By NEIL HARTNELL
Tribune Business Editor
An oil explorer’s assertion that it is “entitled to a renewal” of its four Bahamas licences has given its opponents and local environmental activists “a sick stomach”.
Eytan Ulliel, chief executive for the former Bahamas Petroleum Company (BPC), in an update to shareholders on Friday argued that such a renewal is deserved after fulfilling all commitments to-date - including the drilling of its Perseverance One well in waters west of Andros earlier this year - as it seeks to gain a return on its $94m Bahamian investment.
Writing in the renamed Challenger Energy Group’s (CEG) just-published 2021 annual report, he reiterated that the oil explorer is “engaging” with the Davis administration over the renewal of the four exploration licences that expired at end-June 2021 just months before the current government was voted into office.
But, while Challenger is seeking a three-year renewal that would commit it to drilling a second exploratory well in Bahamian waters within that timeframe, Mr Ulliel again made clear the company will not pursue such a project unless it secures a joint venture partner in the form of one of the world’s major oil producers to take on the financial, technical and operational risk.
Suggesting that the results and data gleaned from its Perseverance One well, which ultimately failed to locate commercial quantities of recoverable oil below the Bahamian seabed, had provided sufficient reason not to abandon Challenger’s hopes for this nation, Mr Ulliel wrote: “In March 2021, we submitted documentation for renewal of our Bahamian licences into a third, three-year exploration period.
“This remains pending with the Bahamian government, but the group has completed all of its work obligations and is thus entitled to a renewal. At the same time, we have been clear on our go-forward strategy in The Bahamas. Any future activity will require a ‘big brother’ partner, ideally a larger industry player, to provide expertise and the capital that will be needed for the next phase of activity.”
One source, speaking on condition of anonymity because they were not authorised to speak publicly, said it was likely critical to Challenger’s financial health that the four Bahamas licences - all covering maritime areas near the western territorial boundary with Cuba - be renewed if it is to have a chance at recovering some of the $94m spent to-date on its exploration activities in this nation.
Without those renewals, they argued that the value of its Bahamas investment will effectively plummet to zero as it will be impossible to either attract a major global oil player to finance a second exploratory well to or sell the licence rights to entirely. “They’re trying to put lipstick on a pig,” the source said of Challenger. “They’re desperately hanging on to the licences in the hope some big oil company will buy-in. They need to be bailed out by a big oil company.”
Challenger’s financials show it was carrying almost $94m of Bahamas exploration costs on its balance sheet at year-end 2021, a sum that increased just marginally to $94.5m at end-June 2022. No impairment charge has been applied to this sum yet, with any such action depending on its ability to find commercial oil reserves, finance new projects or sell the licence rights.
“A new Government was elected in The Bahamas in September 2021, and the group is engaging with the new administration regarding the renewal of these licences and the level of licence fees which remain to be paid for the period that expired on June 30, 2021, and which would be payable for the renewed licence period,” Challenger said in its 2021 financials.
“Once this renewal process is completed, the key licence obligation for the new three-year period will be the drilling of a further exploration well within the licence area before the expiry of the renewed licence term. The ability of the group to discharge its obligation to commence a well prior to the end of a renewed licence period will be contingent on securing the funding required to execute a second exploration well.
“The group has, and will, continue to engage in discussions with various industry operators regarding entering into a joint venture partnership or farm-out to fund any future well, and the directors consider that the group will be able to discharge the licence requirement of a further exploration well within a renewed term of the licence.”
Bahamian environmental activists had been hoping Challenger will disappear from The Bahamas in favour of brighter fossil fuel exploration prospects in Trinidad & Tobago and Uruguay, but the company’s annual report shows this is wishful thinking and that - for the moment at least - it is not going anywhere.
Mr Ulliel’s report sparked Challenger’s opponents to once again demand that the Government, and Parliament, leave no room for doubt over The Bahamas’ position by banning oil exploration within the country’s territorial boundaries on both “land and sea”.
They argued that the absence of such a ban, which would leave the door open for future oil exploration activities to be permitted by this or a future administration, stands to totally contradict the Prime Minister’s global campaign to draw worldwide attention to climate change’s devastating impacts on The Bahamas and other low-lying small island developing states (SIDS).
And it would also go against The Bahamas’ efforts to secure financing for mitigating climate change and other initiatives by monetising blue carbon credits, as the very assets that will allow it to realise benefits estimated in the hundreds of millions of dollars - mangroves and wetlands - would be among those most at risk from fossil fuel exploration/drilling and any related pollution.
Philip Davis KC has previously said that, while oil exploration activity might be permitted, he would not allow commercial drilling and oil extraction in Bahamian waters. Instead, once the scale of any proven commercial oil resources were determined, his administration would seek to use them as a carbon/fossil fuels offset to obtain financial compensation for The Bahamas in return for not permitting their exploitation.
“You’ve got to be kidding me. They’re entitled to a renewal? That gives me a sick stomach,” blasted Joe Darville, Save the Bays’ president, of Challenger. “I don’t know how presumptuous they could be to believe they are owed something by our government.
“I appeal to the Prime Minister, who is doing so much worldwide to preserve our pristine environment, and I am waiting for him or Parliament to issue a dictum that there will never be any oil exploration in our territory, either on land or sea... What has been done to encourage these people to believe they can come back when they need to be told to the contrary? What has given them the audacity to think they can override the natives of this country?”
Asserting that The Bahamas has “the most beautiful oceans” and “the cleanest air” in the world, Mr Darville reiterated: “I call upon Parliament, and I call upon the Government, to make a stern and direct decision that oil drilling, whether on land or water in The Bahamas, will never be given permission.
“Now with us being classified as having the best resource of carbon credits to be sold, what a contradiction. We are able to access these carbon credits through our mangroves, yet put them at risk of irreversible damage? What contradiction is that?
“We have some of the best oceans to provide carbon credits, yet we are going to allow oil drilling? We talk about begging for carbon credits, and are going to subject our environment to potentially serious damage? The contradiction is just too ironic.”
Casuarina McKinney-Lambert, executive director of the Bahamas Reef Environmental Educational Foundation (BREEF), told Tribune Business that Challenger’s position had again given The Bahamas an opportunity to take “a bold stand” on prohibiting fossil fuel exploration within its territory ahead of the upcoming COP27 global conference on climate change and its mitigation.
“The Bahamas has an opportunity to take a bold stand ahead of COP27 and commit to a ban on drilling in our waters,” Ms McKinney-Lambert said. “An outright refusal of any oil exploration renewal request would send a clear signal regarding The Bahamas’ commitment to climate action.
“Climate action is imminently necessary given our obvious vulnerabilities to the serious threats of increasingly strong hurricanes and rising sea levels.” Sam Duncombe, reEarth’s president, described Challenger’s exploration ambitions as “never ending” while branding the wider issue of oil exploration in Bahamian waters as “just lunacy”.
“Both governments have been duplicitous about whether they will allow oil exploration,” she added. “I don’t know how this administration can be talking about any oil exploration when the Prime Minister has been all over the place begging for funds for climate mitigation.
“We can’t just be begging for ourselves. We’ve got to do our part to mitigate climate change, and part of that is fossil fuel consumption. We’re either going to talk about it or take action about it, and talking does no one any good.”