroleum Entitlement’.

The proposed legislation also provides for the Government to earn a 12 per cent levy on the price paid by an oil exploration firm to acquire the licence/lease rights held by another.

Touting these potential financial benefits as a “first” for the Bahamas, Mr Dorsett said they would replace a petroleum/oil exploration regime that was unchanged for 40 years.

“The new fiscal regime to be advanced by the Government in relation to the upstream petroleum sector will ensure maximum revenue to the Government,” he said.

“Not only will we receive royalties for petroleum and natural gas if produced, but we will also receive a significant share of the profits and, as profits increase, the total Government share of the revenues must also increase.”

Mr Dorsett added that the previous fiscal regime, upon which BPC’s present royalty payments are based, allowed for “no state participation, no profit sharing, no additional Petroleum Entitlement and no tax on transfer rights”.

While the current filing fees and seabed rentals/leases would remain, the new financial regime contained in the legislation contains much that is new.

However, the only change to the existing royalties regime is a slight increase in the maximum rate to 30 per cent - up from 25 per cent. The minimum remains at 12.5 per cent, with the “sliding production scale” also unchanged.

However, Mr Dorsett said the new Bill will allow the Government to earn 40-70 per cent of all net income based on a profit sharing scheme.

This, he added, will be “based on an agreed formula including reasonable cost recovery limits” for the privately-owned explorer.

And the Government will also earn a Petroleum Entitlement via a 10-15 per cent return “on investment thresholds to be determined by the Government”.

“The fiscal regime will secure a fair share of revenues for the Bahamas and Bahamians, and it will be progressive,” Mr Dorsett added.

BPC’s Mr Potter, when contacted by Tribune Business in the UK, said that while he had yet to read Mr Dorsett’s House of Assembly presentation, “our fiscal terms are embedded in our licence agreement”.

“Oil companies look at risk and reward, and no one has drilled a well in the Bahamas for the last 30 years,” Mr Potter told Tribune Business. “We’re here, and willing and able to drill an identified prospect.”

Whether the Government will seek, or be able, to impose the Petroleum Bill’s new financial regime on BPC is uncertain, given that the terms of its existing licence have already been agreed.

It is possible the Government may attempt to do this whenever BPC’s licence comes up for renewal, but another issue is whether efforts to revise the sector’s financial regime are premature, given that no commercial quantities of oil have yet been discovered in Bahamian waters.

Parliament will not debate and pass the Petroleum Bill, and its accompanying regulations, plus legislation to establish a sovereign wealth fund, until the New Year. This mean that BPC’s target April 2015 date for drilling its first exploratory well will likely be pushed back, given that the legislation/regulations must be in place to facilitate this event.

“I think that’s something we’d be looking at,” Mr Potter said of the April 2015 date, which is stipulated in its existing licence. “It’s something that would be difficult to achieve at the moment.

“We want to drill the safest and most environmentally responsible well we can. Now we have the regulations, we can move that project forward.”

The BPC chief renewed his praise of the Government for moving forward with oil exploration regulation, adding that he was “absolutely sure” it would help the company secure a joint venture partner for its first exploratory well.

“It shows the Government’s intent,” Mr Potter told Tribune Business. “They’ve made oil exploration integral to their National Energy Policy, and this just follows on from the promise they made to introduce modernized and strengthened regulations.

“It’s been a bit of a hang up for other investors that we’ve been in this twilight zone where we’re aware it’s coming along, and the Minister has insisted on no drilling without these regulations. To have them out in public now is good for us, good for the people, good for potential investors and the Government has honoured its promises to bring them before Parliament.”

Asked whether Mr Dorsett’s unveiling of the new regulatory regime would aid BPC’s joint venture partner search, Mr Potter replied: “I’m absolutely sure of it. Nobody likes a vacuum, and a lot of parties don’t want to uncertainty over a framework in which they place their investment dollars.

“To have greater certainty shows the Bahamas is open for business and investment dollars. What we all want is a modern, regulatory framework in which to move this project forward.”