By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An oil exploration "game changer" for the Bahamas took "a huge step forward" yesterday with the signing of a three-month exclusivity deal on a drilling joint venture.

Simon Potter, the Bahamas Petroleum Company's (BPC) chief executive, told Tribune Business it had reached agreement with "a highly respected, major international oil company" to begin negotiations on a potential exploration partnership that would result in the "spudding" of a well in waters south-west of Andros.

The Bahamian-based oil explorer will entertain no other parties during this period, with Mr Potter suggesting the exclusivity agreement was "indicative of how they view" BPC's project and its prospects of success.

He declined to name BPC's potential partner, citing confidentiality agreements, but it will pay BPC $250,000 per month for the duration of the initial exclusivity - netting the company a total $750,000. The prospective "farm-in" partner also has an option to extend the exclusivity for a maximum further three months, again paying the same rate.

Mr Potter said recent global oil price increases had boosted BPC's long-running joint venture partner search, with the increased margins and profits whetting the industry's appetite for offshore exploration.

"You and I have been talking about the interest a third party may or may not have in this project for quite some time now," he told Tribune Business. "It's [the exclusivity agreement] a huge step forward for the project, especially in the context of improving global oil prices and the thawing of the industry's attitude with respect to offshore oil exploration."

Mr Potter said the decline in oil prices over the past few years had driven the industry to focus on onshore oil exploration/production assets, which were closer to delivering success and cheaper to acquire.

The speed at which renewed interest in BPC's Bahamian licences had materialised into something tangible, he suggested, showed the company's prospects of success - and the potential quantity of commercially extractable oil - were among the industry's best.

"With the improvement in oil prices, those prospects that have survived the downturn, those projects of scale and commercial attraction, they will be among those to get support the soonest," Mr Potter said.

"The extent to which a major international oil company is actually prepared to pay for a period of exclusivity, for a period of time in which they are the sole party with which we will negotiate, is indicative of how they view the prospect.

"These companies don't spend money if they don't have to. To commit to us in this way, and seek a commercial arrangement, is obviously very positive."

BPC's rate of progress has heated up rapidly in the past week, with the company having also submitted its 'Environmental Authorisation' application for the necessary permits in that area to the Government last week.

The search for a joint venture partner, who will share the financial and technical burden of drilling its first exploratory well, is the second 'parallel path' that BPC has been working on for several years, and it is now moving forward on both fronts.

BPC's licence areas largely straddle the Bahamas' maritime border with Cuba, covering waters south-west of Andros, which is where that first exploratory well will be spudded.

Mr Potter told Tribune Business that the Bahamas would not have to wait for actual production to feel the economic impact of oil exploration within its territorial waters.

"The exploration [on the first well] will last for 90 days and cost up to $100 million, a considerable proportion of which will be spent locally in-country. That's an immediate benefit," the BPC chief executive pledged.

"I've been here seven years this year with a technical commitment to the project. It's a project of scale and meaningful exploration. It's a technical project as well as a potential game changer for the Bahamas.

"There are parts of the project we're very comfortable with progressing ourselves; the technical aspects of the project, the environmental and safety aspects of the project with the Government," Mr Potter continued.

"We're very happy to push that forward. But certainly a company with much greater resources than ours will provide greater assurance to the Government in terms of delivery of the project.

"From a technical point of view, a large company with more resources enhances our chances of success. We benefit, the project benefits, and the Government gets greater assurance from their participation."

Mr Potter readily acknowledged that "it's not a deal until it's done", with much work remaining for BPC to turn the exclusivity agreement into a binding joint venture with agreed commercial and technical terms.

Yet he reiterated: "This is a major step forward that a company of this stature is willing to reward us for this period of exclusivity."

The initial 90-day period will involve "a detailed technical evaluation of the company's licences in the Bahamas and, at the same time, seek to develop a commercial framework for a potential transaction".