Deficits 'thing of the past' if oil explorer succeeds


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.


killemwitdakno 5 years, 4 months ago

Lies. Look at other courtries. I'm also not ready to be starved like Venezuela. I don't trust any wasteful govenermt with oil and this dar the FNM is behind on day 1 promises.


observer2 5 years, 4 months ago

I agree. Almost every oil producing country except for Norway is an economic or political basket case. Countries include Venezuela, Russia, Saudi Arabia, Ecuador, Iran, Iraq and Nigeria.

The Bahamas needs to stay clear of carbon industries (including Oban) which have the potential of critically damaging the most beautiful waters on earth for the sake of a couple of people making money.

Like the numbers industry, any tax revenue gain will not reduce the deficit but will be swallowed up by bigger and bigger government, corruption and waste.

Is the same Smithy of Resolve? Why haven't there been any actions based on the hundreds of millions lost at the BoB?


SP 5 years, 4 months ago

Please just make sure Hubert Ingraham and Perry Christie are NOT involved!


sheeprunner12 5 years, 4 months ago

Just look at what properly managed oil resources can do ....... UAE & Scandanavia.

And .......... how much oil has Cuba exploited in this same Cay Sal area since 1950??????? That may give us an idea of what may be on our side of the watery border.


banker 5 years, 4 months ago

how much oil has Cuba exploited in this same Cay Sal area since 1950?

Actually none. Cay Sal is located on the Bahamas Platform, where the only three producing Cuban wells are on the North Cuba Foreland Basin, the North Cuba Platform Margin and the North Cuba Fold and Thrust Belt. All of the wells are west of the Florida Panhandle on the Gulf side. Every single exploration well drilled on the Bahama Platform has come up dry. As I have been saying for years, dere een no erl !

Smith is just a paid shill singing for his supper.


Porcupine 5 years, 4 months ago

Reading Mr. Smith's comments, it is easy to forget that finance and oil are helping to destroy people and the planet. This idea that a sovereign wealth fund "could" be set up for the Bahamian people is telling, no? Are we to believe that all of the oil is not Bahamian oil? If anyone should get a "royalty", it is the oil company. The oil is ours. Why would we believe otherwise? Our living planet is headed south. No argument from those who know. Perhaps bankers and oil company directors have been left out of the learning loop. Most knowledgeable and honest people have accepted that the rampant use of fossil fuels have contributed greatly to this perilous situation humanity finds itself in. Unless you have your head in the sand. Or, "It is difficult to get a man to understand something when his salary depends upon him not understanding it." Those who continue to push oil use are intellectual and moral dinosaurs. The suits often disguise the beast within. It seems Mr. Smith would like us to believe that everything will be OK, if we just think oil, instead of focusing on stemming the corruption, theft, fraud, and poor productivity that is the reality here. No, oil drilling does not make sense to sensible people. Why do they want to cajole us into such a venture that poses such great risks to our health, our economy, our fisheries? Perhaps we should know how much Mr. Smith stands to make personally on this deal.


Bahama7 5 years, 4 months ago

Great news for the economy with hardly any risk / outlay by the government.

The sooner a well is drilled the better.


Porcupine 5 years, 4 months ago

Better for the handful who will profit quickly from the deal. But, not better for all of our children and grandchildren who will have to live with our short- sighted small-minded decisions.


OldFort2012 5 years, 4 months ago

Funnily enough, I agree with Banker. There most probably is no oil, at least not in commercial quantities.

However, should I be proved wrong, NOT exploiting it would be financial folly and moral hypocrisy of the highest order. We would be saying that it's OK for others to spoil THEIR environment for the oil WE consume. How is that fair?

The financial aspect should be self evident. If we cannot manage a gift like oil, which could solve all our financial mismanagement of the past, them we might as well admit immediately that we were never mature enough to run our own affairs and beg the US to come and take over our affairs, lock, stock and barrel. We would be saying that our Constitution, Laws and Democracy are so shallow and our own abilities to manage our affairs so non-existent that we are not fit to have a Nation.


Porcupine 5 years, 4 months ago

Sorry, disagree completely. CO2 concentrations are up to 410 ppm. It is not moral hypocrisy to say we have to leave oil alone, and we'll begin the transition as soon as humanly possible. The world can tolerate no more excuses, especially from those who worship money. The best way to "manage a gift like oil" with today's knowledge is to leave it in the ground. Oldfort, the only thing that is self evident is that we are trashing the planet. That is the only thing that is self evident. The rest is make believe by humans who are full of themselves. But, as far as being mature enough to run our own affairs............. It ain't looking too good on that front, is it? So, I may agree with you there. We treat the laws and constitution just like we treat religion. It is up to our own interpretation. Usually a quite selfish interpretation.


Bahama7 5 years, 4 months ago

Let’s leave the oil in the ground and import it instead and go bankrupt !


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