By NEIL HARTNELL
Tribune Business Editor
The Bahamas would have been “on the hook for hundreds of millions of dollars”, and its credit rating endangered, if the Government had halted Bahamas Petroleum Company’s (BPC) oil exploration.
Romauld Ferreira, minister of the environment and housing, yesterday reiterated to the House of Assembly the Minnis administration believed this nation would have paid a heavy price for failing to renew BPC’s licences and/or not provide it with the necessary approvals for its Perseverance One well.
Suggesting BPC’s licences and agreements were legally watertight, and could not be broken without inflicting a further substantial cost on already-strained Bahamian taxpayers, Mr Ferreira said The Bahamas would have faced “far greater” liabilities had the Government blocked the well’s drilling.
Acknowledging that the Government was “on the hook legally”, Mr Ferreira was unable to later give Tribune Business a precise figure for the damages BPC may have been able to claim if its activities were blocked.
However, he described it as “significant” and potentially reaching nine-figure sums. “The best person to disclose the exact quantum would be the attorney general,” Mr Ferreira told this newspaper. “They were [legal] opinions sought by his office.
“It’s in the order of tens of millions, hundreds of millions of dollars. It’s quite significant.” As to his earlier assertion that The Bahamas’ sovereign credit rating may have been endangered if BPC was halted, and the question of compensation arose, Mr Ferreira added: “There are those implications.”
The Bahamas’ sovereign credit rating currently lies below ‘investment grade’ at so-called ‘junk status’ with both Moody’s and Standard & Poor’s (S&P). While any BPC damages claim may not have adversely impacted the rating itself, given that it cannot sink much lower, it would have represented another significant liability for a country already faced with record debt and deficit levels.
The advice provided to the Government also concluded that it, rather than BPC, was responsible for the latter failing to fulfill its licence and well drilling obligations due to the long wait for the new regulatory regime, which ultimately ended when the former Christie administration passed the Petroleum Act and accompanying legislation in 2016.
Mr Ferreira yesterday renewed attacks on that administration’s dealings with BPC, which he said produced “probably the worst arrangement in the history of oil exploration” when it came to the Bahamian people receiving a fair and equitable share of the returns from any commercial oil discovery.
“The Bahamas is down there with the lowest,” he blasted, producing a chart that he alleged showed this nation receiving the smallest returns of any oil producing nation. “What does this mean? We were bound and obligated by a pre-existing arrangement we met in place that was probably the worst arrangement in the history of oil exploration.
“We’re not the average, we’re not in the mean. We’re the lowest.... These are natural resources and we ought to get the best deal. That deal was so horrible that the principal officer of the oil company said publicly he would be willing to re-negotiate, take a second look. That’s how bad it was.”
Mr Ferreira appeared to be referencing, although this was not confirmed, the same Commonwealth Secretariat report that Carl Bethel QC, the attorney general, used to argue that The Bahamas would receive “abysmally low” royalty rates that are the world’s poorest.
He told Tribune Business in December 2020 that the Bahamian people were in line to receive the lowest return of any nation on their country’s potential natural resources as he blasted the former Christie administration for ignoring studies suggesting it should revise an oil royalty structure that was “in the pits”.
Disclosing the findings of a Commonwealth Secretariat report that showed, under the present structure, the highest royalty rate BPC will pay is some 20 percentage points below the lowest rate in other jurisdictions, Mr Bethel argued that the former government missed the chance to negotiate a better deal for the Bahamian people when the leases for the oil explorer’s five licence areas came up for renewal in 2015.
]The attorney general then argued that the former Christie administration compounded that error by allowing the royalty rates to be based “on the net value of extracted petroleum”, which is the value after BPC has deducted all its production and investment costs, rather than on “gross tax at the well head” in accordance with international best practices.
BPC’s commercial terms with the Government involved a ‘sliding scale’ of royalty fees, with the rates tied to production (the daily volume of oil, measured in per barrel terms) that is extracted from Bahamian waters. The rates ranged from a low of 12.5 per cent for 75,000 barrels per day to a peak of 25 per cent for 350,000 barrels per day or more, with a production licence granted for 30 years.
Simon Potter, BPC’s chief executive, previously pledged that the oil explorer would “pay double the royalties that the law provides for” to the Government should it strike success. However, as Mr Ferreira noted yesterday, that did not happen with Perseverance One.
“The fact of the matter is that we’ve been drilling since 1947, and have drilled six wells,” he added. “The only thing significant and remarkable about this effort is the depth they were able to go to with modern technology. It created a lot of excitement, but here we are.”
Mr Ferreira argued that The Bahamas needed to know whether it possessed extractable commercial oil reserves to give it a potential bargaining chip to obtain “offset credits”, or financial compensation, from neighbouring countries such as the US in return for not pursuing oil production.
“Certainly I think that the broader discussion that really needs to be had is that if we don’t know whether or not we have oil resources, then we really have no quantum to bargain with in getting offset credits,” he explained.
The minister said South American countries had received such credits, or compensation, for not cutting down their rain forests to make way for new industries in response to pleas from other countries about the harm this would inflict on the whole planet.
Arguing that The Bahamas may have been able to do similar had BPC discovered commercial oil quantities, Mr Ferreira said the company now has to make the next move in determining whether it will seek to renew its five licences by the end-March 2021 deadline.
“We have to wait and see if there are any new applications,” he added. BPC’s five licences expire at end-June 2021, and the oil explorer has yet to give a definitive position on whether they will be renewed.
BPC said the decision hinges on a full analysis of the Perseverance One drilling results and, reading between the lines of its recent statements, whether it can finally secure a joint venture or ‘farm-in’ partner to share the financial, technical and operational risk associated with any future Bahamian exploratory well.
It has repeatedly said it is seeking to “monetise”, or get a return on, its five Bahamian licences by attracting such a partner, indicating it does not plan to raise $120m to invest in another well by itself as the oil explorer’s attention turns to its assets in Trinidad & Tobago, Suriname and Uruguay.