The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company (BPC) says studies have shown it can achieve “robust profitability” in the current low oil price environment, thus giving it a “huge competitive advantage”.

The Bahamas-based oil explorer, in a trading update released this week, said its activities in this nation’s waters had “unparalleled upside” for potential joint venture partners in its first exploration well.

Although there was no announcement of who such a partner might be, there was little disguising the upbeat, optimistic nature of BPC’s report, as it touted an estimated 50 per cent cut in costs for its first exploratory well to $50-$60 million.

While the company’s licenses from the Government require it to ‘spud’ its first exploratory well by April 2015, that target is unrealistic and unlikely to be met, given that the Petroleum Act package - which will regulate BPC’s activities - has yet to be passed into law.

Its trading update, while pledging to drill the first exploratory well “as soon as possible”, BPC said it was talking to the Government “on what constitutes an operationally realistic, safe and responsible planning period for such a well and subsequent commencement of operations”.

In other words, the April 2015 date will be pushed back, although that is hardly fatal to BPC’s plans.

The company added that the re-engineering of this well’s design, together with reduced rig rates, “has reduced anticipated exploration well costs substantially, such that the company is now targeting a total cost in the range of $50-$60 million for this well”.

Revised economic studies had also shown there was “a minimum field size for economic development of less than 200 million barrels”, which again will help to keep exploration and production costs under control.

Describing himself as “more excited than ever”, Simon Potter, BPC’s chief executive, said the anticipated passage of the Petroleum Act and accompanying regulations would give the industry the “certainty” it is seeking, while demonstrating the Government’s commitment to facilitating exploration.

“Technical work through 2014 has continued to highlight the world-class potential of our acreage,” Mr Potter said in a statement. “Present estimates are for field sizes consistent with those measured in the previous company CPR (competent person’s report) at a comparatively low break-even cost, thus providing huge competitive advantage in a world of lower oil prices.

“We have carefully managed our existing cash resources, and have been able to significantly reduce the expected cost of our first exploration well, whilst retaining technical, environmental and safety integrity. This means that the risk/reward proposition of financing an exploration well with exposure to so much upside is, I believe, unparalleled.

“All of these factors give confidence that during 2015 we will be able to secure the funding needed to pursue the enormous opportunity before us, in a manner that is value-enhancing for our shareholders.”

BPC said it had further “de-risked” the project via further technical studies suggesting that rock structures on the Bahamian seabed were capable of producing commercial quantities of oil.

With cash reserves greater than $10 million at the 2014 year-end, and no debt on its books, BPC said it had gained a further boost from its Board’s agreement to forgo 20 per cent of remuneration “to only be repaid, in shares, in the event of a successful farm-out or other arrangement sufficient to finance the first exploration well”.

BPC added: “These actions have resulted in a total operating cost savings of 54 per cent in aggregate over the past three years (an average annual reduction of 22 per cent on a year-on-year basis).”