Bahamas Petroleum Company awarded licences
Under the terms of Bahamas Petroleum Company’s granted licences the Governor General grants the licence holders, Bahamas Offshore Petroleum (BOP) and Island Offshore Petroleum (IOP), 100% subsidiaries of Bahamas Petroleum Company, the sole right to undertake exploration in its licence areas subject to conditions set out in the licences and Bahamian legislation and regulations.
The licences were originally granted for 12 years from April 2007, divided in to 4, equal 3-year periods. However the first 3-year period was extended for an additional 2 years at the request of the Government to run to April 2012. The requirements for the first term, which concluded 26th April 2012, were all considerably exceeded.
In 2015 the four southern commercially conjoined licences held by BOP were renewed for a second three year period, with the requirement to commence an exploration well by April 2017. Subsequently, on 17 March 2017 the Government of The Bahamas announced an extension to the BOP licences and attendant obligations for a period of 12 months.
However, following discussion with the Government in relation to matters pertaining to the licences, on 8th February, 2019, the Government restated the second exploration period to have commenced 1 August 2016 and to expire on the 31 December 2020, with an obligation to commence the drilling of an exploration well by December 2020. The Government also determined the obligations and commitments under the licence to have been discharged in full to that point and that the licences remained in full force and good standing.
Discussions with the Government regarding the renewal and extension of the IOP licence remain ongoing.
Exploration Licences and Applications
|Asset*||Holder||Interest||Status||Date of Next Renewal||Licence Area|
|The Bahamas - Bain Licence (offshore)||Bahamas Petroleum Company plc||100%||Exploration||3 January 2021||775,468 acres 3,138km²|
|The Bahamas - Cooper Licence (offshore)||Bahamas Petroleum Company plc||100%||Exploration||3 January 2021||777,934 acres 3,148km²|
|The Bahamas - Donaldson Licence (offshore)||Bahamas Petroleum Company plc||100%||Exploration||3 January 2021||778,855 acres 3,152km²|
|The Bahamas - Eneas Licence (offshore)||Bahamas Petroleum Company plc||100%||Exploration||3 January 2021||780,316 acres 3,158km²|
|The Bahamas - Miami Licence (offshore)||Bahamas Petroleum Company plc||100%||Exploration||TBD||760,973 acres 3,080km²|
Renewal: At grant on 26 April 2007 licences issued for 12 years with renewal each new three-year period, first three-year period granted a two-year extension. Second three-year period commenced on 8 June 2015 with 12 month extension granted on 17 March 2017. Following discussion with the Government, in February 2019, the Bahamas Government restated the renewal of the Second Exploration Period to have commenced on 1 August 2016 and to expire on 31 December 2020, with an obligation to commence the drilling of an exploration well by December 2020.
|The Bahamas - Islamorada Licence(offshore)||Bahamas Petroleum Company plc||777,900 acres 3,148km²|
|The Bahamas - Zapata Licence (offshore)||Bahamas Petroleum Company plc||776,200 acres 3,141km²|
|The Bahamas - Andros Licence (offshore)||Bahamas Petroleum Company plc||774,500 acres 3,134km²|
How many licences does Bahamas Petroleum Company have? And, does Bahamas Petroleum Company have any pending applications?
Bahamas Petroleum Company currently owns 100% equity in five exploration licences, Bain, Cooper, Donaldson and Eneas in Southern Bahamas and Miami in Northern Bahamas. Bahamas Petroleum Company has made three, 100% equity applications named Zapata, Islamorada and Andros.
How did the existing licences and the pending applications get their names?
Upon making the licences application, Bahamas Petroleum Company was required to define the applied for area of blocks and to give that area a name; the Government then decides when awarding the licences whether they accept the proposed name(s) or whether they wish for the Company to change them. After the Government confirms and accepts the names they are typed into the actual licence agreement along with all other fiscal terms and obligations.
Is there any significance to the names of the licences and applications?
The names of the licences and applications hold no significance. The names of the four Southern licences run alphabetically and reflect ‘traditional’ Bahamian family names rather than pertaining to any particular person, or persons related to the oil industry or Bahamas Petroleum Company.
What are the main components of the Maritime Agreement and how does it affect Bahamas Petroleum Company?
The agreement delimiting the maritime boundaries of The Bahamas and Cuba was signed on 3 October, 2011, by the Deputy Prime Minister and Minister of Foreign Affairs Brent Symonette. This agreement defines the dividing line between the two countries and the limits of territorial waters. Further, it defines the exclusive economic zones and continental shelves between the two nations which then also allows for cooperation in the management of living and non-living marine resources in the area. The agreement delivers on the Government assurances to protect not only the Bahamian borders but also the extent of the granted exploration licences. This affords Bahamas Petroleum Company certainty as it relates to the limits and extent of its currently held exploration licences.
What are the Act(s) governing petroleum activities in The Bahamas? What do they allow?
Bahamas Petroleum Company four southern licences, namely, Bain, Cooper Donaldson and Eneas, remains to be governed by The Petroleum Act (‘the Act’) 1971 Chp 219 and the Petroleum Regulations 1978 Chp 219.The Petroleum Act (‘the Act’) 1971 Chp 219, governs Petroleum exploration, making provisions for the granting of Permits, Licences and Leases. Additionally, the Act covers the level of Royalties and granting of all rights required by a licensee or lessee in order that petroleum may be searched for, bored for, gotten, stored, treated, converted, or carried away. The Act is further refined by the Petroleum Regulations 1978 Chp 219; which goes beyond simply defining the term of the licence to actually detailing the procedures and obligations for the licence and/or lease. For instance, where the Act speaks only to Petroleum exploration; the Regulations specifically deal with the Term and Renewal of Licences, Expenditure and Pooling of Expenditure as well as Abandonment, Completion and Suspension of wells; etc.
In 2016, that Bahamas Government recently introduced four new pieces of legislation to modernize and regulate the Petroleum Industry in the Bahamas.The Petroleum Act 2016, the Petroleum Regulations 2016, the Petroleum (Health and Safety) Regulations 2016 and the Petroleum (Environmental Protection and Pollution Control) Regulation 2016 were all passed by Parliament and became law. Though the Company four southern licences have been grandfathered to the old Petroleum Legislation; Bahamas Petroleum Company exploration project and operations will not be disadvantaged. The Company has been advised that where the provisions of the old legislation are disadvantages or silent on matters of importance to the project development and success, the Minister will rely on the updated provisions of the Petroleum Act 2016 and the Petroleum Regulations 2016.
Additionally, the new regulations that will govern exploration of Petroleum in the Bahamas are the Petroleum (Health and Safety) Regulations 2016 and the Petroleum (Offshore Environmental Protection and Pollution Control) Regulations 2016. The H&S Regulations address matters of health and safety in the operation of facilities for petroleum exploration and extraction in The Bahamas. The H&S Regulations also address different health and safety requirements and reflects best international standards and practice for the safe operations of petroleum facilities. Further, the OEPPC Regulations provides rules for offshore installations related to the monitoring and prevention of pollution and or damage to the marine environment, the Bahamas and surrounding areas.
When were the current Licences awarded? And, what are the key terms and obligations?
Bahamas Petroleum Company was awarded five licences in 26 April 2007 for a twelve (12) year term, though the currency of the licence has to be renewed every 3 years – consistent with the Act and Regulations. A 2-year extension was granted to the first 3-year period in March 2008 after Bahamas Petroleum Company was requested to hold operations until The Bahamas/Cuba Delimitation agreement was assigned. Bahamas Petroleum Company accordingly deferred commencing seismic surveys in the awarded areas, with the first 2D survey not commencing until June 2010 and the 3D a year later in July 2011. Thus the renewal of the first ‘3’ year term was extended until 26 April 2012. Subsequently, the Government provided formal renewal of the Company’s four southern licences on 8 June 2015 with a further 12 month extension being provided on 17 March 2017. However, following discussions between BPC and the Government, on 8th February 2019, the Bahamas Government restated the renewal of the Second Exploration Period to have commenced on 1 August 2016 and to expire on 31 December 2020, with an obligation to commence the drilling of an exploration well by December 2020. These extensions were intended to reflect the delays imposed on the Company whilst the Government updated its Oil & Gas regulations, which came into force in July 2016.
The key requirements of the exploration licences currently held by the Company are as outlined below:
- The licences give the Company the right to search for, bore for, and test to ascertain all or any petroleum lying or being within, under or throughout the licensed area as covered under each licence;
- The Company is to pay annual rental for each licence period in the amounts as agreed under each licence agreement (currently determined by the Government to be $250,000 per licence per year) – thus, for example, for four licences this would aggregate to $1,000,000 per annum;
- The Company was required to spend a minimum annual amount on exploring and prospecting for petroleum in the first three years of its licensed period (aggregate amount of $1,350,000) for which it was required to supply a bank bond to guarantee the extent of the work carried out – similarly for the second exploration period;
- Over and above the Licence fees and supply of the Performance Bond, the Company is expected to bear the entire costs of operations on the licence, all exploration activities and, in the extent of success, all appraisal costs, all development costs, all production costs and the costs of mandated abandonment;
- Following discussion with the Government, in February 2019, the Bahamas Government deemed the Company’s southern licences valid and restated the renewal of the Second Exploration Period to have commenced on 1 August 2016 and to expire on 31 December 2020, with an obligation to commence the drilling of an exploration well by December 2020. The Government also determined the obligations and commitments under the licence to have been discharged in full to that point and that the licences remained in full force and good standing;
- The Company as part of the continuing obligations under the licence is required to commence a second well by December 2022 (subject to subsequent renewals in accordance with the terms of the licences), and shall continue to conduct exploration drilling operations for the remainder of the term of the licence and any renewal periods with an interval of not more than two years between exploration wells.
- Prior to the commencement of any exploration drilling, the Company must deliver to the Government:
- An Environmental Impact Assessment (EIA) detailing the environmental and ecological impacts that the exploration and drilling may have on The Bahamas, its marine environment and the surrounding seashores;
- An Environmental Management Plan (EMP) consisting of a Health and Safety Plan and an Emergency Response Plan for spills of oil and hazardous substances.
- Following review and approval of the EIA and EMP, the Government will provide the company with an Environmental Authorisation (EA) as outlined in the Petroleum (Offshore Environmental Protection and Pollution Control) Regulations, 2016; the EA is a signed document authorising the Company to proceed with drilling the exploration well.
- Where the Company applies for a renewal of the licences following the first 3 year licence period and has complied with the Petroleum Act, the Regulations and the terms and conditions of its licences, the Government shall renew the licences for a further period of three years as it relates to the whole of the original licensed areas, and thereafter may, renew the licences for two successive periods each not exceeding three years as it relates to fifty percent of the original total licensed area – net of any areas over which an application for a production lease has been made.
- The Government may cancel the licences in the below cases:
- It is satisfied that the licences were obtained as a result of willful misrepresentation by the Company in any material particular in the process of making application;
- There is a failure on the part of the Company to keep accurate and complete records, books and accounts in accordance with section 15 of the Petroleum Act; or
- There is a material breach of any of the terms and conditions contained in the licences.
- The specific terms of the licence are confidential, but in the event of extraction of oil, the Act determines that the Company is to pay royalties at the rate detailed in the Act butincreased to between 15% and 25% based upon the level of production. This effectively means the Government is an ‘equity’ holder in the licence being entitled to either revenues or the equivalent in produced crude oil up to the appropriate level of royalty directly from the stream of revenue or production. Thus if oil price and/or hydrocarbon production were to rise, the Government benefits would rise in direct proportion.
- The Licensee and any contractor employed by the Licensee can import into The Bahamas exempted materials as defined by the Licence without the payment of customs duties, excise taxes, levies, other taxes or charges of whatever nature.
Senator Hon. JoBeth Coleby-Davis, In-house Counsel
JoBeth is responsible for compliance and risk management of Bahamas Petroleum Company licences, Government relations and works closely with the management team to advise on legal and commercial risks associated with day to day business operations