The Tribune

• 'Parallel path' to licence renewals

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is "examining the merits" of an oil explorer's proposal to gain a return on its $100m-plus investment in The Bahamas via the use of carbon credits.

A Davis administration spokesman, responding to Tribune Business inquiries, confirmed that it had received a proposal from Challenger Energy Group, the former Bahamas Petroleum Company (BPC), suggesting how it could "monetise" its assets in this nation via an alternative to extracting any commercial oil discoveries.

"They have written to us asking us to consider," the spokesman confirmed. "We are examining the merits of their request within the stringent environmental carbon credits framework." They responded after Challenger, in its just-released 2022 annual report, asserted it had proposed a "joint initiative" to the Government that would able to extract value from its Bahamas investment while avoiding much of the environmental-related controversy surrounding its oil drilling activities,

Eytan Uliel, Challenger's chief executive, told shareholders it was pursuing a "parallel" path in The Bahamas with the carbon credits initiative put forward as an alternative to the renewal of its four exploration licences for a three-year term that would involve the drilling of another exploratory well within this nation's waters during that time.

"In relation to the Company's licences in The Bahamas, we maintained ongoing dialogue with the Government of The Bahamas on two parallel options: The renewal of the licences into a third exploration period, given that we still see considerable long-term exploration potential in those licences, a joint initiative seeking to monetise those assets via an alternative approach based around carbon credits," Mr Uliel wrote.

And, in the same report, Challenger affirmed: "The group is the 100 percent holder of four conjoined exploration licences offshore in The Bahamas. The Perseverance One exploration well was drilled in the licence area in early 2021, and did not result in a commercial discovery at the drill location.

"However, a number of other structures and drill targets remain prospective across the licence areas, and the technical findings from Perseverance One indicate the potential of deeper jurassic horizons. In March 2021, the group notified the Government of The Bahamas of its intent to renew the licences into a third three-year exploration period.

"This renewal remains pending, and the group is engaging with the Government on the renewal process. At the same time, the group is engaging with the Government and various third-party consultants on a joint initiative seeking to monetise the asset via an alternative approach based around carbon credits."

No details were provided on how the carbon credits proposal would be structured. However, given that these credits would likely be an offset to the non-extraction of any further commercial oil discoveries in Bahamian waters, it would appear likely that further exploratory wells will have to be dug to confirm if such deposits exist.

Carbon credits will only be created, and available for trading, if the existence of commercial oil deposits within The Bahamas can be verified. There would likely also have to be a revenue sharing agreement worked out with the Government if Challenger's plan ever comes to fruition, and much work remains to yet be done.

BOC, though, said it was sufficiently encouraged by the results of its Perseverance One well, drilled in waters 90 miles west of Andros, to believe oil may yet exist below the Bahamian seabed. However, it has made clear that it will not proceed with further drilling activities unless it can find a joint venture or farm-in partner to share the bulk of the financial, technical and operational risk as it seeks to recover its extensive investment in this nation.

Meanwhile, Challenger's annual report also revealed that it has still not fully paid licence fees due and owing to the Government from when it drilled Perseverance One. "In March 2021, the group notified the then-Government of The Bahamas of its election to renew the four southern licences into a further three-year exploration period, having discharged the licence obligation to drill an exploration well before the expiry of the current licence period on 30 June, 2021," it added.

"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 up to 30 June, 2021, and which would be payable for the renewed licence period.

"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," Challenger added.

"Following the licence renewal, the group 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."

Challenger also revealed that it has yet to pay the $500,000 in "top-up" insurance for the Perseverance One well as the latter's costs had exceeded initial estimates. It said: "As at the date of this report, the matter remains pending resolution with the insurers."

Still, Challenger is maintaining the total value of its Bahamas assets at $94.475m based on the estimated future value of potential oil discoveries in this nation. It said of Perseverance One: "Whilst the well demonstrated the presence of hydrocarbons, commercial volumes of movable hydrocarbons were not present at this drilling location.

"Subsequently, the group undertook an extensive review of the data gathered from the Perseverance One well to determine the extent to which this data indicates remaining prospectivity in deeper, untested horizons, as well as horizons of interest at other locations along the B and C structures. The results of this review indicate that substantial prospectivity remains in sufficient potential volumes such that further exploration activity on these licences is merited.

"On the basis of the revised prospect volume inventory for these untested horizons and structures, the group undertook an exercise to determine whether the present value of any future economic benefit which may be derived from hydrocarbon extraction from these licences is sufficient to support the carrying value of the capitalised costs at 31 December, 2022.

"Following this review, the group has determined that the present value of these future economic benefits exceeds the carrying value of this asset and that consequently no impairment of this asset is required."