The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s plan to bring the new Petroleum Act and accompanying regulations to Parliament next month was yesterday hailed as the first step in “unblocking a logjam” to multi-million dollar oil exploration investments.

Simon Potter, the Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business that the legislation’s release - and eventual passage through Parliament - represented the “next piece of the jigsaw” in the company’s oil exploration efforts.

He praised the Christie administration’s efforts as “entirely laudable”, and said the new regulatory regime would benefit the Government and Bahamian people, as well as BPC and its shareholders.

The new regulatory regime’s release removes a key obstacle to BPC’s efforts to progress on several fronts, especially its search for a joint venture partner and the design for the first exploratory well it is currently expected to spud by April 2015.

Speaking after Kenred Dorsett, minister for the environment, confirmed the Government will bring the new Act and regulations to Parliament when it reconvenes after November 18, Mr Potter said the Christie administration was also showing awareness that oil exploration was “a potential economic game changer” for the Bahamas.

This is because Mr Dorsett confirmed that the legislative package will include provisions to create “the framework” for a sovereign wealth fund, into which would go the Government’s royalty proceeds should commercial quantities of oil be discovered in Bahamian waters.

“We obviously welcome the Minister’ statement. As far as we’re concerned, this is entirely laudable,” Mr Potter told Tribune Business.

“It’s good for everybody, really. It’s good for the people of the Bahamas, as they will have clearly modified and strengthened regulations, which reflect modern technologies and the attitude of society.

“It’s good for the Government that they have up-to-date regulations that comply with global best practices and international standards,” he added.

“And it’s good for us in looking to try to create investment in a new industry in the Bahamas.”

While the regulatory package’s content, and its practical implications ‘on the ground’, have yet to be seen and assessed, its unveiling and potential Parliamentary passage eliminates a major roadblock for BPC.

Mr Potter, in BPC’s 2014 half-year report to shareholders, had revealed how the wait for the Bahamas’ new regulatory regime was hindering the company’s efforts to tie down a joint venture or ‘farm in’ partner for its first exploratory well.

“The key constraint for companies visiting the data room is the obvious lack of any tangible progress by the Government with regard to producing modernised and strengthened petroleum regulations as promised,” Mr Potter wrote then.

“Whilst the Ministry [of the Environment] has reinforced many times that the work is ongoing, the longer this task has gone on the more suspicious visitors have become as to the reasons for the delay.”

The Minister’s statement, and the regulatory package’s impending tabling, thus pave the way to clearing up many of these concerns.

Mr Potter yesterday acknowledged that regulatory regime, and its likely content, were among the most frequent subjects raised by potential joint venture partners passing through BPC’s data room.

He added that both BPC and its possible partner needed to know the regime’s requirements, given that they intended to “invest substantial amounts of dollars in this new sector”.

“It’s the first log that unblocks what is a logjam to getting companies involved in this sector,” Mr Potter told Tribune Business of the Minister’s announcement.

“It’s the next piece of the puzzle, the next piece of the jigsaw that will allow us to move forward with evaluating prospects in Bahamian waters.

“I think we’ve talked in the past about the need for these regulations. It’s a process the company has fully supported and, to the extent appropriate, co-operated on with the Government.”

The BPC chief explained that the new regulatory regime’s passage into statute law would also enable the company, and any joint venture partner, to complete the design of their exploratory well.

He expressed confidence that the well design would be in full compliance with the new regulations, given that BPC had worked to ensure it complied with international best practices and standards.

Still, the Government’s regulatory regime has the potential to cause minor adjustments, and increased costs, when it is passed into law.

Mr Dorsett, in his announcement yesterday, said the proposed regulations would ensure oil exploration in Bahamian waters was “undertaken in a safe and environmentally responsible manner, consistent with international standards, best practices and the most up-to-date risk management, health and safety protocols”.

He added that the Government’s current $440 million-plus fiscal deficits, and $5.8 billion national debt, could be eliminated if commercially viable quantities of oil were found on the Bahamian seabed.

“This new legislative package will also include the legislative framework for a Sovereign Wealth Fund to ensure that in the event oil is discovered in commercially viable quantities, the wealth that will accrue to the nation as a result will be invested, managed and conserved in the most optimal way for present and future generations of Bahamians,” Mr Dorsett said.

“It goes without saying, that if oil is discovered in commercially viable quantities in the Bahamas, it will have a massively transformative effect on our fortunes as a people.

“It will allow us to deliver on our commitment to eliminate the fiscal deficit while, at the same time, providing a platform for the systematic reduction in the cost of electricity on a sustained basis for consumers, both residential and commercial.

“Longer term, it will vastly increase the wealth of the nation through the creation of a flourishing new industrial sector and a sovereign wealth fund, one that has the potential of enriching the nation beyond its imagination. “

Mr Dorsett, though, was careful to quickly dampen Bahamian expectations of ‘black gold’, as no proven oil reserves have yet been confirmed in Bahamian territory.

“First things first : It‘s obviously important that we not count our chickens before they are hatched,” the Minister added.

“If, as a result of such exploration, we do discover oil in commercially significant quantities, we will already have put in place a legislative regime to ensure that we make the best of it in an environmentally responsible way, and in a way that will ensure the best possible financial returns for our nation. “

In previous presentations to numerous Bahamian society groups, BPC has shown, using an $80 per barrel oil price as an example, that 50 per cent of that revenue – some $40 – would go to cover costs.

That would leave $40, or 50 per cent, left, which would be split 50/50 between the Government and BPC. Over a 20-40 year timeline, if commercial quantities of oil are discovered in the Bahamas, BPC has projected that itself and the Government would each earn $20 billion in revenues, with development costs totalling $40 billion.

Mr Potter yesterday said the sovereign wealth fund focus showed the Government recognised the transformative effects BPC’s work could have on the Bahamian economy if it was successful.

“In the event of success, it is a potential game changer,” he added.

Mr Potter also emphasised that there was no comparison, or parallels to be drawn, between any ‘risk’ associated with BPC’s plans and the recent oil spills in the Clifton area.

The BPC chief emphasised that the company’s exploratory wells were miles from any island, and would be situated on the Bahamas/Cuba border some 25 miles from the latter’s coast.

And he promised that the technology employed by BPC would be “bang up to date, compliant with international best practices and standards”, in contrast to the “ageing facilities” at Clifton Pier.

Mr Potter revealed that BPC would have the ability to “respond instantly” to any incidents at its rigs and around it, due to the constant presence of support vessels and equipment by it.

He added that BPC’s membership of the Oil Response Group gave it access to “millions of dollars of equipment” within 24 hours’ notice.