The Bahamian Government will allow exploratory oil drilling ...to determine whether there are commercial quantities of oil in The Bahamas ...prior to any referendum

Exploratory Oil Drilling Before Any Referendum

 

By NATARIO McKENZIE

Tribune Business Reporter
nmckenzie@tribunemedia.net
Nassau, The Bahamas



THE Government will allow exploratory drilling to determine whether there are commercial quantities of oil in the Bahamas prior to any referendum, a Cabinet Minister said yesterday.

Kenred Dorsett, minister of the environment and housing, said it was unlikely that there would be any referendum on oil exploration in the Bahamas prior to the 2015 second half.

“The fact that oil exploration is being pursued so seriously and systematically in such very close proximity to the Bahamas dictates that we hasten our own decision making process as it pertains to oil exploration and environmental regulation here in the Bahamas,” Mr Dorsett said in a statement released yesterday.

“Accordingly, my Ministry, supported by the Office of the Attorney General, has prioritised the task of strengthening and modernising our Petroleum Regulations, ensuring that they reflect international best practices and standards. These regulations will combine best practices identified in a variety of leading jurisdictions, including the United Kingdom, Norway, Australia, Trinidad and Tobago, the United States (as modified after the Gulf of Mexico incident), and Greenland.

“They will reflect the most up-to-date risk management practices and mandate the use of the best technology suitable for our conditions. These new regulations will also establish appropriate oversight and monitoring protocols to ensure that offshore exploration is conducted responsibly, and with a high regard for safety and environmental vigilance, having particular regard to the need to ensure human safety and, as I stated earlier in this statement, to preserve the beauty of our waters and beaches and our marine life and eco-systems.

“The new regulations are substantially complete already and will be presented to Cabinet very shortly to preserve the beauty of our waters and beaches, and our marine life and eco-systems.”

Mr Dorsett said the Government was not going to conduct a referendum without ascertaining whether there were commercial quantities of oil in the Bahamas. “The new regulations would be in place well ahead of any oil exploration,” he added. “Exploration drilling is, of course, the only way the Bahamian people will be able to get a scientific answer to the burning question as to whether petroleum reserves even exist in commercial quantities in our waters.

“Obviously, we are not going to have a referendum on a hypothetical proposition. We are not going to ask the electorate to vote on whether they want to develop an oil industry if there is no oil to begin with. Thus, we need to find out first, through exploration drilling, whether we do indeed have oil in commercially viable quantities. If we don’t, then obviously it would be completely pointless, and a shameful waste of public funds, to have a referendum on the matter.”

Mr Dorsett said if commercial quantities of oil were discovered in the Bahamas, the Government would engage the Bahamian people in an extensive public information programme to ensure all important facts were made available before a national referendum.

“This public consultation process would take place throughout the country, and would ensure the widest possible dissemination of important information about the discoveries and their potential significance,” he added.

“As part of this public information process, the Bahamian people would also receive a timeline for production and, very importantly, there would have to be a national dialogue on all important aspects of the question, including how oil revenues should be used to develop our nation and our people in ways that would probably not be achievable under current revenue streams from tourism and other existing industries.

“Estimates suggest that exploration data, sufficient to answer the question of whether we have petroleum reserves in commercially viable quantities, would probably not be available until the latter part of 2014 or early 2015. Therefore, allowing for the public consultation process I have referred to, it is unlikely there would be any referendum on the oil development question before the second half of 2015.”

March 11, 2013

Tribune 242

Bahamas Blog International

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“The Bahamas, a giant oil province in the making”

Report reveals potential oil revenue for Bahamas


By STEWART MILLER
NG Business Reporter
thenassauguardian
stewart@nasguard.com


What financial benefit should Bahamians expect to reap if the sands beneath us hold the immense oil treasures some are projecting?

Under the current leasing arrangements, royalties of up to 25 percent of well-head revenue could translate into hundreds of billions over time. But as far as the government’s take goes, the terms of those licenses are quite favorable — for the licensees.

The projection for a small government take relative to other oil-producing countries is playing into the Bahamas Petroleum Company’s (BPC) efforts to attract investors to its Bahamian petroleum exploration project, and was featured in its April 2011 investor presentation, “The Bahamas, a giant oil province in the making”.

“Attractive fiscal terms: Low royalty; no corporation tax,” was the way it read in BPC’s investor presentation. One graph compared how licensee revenues in The Bahamas might stack up against revenue from a royalty-paying federal lease in the United States’ territorial waters in the Gulf of Mexico, based on $90 per barrel oil and 2007 variables. About 33 percent of revenues were allocated to costs in both territories, but with royalties calculated at peak production levels, the Bahamas government would take 25 percent in royalties compared to about 27 percent for the US fields. The US government cut of the lucrative revenue stream does not stop with royalties, however.

US Gulf of Mexico revenue to the licensee was reduced another 25 percent approximately in taxes. In the case of The Bahamas, that would go to the licensee’s net revenue, according to a chart presented. That chart was also a part of BPC’s competent person’s report prepared by the firm Moyes & Co. in 2008 and available on BPC’s website at http://www.bpcplc.com/our-assets/competent-persons-report.

Of the 16 countries used for another chart in BPC’s investor report, the “government take” for The Bahamas was clearly the lowest, and inversely the “free cash flow” projected for licensees in The Bahamas clearly the highest. That chart was based on $100 per barrel Brent oil pricing and more current data than the Moyes data. Oil producers like Canada, Iraq, Nigeria, Libya and closer to home the US and Guyana are included in that study.

While very encouraging to the prospective investor, it may highlight some of the challenges ahead for a country with no oil and a limited mineral resource production history. This nation’s experience with salt and aragonite production may prove poor preparation if the drilling BPC hopes will happen next year proves that world-class oil production potential here.

And the potential is massive.

John Bostwick II, attorney and author of “Bahamas 20/20 Vision” told Guardian Business on Friday that based on public statements made, BPC could be looking at $2.4 trillion worth of oil — his calculations based on $97.50 per barrel prices. He says the size of the potential oil traps may be missed by many.

“I don’t know if people really are focusing on what they are saying,” Bostwick said. “Supergiant traps, not giant — supergiant.”

Supergiant oil traps have 5 billion or more barrels of ultimately recoverable oil.

In its recent investor report, BPC’s leads and prospects showed about 9 billion barrels as the ‘most likely’ yield level from structures in the southern fold belt covered by four of its licenses. If the traps there had a 100 percent structural fill, a less likely scenario, they could hold 24.3 billion barrels. At $100 per barrel for oil, that’s $2.4 trillion across the life of those fields. If predictions by many economists for a continued increase in oil prices prove true, that total value escalates. And that value is only for the areas BPC has done some survey and other research work on — it has additional exploration license applications in the pipeline.

According to the Petroleum Act, a licensee would pay a royalty “at a rate of not less than twelve and one-half per centum of the selling value at the well-head of the petroleum won and saved from the licensed or leased area.”

Information available on BPC’s website details the rates further. The royalty rates are 12.5 percent for oil production up to 75,000 barrels of oil per day (bopd); 15 percent for 75,000 to 150,000; 17.5 percent for 150,000 to 250,000; 20 percent for 250,000 to 350,000; and 25 percent for any amount in excess of 350,000 bopd. Gas production is set at a 12.5 percent rate, and land is rented for $0.92 an acre per annum, though rentals are deductible from royalty payments.

Just for illustration, if 500 million barrels of oil are produced in a year under those license terms, with oil at $100, it would generate about $11.4 billion in annual royalties for government. That assumes production is averaged out across a 365-day year. That’s a lot of roads — or schools, universities, hospitals, court rooms, police equipment, training programs, etc. For comparison, the entire gross domestic product (GDP) of The Bahamas in 2007 was 7.2 billion, according to World Bank data.

But is it enough? Based on BPC’s investor presentation, it’s may be a good deal for their investors.

The issue is likely to grow in prominence for Bahamians as more research is done, and particularly if drilling results change the narrative from a story about possibilities to a story about how The Bahamas became an oil giant.

Despite the billions a government stands to make, when the cost-benefit analysis is done, the potential benefits at least seem less strong than they could be. At least not when compared to what many other nations are able to secure for their petroleum assets.

5/23/2011

thenassauguardian

Bahamas Blog International