by Richard Coulson
First published in The Tribune November 14, 2019.
This phrase arose when seafarers saw the beneficial effect of pouring a barrel of oil on storm-tossed seas and found the waves were flattened and subdued.
These days the very mention of “oil” arouses public ire, with or without justification. The publicity about the recent oil-spill at the Equinor storage terminal in Grand Bahama infects any discussion about two other oil related projects in our country, one half-baked, the other sensible.
The half-baked one is Oban, which has pestered our Government ever since its ludicrous announcement in February 2018 proposing a $5 billion combined storage terminal-refinery-shipping facility not far from Equinor. The promoters of this project, whoever they are, have never made the slightest disclosure of principals who can build, finance, and operate such a vast venture. A pleasant young man pops up now and again and simply displays the plans in his lap-top. There need be little worry about pollution from Oban, since it is a dreamland prospect.
The sensible project is the proposed drilling by Bahamas Petroleum Company (BPC), incorporated in the Isle of Man, listed with full disclosure on the London Stock Exchange, and controlled by clearly identified venture capital equity investors from abroad , with not a penny of Bahamas Government money committed.
To summarize my view: I hope the project succeeds with the discovery of oil in commercial quantities, as I believe it poses minimal risk to Bahamian natural resources. The greater risk falls on the intrepid investors who have sunk nearly $100 million into this venture starting back in 2007, with no assured return
Government has granted BPC licenses to explore in five off-shore sites about 100 miles southwest of Andros, near the Cuban border. After several years of inspecting core samples from previous drilling plus extensive seismic research over the area, BPC and its expert advisers now have evidence of pockets of petroleum reserves sufficient to justify the substantial cost of drilling to prove these reserves. The latest license extension requires BPC to complete an exploratory well by the end of 2020, so BPC is clearly under pressure to perform.
As the cost of an initial well is estimated around $20-25 million, BPC has over several years sought a major oil company to become a “farm-in” partner to provide the capital. However, while this is still the preferred choice, BPC has decided to “go it alone” in raising the funds. To that end, it has just completed a successful open offer to its existing and new shareholders to raise $11.4 million, and has conditional agreements from Australian investment banks to place about $13 million of convertible notes by early February. A detailed prospectus is available on-line disclosing all the risk factors in these transactions.
If the exploratory well gives a promising show of recoverable oil, signing up a farm-in partner will become more likely, who will be essential in providing the much greater capital needed for production wells. In 2018 an unnamed major company paid $1 million for a four-month exclusive option to investigate, but terminated with no further commitment.
Moving ahead, BPC has contracted with offshore drilling specialists Seadrill Limited for a 748-foot drill ship, scheduled to arrive from the Gulf of Mexico by the end of next March. The bright orange hull of of “West Auriga” will doubtless skip Nassau and drop anchor directly over the licensed drilling site, probably alarming our vigilant environmentalists.
Outspoken groups like Re-Earth, Save the Bays, and BREEF play a valuable role in protecting our environment, but should take a rational view of BPC’s drilling. The local undersea geology differs radically from conditions underlying the infamous Deepwater Horizon explosion in 2010 (which has no parallel before or since), and recognized current patterns will sweep any unlikely spillage far from our sensitive beaches and tourist areas. Government has accepted successive Environmental Impact Assessments, reviewed by BEST and supported by consultants Black & Veatch, and has joined the international consortium Oil Spill Response Limited, pledging prompt help from nations with full resources to handle emergencies.
When, and if, oil is discovered and flows in commercial quantities, the Bahamas could reap substantial benefits. Once BPC recovers its development costs and operating expenses, revenue from petroleum sales in the international markets (of unpredictable size, since dictated by world crude prices) will be split 50-50 between BPC and Government, allowing accumulation of cash for a Sovereign Investment Fund, the same path that Norway has followed to become a prosperous nation since North Sea oil was discovered in the late 1960s.
Bahamians are already reading Rachel Maddow’s fascinating book “Blowout”, documenting how third-world countries have been blighted with the “resource curse”. The worst example is the tiny west African nation of Equatorial Guinea, whose massive petroleum revenues are diverted for the exclusive enjoyment of the ruling elite. Quite true, but I am confident that The Bahamas will never descend to the abysmal level of corruption, oppression, and public poverty created by the family dynasty that has held power for over thirty years in that benighted nation. Whatever the flaws in our political system, our long traditions of democratic governance and business experience should assure that, like Norway, we can invest oil earnings for the public good.
Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.
