By NEIL HARTNELL
Tribune Business Editor
Oil exploration success would make The Bahamas' fiscal deficits "a thing of the past", a former Cabinet minister is arguing, with the benefits felt before a single barrel is pumped.
James Smith, pictured, a Bahamas Petroleum Company (BPC) director, told Tribune Business that confirmation of recoverable, commercial quantities of oil beneath this nation's waters could lead to an almost-instant improvement in the country's credit ratings.
He explained that the likes of Moody's and Standard & Poor's (S&P) would recognise oil as a natural resource the Bahamas can "monetise" into a significant revenue stream and future earnings, helping to return this nation to 'investment grade' status.
The former finance minister said such benefits could immediately accrue to the Bahamas and its economy if BPC struck 'black gold', even though he estimated that it might take four to five years - following confirmation of a significant find - to begin full-scale production.
"I think one of the most important elements of this whole exercise is that we are in a position to confirm or not whether there is a saleable resource," Mr Smith told Tribune Business, pointing to the fact that all oil exploration activities conduced in Bahamian waters since the 1950s had confirmed the presence of oil.
He added that previous exploration efforts had lacked the necessary technology to extract oil from the ocean's depths, which he said would not be a problem for BPC.
The Bahamas-based oil explorer appears to have made significant steps forward in the past two weeks, making progress on its environmental and commercial 'twin tracks'. Besides submitting its Environmental Authorisation, seeking the necessary government approvals for its first exploratory well in waters 100 miles south-west of Andros, BPC has also signed a 90-day exclusivity with a "major oil company" to become its potential joint venture partner on that well.
Mr Smith said the first exploratory well's location near the Cuban maritime boundary was "a very good one" from an environmental standpoint, given its distance from Nassau and other major population centres and islands.
"They'll be able to go in, establish if it's there in commercial quantities, the type of oil that's there," he explained. "They'll be pretty much able to determine the scale of that resource, 'x' barrels per day, and be able to establish from that the revenue flow."
Should BPC prove successful, Mr Smith said the passage of legislation to create a Sovereign Wealth Fund to receive royalty payments - as the company's licence obligates it to make - would preserve some of oil exploration's benefits for future generations.
Suggesting that the Bahamas would face a 'high opportunity cost' if it decided not to pursue oil exploration, especially since BPC has assumed 100 per cent of the financial and technical risk, Mr Smith said: "We have a dwindling financial services sector, and now we are going in pursuit of petroleum resources in the Bahamas.
"If that happens, and they are successful, it would be a game changer for the Bahamas in the sense that the public [fiscal] deficits would become a thing of the past, and the resources could be ploughed back into major sectors of the economy - health, education, social services. We've had anemic GDP growth for the past two decades."
Mr Smith recalled the impact of 'tar sands' oil on western Canada, discovered when he was a student there, adding that the city of Edmonton "couldn't manage it" such was the extent of the economic windfall. "We should be so lucky," he added.
The now-CFAL chairman's comments came as BPC seeks to refocus the oil exploration debate on the potential economic benefits. To-date, reaction has largely focused on the environmental issues, with activists expressing concern about potential pollution and spills that could cause irreparable harm to a nation reliant on the environment for its tourism industry.
Mr Smith, though, said the Bahamas would feel the benefits of a major oil discovery long before oil was extracted from the seabed. "You can monetise this," he told Tribune Business.
"Once informed the Bahamas potentially has 'x' barrels of oil, that changes your credit rating. You're holding on to a resource. It's a bit like an individual with nothing in the bank but a couple of bars of gold.
"It's a commercial resource that the rest of the world puts a value on, and takes estimates of a country's wealth down the road. That opens up the possibility for improved credit ratings, and the ability to obtain goods and services and make future payments on it."
Mr Smith acknowledged that the environment "should be paramount for the Bahamas" in addressing oil exploration, but said BPC had the technology and best practices to mitigate any impact.
He warned that improved public sector management would be required to handle the revenues generated by successful oil exploration to prevent these being squandered.