Young Man's View: The Oil Industry
By ADRIAN GIBSON
ajbahama@hotmail.com
Nassau, The Bahamas
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I continue to believe that Bahamas Petroleum Company is a bit player in the oil industry and, having been told of the overly emotional online attacks on me by so-called shareholders/investors after my first column, I am now even more interested in piercing the veil and looking into any and all drilling agreements that this company—and any other company— has with our government.
For some reason, every time I think about the giving away of our national patrimony, I hear Beavis and Butthead sarcastically snickering in the background. The licensing agreement between BPC and the government states that the oil royalties would be disbursed on a sliding scale, i.e. if 75,000 barrels of oil are produced daily, the royalty rate would be 12.5 per cent; if it’s in excess of 75,000 and up to 150,000, it would be 15 per cent; 150,000 to 200,000 daily barrels would yield a royalty rate of 17.5 per cent; 250,000 to 350,000 would result in a 20 per cent rate and any daily production in excess of 350,000 barrels would incur a royalty rate of 25 per cent.
The Bahamas has no Environmental Protection Act and the trite regulatory practices (Environmental Impact Assessment reports) overseen by groups like the BEST Commission—a toothless bulldog— is laughable at best.
I totally agree with a recent article written by attorney Fred Smith (Queen’s Counsel) when he said: “As the Bahamas broadens its industrial investment profile; encourages large scale urban development; promotes all inclusive anchor projects by Bahamians and foreigners and continues its growth and development, it becomes more and more urgent for an independent regulatory body with teeth, to protect our often pristine, and always fragile environment.”
He went on to say: “The Bahamas, as a Small Island Nation, must make protecting the environment a priority. It is also important that stakeholders and interested parties who may be affected by industrial and/or other urban developments have an opportunity to be properly consulted. This has been repeatedly affirmed by our Supreme Court, Court of Appeal and Privy Council in the Guana Cay and Abaco Wilson City Power Plant litigation. The BEST Commission has been established for years but it is not a statutory body and needs to be institutionally created by legislation to make it effective and relevant.”
Yes, our sluggish, relatively rebounding economy could do with an injection of oil money—but it must be on the best, most nationally-sound terms and not be a hurried, tactless and superficial attempt to redesign our economy overnight. The Nigerian experience should teach us, as a nation, the shortfalls of unregulated drilling, of allowing foreign companies to buy off prominent members of government and of an oil rich country having a poverty stricken population due to corruption, greed and overtly scandalous behaviour.
Now, while Bahamians are discussing oil from the perspective of a countrywide get-rich-quick-scheme, many of them haven’t considered the environmental ramifications, how BPC will likely go about getting it and/or a thorough examining of the peripheral issues related to oil drilling.
In a published Facebook post forwarded to me by economist and lawyer Dr Gilbert Morris, he said:
“Let’s forget about the risk premiums to protect our waters and let’s forget about the relative costs of both drilling and pumping. If there are 3 billion barrels undersea in the Bahamas, what would you think when you learn that the US consumes 19 million barrels per day? This means, if we have 3 billion barrels, our total store of oil is 150 days of US consumption.”
He went on: “So therefore, here is what is likely to happen: The lead firm will confirm its find and say to the government we will pay you a royalty. Let’s suppose the royalty is 90% of profits, just to be overly optimistic. The government would never see a dime. Why? Because the firm with the rights in the Bahamas, will sell the rights to the proven reserves to a larger company. That company will determine what it costs to pump the oil from the depths. The government will only gain income, even if its on the gross, from oil that passes the Relief Valve. But nothing will. Because when the large Company buys the rights, they will Cap the Wells immediately. That is because, oil prices would need to be over $200 per barrel to make its economically feasible to pump it. So Caping is like storage until the market price makes pumping feasible.”
“A final point: if the oil has a high sulfur content, (Sour), then that adds refining costs too. There are lots of oil finds all over the world. The question is, is it financially feasible to pump it. If the find in the Bahamas was a “monster find” (and it could become that), the question will be the cost of pumping – including environmental protection costs – relative to the profit yield based on the market price over time,” the economist concluded.
An October 2012 report in The Economist stated that oil is stolen in Nigeria at a record pace, with the government inflating output figures by using a discombobulating assortment of statistics. According to that report, Nigeria announced that its oil production had increased to 2.7 million barrels per day; however, due to a corrupt culture, that figure is nearly impossible to verify.
According to a former senior World Banker—Oby Ezekwesili (a Nigerian)—some $400 billion of that country’s oil revenue has been squandered or pilfered since 1960. Nigeria, home of the world’s ninth largest gas reserves, also has an unregulated petroleum industry where a Petroleum Industry Bill has been stalled for 15 years. The Bill was drafted with the intent to heighten transparency, proffer a regulatory regime and govern every aspect of the nation’s oil industry. However, glad-handing politicians have managed to bar the formulation of any effective regulatory regime as that would curb their corrupt practices and proscribe deterring—even penal—sanctions. Could there be similar reasons why no such Bill has been considered in the Bahamas—why even Environmental Protection legislation hasn’t been brought to the Parliament?
Indeed, a joint report by Transparency International and the Revenue Watch Institute revealed that Nigeria’s government-run National Petroleum Corporation is “accountable to no one” and is a “slush fund for the government,” which makes it the worst of 44 national and foreign companies included in their study. When one thinks of how locally government-run corporations have been mismanaged over the years—e.g. Bahamasair, the Bahamas Electricity Corporation and even the Bahamas Telecommunications Company (before the sale)—there’s much to desire and the thought of our governments running an oil slush fund is a no-no!
What’s more, Nigeria’s oil producing delta region has suffered environmental devastation that would eternally damage our pristine environment (beaches, mangroves, etc) and, as it relates to the environs and our tourism industry, set us back into the Ice Ages. Whilst the United Nations have chided the Nigerian government for their unchecked environmental degradation, there has been little to no attempt by that government to take legislative initiatives to curb indiscriminate drilling—just as there has been no attempt by the government of the Bahamas thus far! After a rig explosion (Chevron) in January, 2012, local Nigerian environmental groups have placed a $3 billion price tag on losses accrued over 46 days due to fires, a gas leak and environmental degradation. Even more, in December 2011, an oil spill at one of Royal Dutch Shell’s offshore oil operations was estimated to have cost a record $5 billion in damages. Apparently, the farmlands of Nigeria—particularly in the Niger delta—are progressively being destroyed. It remains to be seen what penalties or compensation will be rendered by both companies to the Nigerian people, considering the predilection of corrupt government officials and the likelihood that it would merely be swept under the rug. The Nigerian response, in these instances, could hardly be compared to the United States response to British Petroleum’s oil spill in the Gulf of Mexico!
According to a Green Peace International article titled ‘Shell Shocked’: “We witnessed the slow poisoning of the waters of this country and the destruction of vegetation and agricultural land by oil spills which occur during petroleum operations. But since the inception of the oil industry in Nigeria, more than twenty-five years ago, there has been no concerned and effective effort on the part of the government, let alone the oil operators, to control environmental problems associated with the industry.”
A 2010 Newsweek article entitled ‘Oil’s Shame in Africa’ further stated that: “Oil spills in Nigeria are a common occurrence; it has been estimated that between 9 million to 13 million barrels have been spilled since oil drilling started in 1958.”
Due to a lack of regulation and political patronage, more than 1000 people lose their lives to oil-related deaths in Nigeria every year, 70 per cent of that nation’s population live below the poverty line (less than $1 dollar per day), clean potable water is hardly accessible and—even whilst it is a major oil exporter having racked up more than $340 billion over the last few decades—Nigeria still imports most of its gasoline. Is it possible that we could be an oil producing nation that exports our crude but then—as is the case with salt—must buy back and import our own oil (in its now refined state)?
Considering the corruption, dodgy practices and dysfunction of some of our elected representatives and public officers, should we too be worried about gas price-fixing scams (which cost Nigeria $29 billion in the last 10 years), oil theft (which cost the Nigerian treasury $6 billion per year), fuel subsidy scams (which cost the Nigerians $6.8 billion) and an overall proclivity by some officials to “tief” and misuse public funds like it was going out of style (which has cost the Nigerian’s nearly $400 billion since their Independence in 1960)?
So, will the government allow BPC to drill willy-nilly and risk the destruction of our bread and butter industry (tourism)? Will they risk the contamination of our groundwater and our soil, of the destruction of our coastal environment, of our local fishing industry being ruined by oil spills and of oil sheen spreading to fishing habitats with the government still being handicapped in its capacity to even conduct clean-ups at Clifton Pier (from BEC’s spills)? And, what about gas flaring—which is the release of unusable or unwanted raw natural gas and associated gases—into the atmosphere? Look, if we’re going to drill, let’s do it the right way, let’s put any and all related legislation and regulations in place beforehand. The government must remember that we the people—and those who make up the government—all live in the Bahamas and, unlike some of the principals of BPC, have nowhere else to go and call “home” (in the truest sense of the word).
I urge the government to get on with the people’s business, to stop talking foolishness in our Parliament or resign and get the hell out!
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May 06, 2013
