By NEIL HARTNELL
Tribune Business Editor
An oil explorer yesterday hailed its “rapid progress” towards drilling a first exploratory well in Bahamian waters during the 2020 first half regardless of whether it secures a joint venture partner.
The Bahamas Petroleum Company (BPC), in a statement, said it had laid the foundation to meet its licence obligations by signing a series of financing and service provision contracts with a variety of oil industry players.
Revealing that these arrangements could slash the cost of spudding its first exploratory well by more than two-thirds, BPC added that they would also enable it to adjust its business model and proceed without a joint venture partner should the need arise.
While making clear that its preference is to secure such partner, known as a “farm-in”, to reduce its own risk and capital costs, and provide additional technical expertise, BPC said it was now positioned to drill its first well even if the multi-year search for an entity to share the burden proves fruitless.
Simon Potter, BPC’s chief executive, told the company’s shareholders yesterday: “Following our licences being extended to the end of 2020 by the Government of The Bahamas earlier this year, rapid progress has been made across our business.
“Today we are pleased to update shareholders on a series of co-ordinated steps that the company has taken toward drilling of an initial exploration well during 2020, consistent with our licence obligations.
“This includes a framework agreement for a rig, appointments for essential well services with leading global oil services companies, as well as considerable progress on financial arrangements to fund the drilling, whether that be via a farm-in on acceptable terms or by other means - whichever is in the best interests of the company.”
Mr Potter was not available for further comment, but one source familiar with developments said the series of agreements BPC had put in place gives it options as to which route it will take to reach the end goal of drilling a first exploratory well. “All doors are open,” they said. “This is potentially nation changing for The Bahamas.”
Several aspects of BPC’s arrangements will have to be approved by shareholders at the company’s upcoming annual general meeting (AGM) on September 17. Many Bahamians will likely be sceptical as to whether any oil exploration activities will take place, given the lengthy process BPC has been embarked, but it does appear that progress - however gradual - is being made.
“BPC has an obligation to drill an initial exploration well in 2020 and, in the view of the BPC Board, drilling as soon as practicable remains the best route to generating shareholder value,” BPC’s statement said.
“BPC continues to proactively pursue a farm-in as its primary financing strategy, and farm-in discussions are continuing with multiple parties, the license extension to the end of 2020 granted by the Government of The Bahamas earlier this year offering clarity to potential partners. However, the process is taking longer than anticipated, and has not yet produced a successful outcome.
“Accordingly, the company is now embarking on a course to drilling of an initial exploration well during the first half of 2020, in the event that a farm-in is not concluded by then. BPC has entered into a framework agreement with Seadrill, one of the world’s largest offshore drill rig companies, for the provision of a sixth-generation drilling rig.”
While not a ‘done deal’, BPC said the “framework agreement” specifies the daily rate for hiring the drilling rig and its delivery during the 2020 first half. The deal also allows the drilling to be extended to a “concurrent two-well programme” if sufficient funding is in place.
BPC’s licences with the Government require it to drill a first exploratory well by the end of 2020, so the timetable announced yesterday is slightly ahead of that. The first well will be located several hundred miles south-west of Andros, close to the maritime boundary with Cuba.
The oil explorer must sign a “definitive agreement” with Seadrill by October 11 this year to seal the deal, with the latter’s Board approval also required. “Having rigs already identified as per this Framework Agreement allows BPC, with Seadrill’s input and support, to begin necessary time-sensitive preparatory work, and to complete permitting processes ahead of drilling,” BPC added.
It has also named international oil services industry giant, Halliburton, as its integrated well services provider, with BakerHughes GE also hired to provide wellheads and other well-drilling equipment.
“The pricing parameters encapsulated in the rig Framework Agreement with Seadrill, and the notices of award for services from Halliburton and BakerHughes GE, have allowed the company to obtain greater certainty in estimating a total drilling cost,” BPC’s statement said.
“BPC now estimates the total cost of an initial exploration well to be in the range of $25 million to $30 million (and less than $50 million in aggregate should the company pursue a concurrent two-well exploration campaign). This is a material reduction from prior estimates (previously in the range of $60m to $80m for a single well).”
To provide financing should the joint venture partner search fail, BPC said it had entered into a conditional agreement with Bizzell Capital Partners, an Australian-based oil and gas exploration financier, to provide a £10.25m convertible loan that can be switched into equity shares..
That sum, which translates into $12.5m, is equivalent to half the cost of the $25m initial exploration well and will help underpin its drilling. “The Board is cognisant of the company’s firm obligation to drill an initial well in 2020, and given the protracted state of the farm-in process considers it imperative that viable alternative financing solutions be put in place,” BPC said.
“In addition to allowing drilling to commence even if a farm-in is not concluded in an acceptable timeframe or on acceptable terms, this will also allow long-lead items to be ordered and critical-path processes to commence, enable BPC to demonstrate financial capacity to potential farm-in partners, and assure the Government of the company’s ability to deliver upon its obligations.”
BPC’s statement made no mention of the Environmental Authorisation it requires from the Government before it can begin drilling. This deals with the environmental, health and safety issues raised by its oil drilling venture.