Alan Burns knows what it is like to be on an off-shore drilling rig during a hurricane. ‘It’s the noise’, he explained. ’That’s what you don’t expect.’ But the prospect of finding himself in this situation again does not deter him. ‘Oil rigs today are safe,’ he assured me. ‘The only ones that have been damaged in the Gulf of Mexico were either too old or so new that they had not been properly secured.’ In any case the hurricane season in the Gulf is more severe than afflicts the Bahamas and it is here that Burns has identified ‘the biggest thing I have seen in my life in the oil business.’

Attractions, attractions, attractions…

That is something coming from this sixty-seven year old Aussie who banked a fortune when Hardman Resources, the oil company that he founded, was bought by Tullow in 2006 for £650m. Today he does not mind admitting that he would rather spend his time looking for oil in a place where it is pleasant to live, but still it is clear that he set up his Bahamas vehicle, BPC, for other reasons than golf courses, beaches and fish dinners overlooking the warm Atlantic water. He reckons that there could be large reserves of oil and gas under that water and is determined to find out.

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Last month BPC was reversed into the AIM quoted Falkland Gold and Minerals after the latter concluded that further exploration for metals in those islands was a waste of time, and three weeks ago shares of BPC started trading. The share price now stands at 5p, valuing BPC at £40m, and this has all the makings of a share that will be actively traded and a favourite of the message boards. But for a company at BPC’s stage £40m is an ambitious valuation, and I have been looking at the listing prospectus to see whether this can really be justified.

The attractions here are the size of the license areas, their location, and the political regime of the Bahamas, where of course there is a Governor General appointed by the Queen and a judicial system based on English common law.

Over the next five years BPC must pay $2.44m for the rental of its prospecting licenses, and another $1.35m for work obligations. Beyond that no tax is payable but in the event of BPC producing oil it would have to pay royalties to the Government at 12.5% or 25% for an oil production rate of more than 350,000 barrels per day. If that ever happens then BPC’s shareholders will not mind at all paying the Government such a levy, and such are the size of the license areas that production of this quantity is at least conceivable.

The search for data

BPC has five license areas covering a total of 15,676 sq kms and it has spent the last few years gathering all the available data. This has not been easy, and Burns told me that documents were retrieved from a partially flooded shed in New Orleans and a warehouse in North Wales, as well as from oil companies, universities and research institutions. The Bahamas Government had no central repository of data and in fact did not even have a department to deal with license applications until BPC chivvied it into taking some action. So BPC has been busy rounding up all the information gained from the sporadic exploration activity of the last sixty years.

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In 1947 there were eight active licences, including those held by Gulf, Standard Oil, BP, Superior Oil and Shell. Exploration in those days consisted of gravity and magnetics with some rudimentary seismic. In the next forty years further prospecting was done and five deep petroleum wells were drilled either onshore or in shallow water. According to industry consultant Moyes & Co, ‘the well results suggest the presence of active petroleum systems’ and now, having collected and reinterpreted all the available data BPC has identified twenty-two leads as being potentially capable of holding ‘commercially exploitable volumes of hydrocarbons.’

Could there be more to the Bahamas?

Now BPC has invited other oil companies to Colorado where it has set up a data room and is looking to bring in partners to take the project forward. The prospectus says that BPC intends to start drilling by 2012, but with the market for drilling rigs promising to flip from undersupply to oversupply, and the Bahamas being such an accessible region and close to the Gulf of Mexico, BPC is hoping to beat this timetable. The waters of the Bahamas are shallow and are close to Florida. So if BPC finds that the geology of the region does indeed hold oil and gas in quantities and rock formations that make it commercially exploitable it should have no trouble delivering it to the thirsty markets.

This is an intriguing situation and very much one to watch. Could there be more to the Bahamas than marlin fishing and golf? Over the next few years we shall find out.

Best regards,

Tom Bulford
for The Penny Sleuth

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