What do the geological studies indicate about the area that you are currently exploring?
POTTER: In terms of the geology that we are looking at, we are looking for an extension of the Cuban oilfields into Bahamian waters. We need many ingredients to come together in time and space. We need a source rock, which is clearly working to generate the oilfields in Cuba, but then we need a reservoir and a structure in the Bahamas, which is the container that we would hope the oil is filling up to provide the commercial reserves that would be necessary for an oil development here in the Bahamas. To date we have spent over $50m looking for those ingredients. You start with a hypothesis and in many ways you start by trying to disprove that hypothesis. Having spent $50m, we still cannot disprove it. So the hypothesis that there is oil there and that it is in commercial quantities still remains. This time the only option left open to us is to move the whole venture forward is to go and drill a well and that is the final piece in the risk reduction puzzle that tells us that there is oil there in those structures.
Where do we stand with timelines and drilling start dates?
POTTER: Recently, the way forward to drilling has been made clear by the government. The government has made a statement that they wish to modernize and strengthen environmental regulations. Under the cover of those modernized regulations, they would authorize drilling in Bahamian waters. That has reinvigorated the whole exploration process. So we are looking for a funding partner to help drill the well with us so that we can answer those questions about commercial reserves in Bahamian waters. In terms of that timing for us, clearly we need to speak to potential partners. We are not in particularly deep waters. We are in 1,600ft of water, but we need to drill 22,000 feet down, so it is quite a deep well. Really, wells of this nature take about a year to plan. That is in terms of long lead items and all of the kinds of things you need to get together in order to drill a well. That includes rig contract and all of those kinds of things.
What are you looking for in a partner?
POTTER: Obviously we would want a partner who is aligned with our objectives and the government’s objectives, which are to see exploration proceed at a particular pace and then to move forward with a development. Clearly for a company of our size, we look to realize that development and move into income and cash as soon as possible. That will probably be most closely aligned with the government’s needs and wants. So we are certainly looking for an energetic partner but equally a partner with a sufficiently good track record of drilling this kind of well operating in Bahamian waters.
How closely are you working with the Ministry of Environment?
POTTER: In terms of the governing Ministry that looks after the energy industry, it is the Ministry of Environment. We meet with them regularly. They put together the new regulations and have promulgated them. They are looking to put those before cabinet within the next month. In terms of some of the more technical issues with what is involved with drilling a well and what some of the legislative environments that we, within the company, have experienced, we have offered that knowledge and that experience to that Ministry so that they can be best informed when they look to promulgate these new regulations and put them before cabinet.
What incentives would a partner have in working with you?
POTTER: Clearly, we at Bahamas Petroleum have spent that $50m, so we have reduced risk on a commercial size resource. Now what that means in these waters given that we are a carbonate reservoir is potentially huge. We have structures mapped using 3D seismic that are over 70km long. They enclose over 400 sq km of structure with nearly a kilometer of vertical relief. So what this means in technical terms is the potential, as long as they are full of oil, and therein lies the key risk. If oil making its way into these structures and if these structures are in any way near full, then they are global scale structures. That is what provides the incentive to a partner; large structures with all of the risk reduced as far as we can to the extent that in a new basin the technical risks are relatively low.
What are the underlying reasons you decided to list in London?
POTTER: When you are an exploration company, the only asset you have is the right to explore. You have no income and you essentially have no other assets, there are no physical assets, there are no tangible assets. So you need a particularly sophisticated market with a deep pool of capital that understands the resources sector in order to stump up the amount of capital that you need to execute a viable exploration program. So as I have said, our exploration program is all a risk. The seismic to data has cost us $35m, the 2D that we did previously was another $10m, and over and above that there is another $100m+ of well capital that will need to be spent. So in order to seek a market that is capable of funding that level of exposure in the outcome that we may not actually find oil, and all that is a risk, you need to go to sophisticated markets like London and New York. We chose London. But that being said, a company that is based here in the Bahamas, the assets are based here in the Bahamas as well. To the extent that we are able to offer Bahamians the opportunity to invest in the company and realize with other shareholders the capital growth or the potential capital growth in the company, then I think it is beholden for us to try to do that, which is why we are seeking a listing on the Bahamas International Stock Exchange (BISX).
We need many ingredients to come together in time and space. We need a source rock, which is clearly working to generate the oilfields in Cuba, but then we need a reservoir and a structure in the Bahamas, which is the container that we would hope the oil is filling up to provide the commercial reserves that would be necessary for an oil development here in the Bahamas. To date we have spent over $50m looking for those ingredients.
Why is Bahamas Petroleum Company (BPC) a good investment right now?
POTTER: Over the last year or so we have been working pretty hard with the government to seek the mandate to go ahead and explore. The mandate that we have received with the government is to go ahead and explore. Therefore we have put together this group. As we move forward over the next year, and we realize a funding partner, as we put together a contract for drilling the well, and as we put together the well plans and seek the government approval, then there is a whole series of news flow over the next 6 months to 12 months that should see a significant growth in our share price up to the point at which we drill the well. Then of course once we drill the well, in the event of success, as with any small exploration company that realizes that oil find, then we would expect a significant growth in the capital value of the company.
What would a significant resource find mean on a macroeconomic scale for the Bahamas?
POTTER: In terms of a successful well and a substantial oil find, then clearly there is the potential for revenue generation. But then over and above that, there is the benefit of jobs both indirect and directly involved in the oil industry. Then backing up behind that there is the need to educate and train into these jobs. So in terms of benefits, it is a very broad base across a wide industrial platform as well as the revenue. With the proximity of the Bahamas to the US and the dependency on tourism, a successful resource find would lead to a removal of the dependency on that particular industry or indeed the economy of the US. So a level of autonomy and ability to control their own destiny would be what is handed to the Bahamian economy in that instance.