Oil explorer in New Year local investor fund

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamas-based oil explorer yesterday pledged to set-up an investment fund in the New Year that will give Bahamians access to the potential "fortune of hydrocarbons" from its activities.

Simon Potter, the Bahamas Petroleum Company's (BPC) chief executive, told Tribune Business that it was "only right and proper" that Bahamian institutional and retail investors be given the chance to benefit financially from their country's natural resources.

BPC has hired Leno Corporate Services, the rapidly expanding investment house headed by Sean Longley, to advise and help structure a Bahamas-domiciled mutual fund that will serve as a vehicle for locals to participate in any wealth creation upside from the company's exploration activities.

Mr Potter explained that BPC, which has long promised to facilitate Bahamian investment in the company, had decided it was the correct time to revisit this pledge as it ramps up to spud its first exploratory well in waters south-west of Andros during the 2020 first half.

The proposed mutual fund will invest exclusively in BPC, and Mr Potter emphasised that the company's primary goal in creating it was not to raise cash as the first well project is already fully-funded. As a result, he explained there is no target sum the company is aiming to obtain.

While BPC still has to work out the pricing of the fund's shares, and its structure, with Leno, Mr Potter said it would likely be "quoted" - as opposed to listed - on the Bahamas International Securities Exchange (BISX) to give investors better price transparency and discovery.

The mutual fund's worth will be directly linked to BPC's share price on London's Alternative Investment Market (AIM), and the oil explorer's chief executive said it would seek investments from both institutional and smaller retail investors once it launches in early 2020.

"It's clearly been our goal to allow Bahamian investors to have the opportunity, or facility in, BPC , which was solely set up to to explore for hydrocarbons [oil] in The Bahamas. It's a potential resource for the country, and seems only fitting that Bahamians are able to invest in this. This is a natural asset, this is a Bahamian asset, and is only right and proper," Mr Potter told Tribune Business.

Asked when the planned mutual fund will be structured and offered as an investment opportunity to Bahamians, he added: "I think realistically, with regulations and legislation the way it is, and the Christmas holidays, it's probably going to be the New Year. We'll certainly be ready to go in the New Year."

BPC, in its official release on the matter, said: "The company expects that, following a further process of consultation with Leno and various administrators in The Bahamas, details of the proposed mutual fund - including the terms, how investors' interests in BPC would be reflected, eligibility for, anticipated timeframe and manner of subscription - will be confirmed in the coming weeks."

Opinion is likely to be divided on the merits of BPC's mutual fund. While many Bahamians will likely welcome a chance to invest in the oil industry, one of the most lucrative in the global economy, it is probable that an equal number at least will be opposed given Hurricane Dorian's recent devastation and the linked concerns over fossil fuel-driven climate change.

Mr Potter acknowledged the "very mixed' reaction BPC's plans have provoked, saying: "You talk to fishing communities, and they talk about the oil discoveries they know of and the drilling that has taken place. There are those communities that say oil is there, and others less so."

Environmentalists, in particular, are likely to be against BPC's plans to offer a local investment opportunity. And there are other sceptics questioning whether BPC is for real, given that it has yet to spud its first exploratory well despite starting the data collection process 14 years ago in 2005.

Mr Potter, pointing out that BPC has raised and spent some $100m to reach this point, said the estimated oil beneath the Bahamian sea-bed was almost three times' what the industry considers a "giant" find. He described this nation, and the wider Caribbean, as "hot" when it came to oil exploration.

"I'm a geologist, I'm an explorer and it's been my job with the various companies I've worked in to look at opportunities for hydrocarbon resources," he added. "The Bahamas stands out as an area close to existing production, close to international markets and, geologically, is very attractive for hydrocarbon exploration."

Mr Potter said BPC's studies to-date had been "unable to disprove" the theory that The Bahamas has the right type of sub-surface rock structures for holding oil reserves, and continued: "It stands out as a project with huge technical merits, and technical merits that have kept us aligned as a team and working to bring this project about.

"It can be a huge resource for this nation. The barrels potential is 1.4bn, and currently half a billion barrels is considered giant. There's oil in Florida, oil in Mexico, and Guyana has made tremendous discoveries. The Caribbean and The Bahamas are kind of hot at the moment for hydrocarbon exploration."

Mr Potter said the drilling of BPC's first exploratory well near The Bahamas' maritime boundary with Cuba, together with the greater legal, regulatory, licence term and rig equipment "certainty", meant it was an opportune time to revisit Bahamian investor participation.

The oil exploration regulatory regime, and BPC's licence terms and conditions, were set in 2016 and 2019, respectively, and the well design, rig provision and delivery of associated services are now well advanced, Mr Potter added.

"The funding, the equipment, the law, the licence have all come together to allow us to offer the investor a degree of certainty that was not there before," he said. "And the timeline of the project, with rig operations scheduled three to five months from now, and it being there for 40-60 days, that's the window of opportunity."

Leno will act as the proposed fund's manager/administrator, with Mr Potter explaining that they selected it as the best vehicle for Bahamian investors because it "seems to be most administratively straightforward and consistent with the timeframe we're on" to drill a first exploratory well in Bahamian waters by the 2020 first half.

"This is not us raising cash, us raising money," he added of the rationale for the mutual fund's creation. "The project is already going ahead, the project is funded. This is simply a facility for Bahamians to invest in BPC and the fortunes of hydrocarbons in The Bahamas if they so wish. It's not a chase for money. It's a facility."

As a result, BPC has not set any target amount that it wants to raise from Bahamian investors. "We're not taking any view on that," Mr Potter said. "In some ways it will be what it will be. We're not coming with a prescribed view. It'll be up to the investors. We're planning with Leno to ensure the costs and fees associated with the fund are as low as they can possibly be."

BPC will be a relatively unique investment opportunity for the Bahamian capital markets given the nature of its business and its life stage. Some observers will likely argue that it is more a venture capital investment, given its high risk/high reward nature as a company in the lucrative oil industry that has yet to strike proven oil reserves in Bahamian waters.

"The issue for us as managers of the company is ensuring the fund documents, the prospectus, adequately addresses this and explains that hydrocarbons have risks associated with their success that are different from financial instruments," Mr Potter explained.

"This kind of investment is not for all, and shouldn't be for all. That's our challenge in terms of the fund documents, the prospectus; to be able to articulate the sub-surface, the geotechnical and make people aware of the risks of exploring for resources. I don't want to belabour this point but it's something on our minds."

Mr Potter added that BPC had sufficient new shares it could issue to the mutual fund as a result of shareholder approvals at its last annual general meeting (AGM). He confirmed that the mutual fund would likely be quoted, not listed, on BISX with valuations updated on a frequent - weekly or monthly - basis.

The BPC chief said he was also confident that the oil explorer will meet its deadlines for completing all necessary environmental studies. It is aiming to complete its revised Environmental Authorisation by the 2020 first quarter, meeting a timeline developed in conjunction with the Government and Bahamas Environment, Science and Technology (BEST) Commission.

Work on an environmental response plan is also expected to be completed by early 2020, with Mr Potter adding: "The timely receipt of requisite approvals from the Government means we have been able to commence a critical piece of preparatory work ahead of drilling activities: The collection of a comprehensive range of samples necessary to demonstrate the current ambient conditions at the proposed drill site.

"This will allow a direct assessment of any potential impact from our planned activities, noting that those activities by their very nature will be for a short, temporary duration, close to the international maritime border with Cuba, in a location which is an active marine thoroughfare serving both the existing petroleum facilities in The Bahamas as well as the entire region. We remain on track to see drilling commence on schedule."