Oil, Oil Drilling, Oil Royalty, Oil Royalties and Oil Madness with the Grimpen Reprobates and Greed-lusting Lunatics in The Bahamas

 PROFESSOR GILBERT MORRIS ON BAHAMAS’ POOR CONCEPT OF NEGOTIATION:

IN TODAY’S PAPER, the Attorney General of The Bahamas intones that “if they find oil” we’ll negotiate a royalty!

Every hedge fund manager, investment banker, every bond investor, and investment grade insurance broker spilled his coffee at those petulant words. Every first year student in finance or graduate student in a negotiation or mediation seminar knows this statement goes against every basic rule of negotiation or even business strategy.

Here is the context any strategist sees immediately:

1. You (THE BAHAMAS) allows a no name company that’s no where near the best-of-brand to travel around the world flogging the name of The Bahamas in some ‘hustle and flow’, selling their eyelashes and toenails to raise money for what purpose? TO DRILL in The Bahamas...HEAR ME NOW: THE BAHAMAS!

2. This name (BAHAMAS) that evokes natural wonder GLOBALLY; a luxury brand that the world saves-it’s-money in hopes to enter and engage...you allow this BRAND to be flogged in every slopbucket across the globe...altering IMMEDIATELY 120 years of branding.

3. Just to emphasise: It’s not as if this company moved around saying “Hey man, this process is like we are exhibiting at the Louvre or in the Vatican. THEY ARE NOT HAVING TO SAY: this is the Bahamas. We have strict rules on who can participate in this deal, even stricter rules on how we mention the Bahamas’ name and still stricter rules on the methods: in fact, we have to work with the best engineers in the world and the leading environmental scientists...basically inventing a new concept and method for even preliminary exploration and it has to go before a global panel of experts and the science has to show a “Saudi Reserve level motherload” of potential oil”, with forward contracts for sales of $100 billion in 10 years”.

This is the language and pressure ANYONE WHO GAINS THE CONCESSION TO DRILL IN THE EARTH’s MOST PRISTINE ENVIRONMENT SHOULD SPEAK AND FEEL. This raises a question: WHERE IS THE SCIENCE? The science and engineering methodology that allows a company to DRILL IN THE BAHAMAS should be of a quality to win the Nobel Prize! It should have tongues wagging about a NEW BAHAMIAN SCIENTIFIC STANDARD! Where is the science?

4. The fact that the company does NOT have to speak in this manner and the fact that they NOW KNOW, gaining a concession to drill in The Bahamas is little different from selling fake hair, IT IS THEY who gained confidence in this affair?

THEY GREW FROM NOTHING TO SOMETHING!

THE BAHAMAS GAINED NOTHING: we didn’t set a new deal standard, we didn’t layout new green criteria...NOTHING! Instead this process shows any hustler can gain access to the world’s most pristine environment because we, to whom God granted stewardship, are low-information fools, who would sell our children’s tongues for disposable shiny objects!

5. Negotiations depend on leverage: so if this company knows we are so clueless, backward and morally vulgar toward our birthright, that we put them under ZERO PRESSURE to violate a 120 year old hospitality brand, under zero pressure to INVENT some new process for this privilege to drill in our environment, then we’ve lost already! UTTERLY!

6. What the AG’s apocalyptically dissonant statement says is this: WE permitted a nothing company a concession to VIOLATE the tranquility of our NATURAL LANDSCAPE THAT WE DIDNT CREATE AND CANT REPLACE, which the entire world envies, and now that they have this concession and USED THE NAME AND PRESTIGE OF THE BAHAMAS to gain notice in the world - FOR NOTHING - we will wait until they discover the two cups of dirty dishwater under OUR PRISTINE OCEAN FLOOR...then when that company goes from nothing to making an oil find in THE BAHAMAS...and once they HAVE ALL THE POWER AND LEVERAGE in the deal structure...we, THE BAHAMAS will negotiate a royalty!!!!!!

Are we smoking the hair of our armpits?

7. This telegraphs to the entire world that we are not just clueless to have allowed this TREASONOUS ASSAULT ON OUR ENVIRONMENT, but we have not even a basic clue how deal-structure functions. This leads to another question: WHERE IS THE DEAL STRUCTURE, BENCHMARKS, HURDLE PROPOSITIONS AND SPILL INSURANCE EQUAL TO THE RARE ENVIRONMENT THAT’s BEING PUT AT RISK? WHERE IS IT?

9. But here is the ‘coup d’ grace’, any deal specialist knows already the investment begging company can’t monetise any oil find. As such, they likely would have to flip it to a major oil company if they find anything. Given that the world is awash in cheap oil, and with major new oils finds in Russia, Brazil and with Iran set to come online forcing global prices lower, they would cap those wells in The Bahamas and we get NOTHING! NOTHING! NOTHING....as usual!

10. BUT the world knows now that we are grimpen reprobates and greed-lusting lunatics, who would sell a priceless irreplaceable environment - with a 120 year global profile - for NOTHING, ignoring our competitive advantages in new hospitality models, for a dying industry in which we have zero and would have zero influence!

Source/Comments

...the financial terms that currently exist between Bahamas Petroleum Company (BPC) and the Bahamian government are “nonsense”

Govt urged to address oil terms

Senior oil sector source calls financial benefits ‘a give away’

By Alison Lowe
Guardian Business Editor
alison@nasguard.com

The government is being advised to move quickly to update the terms of its agreement with Bahamas Petroleum Company (BPC), which have been dubbed by BPC itself, in addition to by local and international oil industry watchers, as extremely favorable to the company.

Earl Deveaux, former minister of the environment under the Ingraham administration, told Guardian Business that he agrees with BPC Chief Executive Officer Simon Potter’s assessment expressed at a recent London energy conference that the terms on which the government and BPC and its partners would share any oil revenues would appear to be “second to none” in the world for their generosity to the oil company.

Deveaux told Guardian Business that these terms and many other issues should be subject to greater public discussion.

In an address to the London Global Energy Conference on September 16, Potter said that the financial terms surrounding any potential oil discovery in The Bahamas are likely to be “music to people’s ears” given that they revolve around a “simple royalty” payment to the government of 12.5 percent, increasing to 25 percent if oil extraction reaches over 350,000 barrels a day.

Potter noted that the government could seek to change the terms, but highlighted that the Privy Council in London “ultimately remains the final court of appeal” in The Bahamas, suggesting that a legal challenge could be launched were the government to seek to change the terms.

Yesterday, a senior oil industry source in Trinidad and Tobago, which has long benefitted from its own highly-developed oil sector, told Guardian Business that the financial terms that currently exist between BPC and the government are “nonsense”.

“It would amount to a giveaway of the oil sector,” said the source, speaking on condition of anonymity.

He noted that while Potter highlighted a zero income, corporate or capital gains tax environment in The Bahamas from which the oil company would also benefit, in Trinidad and Tobago royalty payments are accompanied by a production levy on gross income from crude oil, a supplemental petroleum tax based on oil prices that range from zero to 35 percent, a petroleum profits tax or corporation tax charged at 50 percent of gross revenues from all sources less deductible expenses and allowances, and an unemployment levy of five percent.

“Trinidad and Tobago has applied a high taxation regime and has been very successful in doing so,” said the source. “They should think about making changes sooner rather than later.”

Deveaux agreed it would benefit the government to address the financial terms in the short term, rather than waiting until BPC has secured its drilling partner, which it is seeking to partner with to undertake the exploratory well, or until after exploration occurs.

“I would agree that the terms of the petroleum leases are very generous and I have no idea what he’s offered to his prospective investors, but if it reflects what the government has provided for in the lease I expect it would be among the most generous in the world.

“I’ve always maintained publicly and privately that if we were to ever go down the road of exploiting oil reserves in The Bahamas, we would have to sit down and renegotiate those things.”

“I think it is infinitely easier now for the government to undertake any contemplated change that it may wish than if it waited until an exploratory well is drilled or a commercial discovery is made.”

Deveaux said that he sees a broad-ranging discussion about many aspects of what it means for The Bahamas to develop an oil industry as necessary and lacking at present.

“There hasn’t been any discussion, and it’s unfortunate,” said Deveaux.

“We have plenty reasons to review the overall regime and legislation.   It was done at the time when certain things were not a part of our reality.   We didn’t have Exxon Valdez, the BP oil spill, deep sea drillings off Mexico or Brazil and we didn’t have prospect of rising sea levels from temperature increases.   We have to factor in today’s realities, and there are compelling reasons to review it.

“I think the financial reasons are important (reasons to review the terms), but I don’t list them as any more important than others.   I would be engaging BPC in discussions about how we would manage this resource for all the reasons I listed and how we would create capacity in The Bahamas.

“There’s the whole review of how natural resource contribution of The Bahamas’ environment is now comprised; We have fishing, recreational tourism, aragonite and pristine waters that have been the host of world wide research in a number of areas. How do you factor that in with a companion oil industry?”

In his address to the Global Energy Conference, Potter described efforts to “bring the (Bahamian) government along” with respect to the development of an oil sector.

This included describing the differences that would exist between any oil extraction that would occur in The Bahamas versus the operation that was undertaken in the Gulf of Mexico prior to the 2011 oil spill, in light of differences in the depth of the drilling, the rock formations in The Bahamas, and the equipment that would be used, among other factors.

The company has completed an environmental impact assessment (EIA) and has an environmental management plan currently being developed.   The government has committed to updating oil sector regulations in short order, although it has not indicated if this would include any changes to the financial terms specified by Potter in his address.

Efforts to reach Minister of the Environment Kenred Dorsett were unsuccessful up to press time.

September 24, 2013

thenassauguardian