By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An oil explorer is now threatening to sue the Government over the four-and-a-half year delay it has endured in waiting for its Bahamian licences to be renewed.

Challenger Energy Group, the former Bahamas Petroleum Company (BPC), this week warned it is exploring "legal remedies available against the Government of The Bahamas" after failing to obtain an answer over whether the licence renewal application will be granted.

"The second exploration period of Challenger’s Bahamian licences expired on June 30, 2021," the oil explorer recalled. "In March 2021, consistent with the terms of the licences, Challenger applied to the Government of The Bahamas to renew the licences for a third exploration period.

"The Government of The Bahamas has not yet responded to this application and, given the length of time that has passed since the application was made, Challenger is presently exploring alternative means of monetising the value of its historic investment in The Bahamas, including considering legal remedies available against the Government of The Bahamas."

The warning, evidence of Challenger's growing frustration over its inability to obtain an answer from the Government, was buried in documents accompanying the proposed £45m acquisition of the oil explorer by a Canadian-headquartered rival, Sintana Energy, which holds oil exploration rights in Namibia and Angola in south-west Africa.

The deal, if approved by Challenger's shareholders, would result in Sintana acquiring the rights to the Bahamian exploration licence renewals. The so-called "monetisation" of those licences will remain critical to the combined entity that emerges from the planned acquisition because the Bahamian exploration rights accounted for 82.7 percent, or $94.463m of Challenger's $114.203m total assets, at year-end 2024.

Bahamian environmental activists yesterday urged the Government not to bow to Challenger/Sintana's threatened legal action, arguing that any effort to sue over the delayed licence renewal "cannot hold water." And, in the event any court or arbitration panel found for the oil explorer, some argued that any damages award is worth paying to preserve this nation's pristine ocean environment.

Joseph Darville, of Save the Bays and Waterkeepers Bahamas, called on Prime Minister Philip Davis KC and his administration to continue resisting "any pressure" to permit exploratory oil drilling in Bahamian waters. To do so, he added, would be totally contrary to The Bahamas' ongoing climate change advocacy and efforts to monetise its seagrass and environmental assets via carbon credits.

Casuarina McKinney-Lambert, executive director of the Bahamas Reef Environment and Educational Foundation (BREEF), told Tribune Business that Challenger's legal action warning is "odd" given that the company's previous financial statements confirmed that it still - in its own estimate - owed the Government around $600,000 in unpaid fees relating to previous exploration periods

Renewing her calls for The Bahamas to impose a total "ban" on oil exploration and drilling in Bahamian waters, she asserted: "I hope the message is loud and clear that The Bahamas does not want oil drilling, and it's not in our best interests. I hope they [the Government] discuss it with the Bahamian people and realise it's not in the best interests of The Bahamas."

Any legal action launched by Challenger will almost certainly be grounded on the assertion it has lived up to, and met, all its commitments during the previous two exploration periods for which it was licensed by the Bahamian government. That saw it drill the exploratory Perseverance One well in waters around 80-90 miles west of Andros, although no commercial quantities of recoverable oil were found.

Challenger will likely argue that the Government's failure to provide an answer on whether its three licence renewal applications will be renewed has cost the company millions of dollars - either through being unable to recover its existing investment or spud further exploratory wells that may yield commercial oil discoveries.

Suggesting that the results from Perseverance One confirmed "the presence of a working petroleum system in The Bahamas", the acquisition documents said: "Since 2008, Challenger has held four exploration licences offshore in The Bahamas, which have been renewed through two successive exploration periods.

"In the first exploration period, Challenger undertook extensive 3D seismic acquisition on the licences and, in the second exploration period, the Perseverance One exploration well was drilled in the licence area.

"The Perseverance One well did not result in a commercial discovery, but Challenger believes that the results of that well validate the presence of a working petroleum system in The Bahamas, and support Challenger’s view as to the overall prospectivity of the licence area in The Bahamas."

However, Mr Darville told Tribune Business: "I think the threat [of legal action] cannot hold any water whatsoever for the simple reason that we have become incredibly learned about the need to protect our oceans and seabeds, and whatever penalty we may incur because of not honouring those licences we have to do.

"Our Prime Minister has been all over the world touting that we are leading the way in reducing our carbon footprint to the extent that we may be able to trade carbon credits on the open market. Our success in maintaining the most beautiful and clear oceans and air in The Bahamas.... from outer space, astronauts say we are the most beautiful spot on planet Earth.

"I commend the Prime Minister for not responding to any pressure and continuing to send a firm 'no' that they will not consider renewal of those licences or anything to do with our seabed and oceans. We have the most beautiful ocean on the planet, and we have produced benefits from that," he added.

"I encourage the powers that be, the Prime Minister, not to be forced into any renewal of any licence that impacts our seabed for any reason whatsoever. You know my heart in this regard. They [Challenger] want to come back and do more exploration to recoup some benefits financially. 

"We are not a guinea pig in this regard. We are a sovereign nation, and need to safeguard our ocean and diminishing land space. They are diminishing because of climate change." Mrs McKinney, too, questioned whether Challenger would have a viable legal claim against the Government.

"That's odd given that, even in their own financial statements, they admit there is a question of how much they owe The Bahamas from previous exploration periods," she told Tribune Business. "That seems to still be outstanding. It's also odd that they're saying they still have licences in The Bahamas when they expired over four years ago. In my mind they do not have reason to expect a renewal."

Mrs McKinney asserted that the "drill report" on the Perseverance One well had never been made public, while there were also questions over whether that exploratory well drilling had sufficient insurance because Challenger has consistently noted it is still negotiating with insurers over $500,000 it is said to owe in "top-up" coverage. That was created because the well's costs were higher than anticipated.

"There are a lot of questions out there," she said. "There is no reason in our mind to consider to consider renewing exploratory licences that expired many years ago. From our perspective, it's very clear. The direction that The Bahamas needs to go is a total ban on oil drilling.

"That is in the best interests of our tourism and fishing industries, and given our vulnerability to climate change. That is the direction we need to go. Oil drilling is not something that should be on the table here for sure. There was an opinion survey done, and the Bahamian public was very clear they did not want oil drilling in Bahamian waters."

However, the Bahamian exploration licence renewals are critical to Challenger and, potentially, Sintana recovering the investment that the oil explorer has made in this nation to-date and monetising/extracting value from this.

"The intangible exploration and evaluation assets include an amount of $94m relating to the exploration and evaluation assets in the Bahamas," Challenger's 2024 full-year financial statements detailed. "The offshore exploration licence is pending renewal with the Bahamian government for a third three-year exploration period since March 2021.

"The group believes that the extensive studies showing sufficient potential hydrocarbon volumes in untested horizons and structures within The Bahamas' licence area support the recoverability of the group's capitalised exploration costs.

"However, the delay on the part of the Bahamian government may result in some or all of the carrying value of the capitalised exploration costs not [being] fully recoverable. The group remains in discussions with the Bahamian government over the terms of the licence renewal." That was several months ago.

Eytan Uliel, Challenger’s chief executive, who will assume the same role should the Sintana deal be approved by shareholders and regulators, has previously talked about "alternative strategies" to recover this investment.

Should commercially viable, extractable quantities of oil be discovered beneath the Bahamian seabed, Challenger - rather than extract it - would instead work with the Government to develop and share proceeds from a scheme involving the issuing of carbon credits whose value would be determined by the oil foregone.

Challenger has always signalled it would likely not undertake any further exploratory drilling in Bahamian waters without securing joint venture or farm-in partner to take the bulk of the financial, technical and operational risk as it seeks to extract what value it can from its Perseverance One investment.

The oil explorer, in documents disclosing the Sintana acquisition details, said some 34 percent of Challenger shareholders have committed to voting in favour of the deal. The price offered by Sintana represents a 44 percent premium to Challenger's latest 11.5 pence share price, and a 97 percent and 96 percent improvement, respectively, to its three-month and 12-month trading average.

No specific mention was made of the Bahamian Depository Receipts (BDRs) that Bahamian investors previously acquired in Challenger. The current administration has legacy ties to the oil explorer, with Jobeth Coleby-Davis, minister of energy and transport, having previously served as its in-house counsel. The Prime Minister's law firm, Davis & Company, also represented it at one time.