The great oil debate
To drill or not to drill is the question
BY JUAN McCARTNEY
Guardian Senior Reporter
juan@nasguard.com
If Bahamas Petroleum Company’s (BPC) calculations are correct, there is a super-giant oil field lying beneath Bahamian waters.
All that needs to be done to get the nearly nine billion barrels of oil it believes is likely there, is to figure out exactly where it is, and go get it without spilling a single drop in the ocean.
If only life were that simple.
Since the government’s recent announcement that exploratory oil drilling would be allowed prior to a referendum on the issue, controversy has erupted along several fronts.
The referendum issue
Perhaps having had its reputation savaged in the gambling referendum in January, the Progressive Liberal Party (PLP) had no wish to risk another fiasco and so opted to take a different route – see if any significant amount of oil is there, and then see how the Bahamian people feel about taking it out of the ground.
BPC maintains it will spud an exploratory well around this time next year, and the government says it will hold a referendum on the actual extraction of any oil in the latter part of 2015.
Yes, the PLP backtracked on its original promise, but is this not a considered, logical position to take in light of the fact that Russian companies are drilling for oil just miles away from our border with Cuba?
Not really, says Free National Movement Chairman Darron Cash.
In fact, Cash contends, it all seems a bit rushed.
“Given the national and international attention that the government knew this matter would receive, the minister of the environment (Ken Dorsett) should not have announced the government’s policy reversal until the proposed legislative changes and the regulatory framework could be disclosed at the same time. It is not constructive to the process that the debate has begun in earnest but there is an information vacuum,” he said last week.
“There is no information packet available, no statement of Government principles, no answers to frequently asked or anticipated questions, no secretariat and no readily available environmental impact studies.”
Cash, who may or may not be familiar with the Internet, is wrong that no environmental impact assessment has been made public.
It’s been out for a year, and the Bahamas Environment, Science and Technology (BEST) Commission has it on the front page of its website.
It’s over 400 pages long and extraordinarily detailed, but more about that later.
Cash is right however, about the lack of regulations and legislation being in place.
According to a letter BEST wrote to BPC Environmental Scientist Roberta Quant on February 15, 2012, there are no specific standards for gas and oil exploration in The Bahamas.
BEST deferred establishing those standards until widespread national consultation and a required regulatory review takes place.
Last week, Dorsett said new regulations to support oil exploration "are substantially complete" and will soon be presented to Cabinet.
It is expected that they would be tabled and debated in Parliament before ultimately going into effect before BPC begins its exploration.
That would be quite a step beyond where the Christie administration was willing to go with regard to the gambling referendum.
In the run-up to that debacle, Bahamians were simply expected to trust the government and the numbers houses’ good intentions with little detail.
Hopefully, Cabinet won’t make that mistake again.
Show me the money
Possibly years away from seeing any oil, Bahamians last week flooded talk shows and social media with the concern that somehow The Bahamas was getting the short end of the stick with regard to oil royalties.
That depends on how you look at it. According to the proposed production license, the royalties paid to the government increase on a sliding scale.
If up to 75,000 barrels of oil are produced per day (bopd), then the royalty rate would be 12.5 percent.
For oil production over 75,000 up to 150,000 bopd, the royalty rate would be 15 percent.
For oil production over 150,000 bopd up to 250,000 bopd, the royalty rate would be 17.5 percent.
For oil production over 250,000 bopd up to 350,000 bopd, the royalty rate would be 20 percent.
For oil production in excess of 350,000 bopd, the royalty rate would be 25 percent.
The royalty rate on any amount of gas production would be 12.5 percent.
BPC has five licenses that cover an area of nearly four million acres in total.
It is also required to pay the government $0.92 per acre per year for its leases.
However, these payments are deductible from royalty payments.
BPC is also surely ecstatic that there is no corporate income tax in The Bahamas.
It is unclear how value added tax would impact oil drilling and or production.
The company has invested nearly $50 million so far; mostly in seismic research.
It says an exploratory drill would cost another $120 million.
It is unclear what The Bahamas has invested so far, but preliminary indicators suggest that the country has spent nothing on BPC’s venture.
That seems like a pretty good return on investment.
However, when you look at what other countries rake in in pre-tax oil revenues, what is proposed would pretty much make The Bahamas the lowest recipient outside of Ireland.
Environmental concerns
The thing most people seemed to be concerned about is an oil spill.
BPC’s research indicates that an oil spill taking place at the location where drilling will most likely take place would have “a major impact on the Cuban coastlines in the vicinity of the release point”.
“Particular wind conditions may allow for transport of small quantities of oil to the west, where it can eventually be advected by the Florida current and potentially affect the Florida or eastern U.S. coasts, or the Western Bahama Islands.
“In case of a seabed spill, it is expected that some oil will surface at a distance from the initial spill due to intense deep dynamics along the Great Bahama Bank. This would favor a wide spread of oil, with possible impact further on the Cuban coast, but also on the Florida or Eastern U.S. coasts, or the Western Bahama Islands.”
BPC’s political ties
Though the PLP tries to downplay it, there is no getting around the fact that Prime Minister Perry Christie, Deputy Prime Minister Philip Brave Davis and Senator Jerome Gomez were all closely linked to BPC prior to the general election.
Davis was its lawyer, Christie a consultant and Gomez the resident director.
All three men have since said they no longer have ties to the company.
But that hasn’t stopped the FNM from asking serious questions.
The Opposition has asked for full disclosure. Davis has expressed annoyance at the line of questioning and pledged to act in the best interest of the Bahamian people.
Gomez addressed the issue last week, though both men stopped short of full disclosure.
Christie said he will address the matter in the House of Assembly today.
Whether there is oil underneath the sea remains to be seen, but what seems clear is that the great oil debate is just getting started.
March 18, 2013
