by Larry Smith
Following a series of public presentations by the Bahamas Petroleum Company and the government's relative silence on the matter since the election, former environment minister Earl Deveaux has released an essay he hopes will "explain the complex nature of the subject and inform public discussion about the choices and decisions that must be made."
BPC's interim report for June 2012 expressed "frustration at the lack of clarity coming from the new administration in The Bahamas", while noting that neither of the two main political parties had made any reference to oil exploration or regulation in their election manifestos. Prime Minister Perry Christie has said that regulations must be updated and a national referendum held before oil drilling can proceed.
According to BPC's interim report, "We intend to be aligned to the ‘best practices’ currently employed by Norway, the UK and the US representing internationally recognised standards. BPC will strive to fulfil its role in the transformation of the (Bahamian) economy in the most environmentally safe way possible."
To understand where we are today with oil exploration we need to go back to 1945, when the British enacted our original petroleum law to facilitate exploration by Gulf Oil, Standard Oil, Superior Oil and Shell. This legislation was replaced by the Pindling government in 1971. The new act came into effect seven years later, when the regulations were published, and remains in force today.
The absence of further exploration over the past 20 years is attributed to "industry consolidation and the lack of enthusiasm for exploration outside companies’ core areas following a significant fall in oil prices in the 1980s", according to BPC. The American company, Kerr McGee, was the most recent significant operator to pursue an exploration programme in the Bahamas, but it relinquished its Blake Plateau licences in 2006 without drilling.
Also in 2006, the first Christie administration awarded a British group (later constituted as the Bahamas Petroleum Company) five new exploration licenses covering just under four million acres in the southwestern Bahamas. The licenses became effective in April 2007, and for the past several years BPC has been conducting geophysical research in the Bahamas. It has also produced an environmental impact assessment, which is available on the BEST Commission website.
In his essay released today, former minister Deveaux points out that despite this long history of exploration in Bahamian waters, the substantial risks of petroleum exploitation only gained prominence following the world's worst ever oil accident - British Petroleum's Deepwater Horizon blowout in the Gulf of Mexico in 2010.
"That spill released more than five million barrels of oil before it was capped and sealed after 83 days," Deveaux said. "The oil discharge threatened the Great Bahama Bank, Bimini, the west coast of Andros and western Grand Bahama. I monitored the situation daily, in morbid fascination. If the oil were to reach our shores the potential consequences would be enormous."
The 1971 act requires holders of exploratory licences to drill a well after a specified number of renewals in order to discourage speculation, so BPC is obligated to invest in drilling activities. However, following the Deepwater Horizon blowout that spilled millions of barrels of oil into nearby waters, the previous government declared a moratorium on exploration and suspended all further licences and renewals pending the development of new regulations.
According to Deveaux, "events in the Gulf had amply demonstrated the devastating potential consequences for Bahamian tourism, fishing and the environment should commercial oil reserves be confirmed and exploited without adequate governance. We had very serious concerns about this prospect. The existing regulatory environment does not allow for rigorous oversight of potential negative impacts to our most precious resource - the environment which underpins the way of life of all Bahamians, especially those engaged in tourism and fishing.
"The challenge for the Bahamas is that the (1971 Petroleum) Act was written over 40 years ago; prior to Deepwater Horizon; prior to Cuba drilling for oil in neighboring waters; prior to the delimitation of maritime boundaries with Cuba, and prior to the discovery of oil in the offshore waters of Brazil and Mexico.
"Without detailing all the issues inherent in something so materially significant," Deveaux said, "it is a clear responsibility of the government to prepare the country for oil and its likely consequences, should drilling proceed. The regulatory, legislative, environmental and financial regimes, must all be overhauled to deal comprehensively with this complex industry."
According to Deveaux, the previous government believed Norway offered the best example of a modern regulatory system capable of managing all the competing interests, and sought to prepare the Bahamas for "a reasoned position on oil".
These preparations included mobilising assistance through the International Maritime Organisation; completing several pre-impact ecological assessments on the Cay Sal Bank; identifying gaps in the regulatory protocols and seeking expert advice on ways to improve the legislation; coordinating a meeting of technical stakeholders from neighboring countries to ensure a seamless response mechanism in the event of an oil spill; and hiring an oil spill expert at the Port Department, the agency responsible for initial emergency response.
A team of Bahamian officials led by Deveaux also met with government and industry officials in Norway late last year for an in-depth overview of their petroleum industry and regulatory regime. Based on his experience and observations in Norway, Deveaux wrote his essay as "a basis for constructive discussion."
In that essay, he argued that if the Bahamas is to become an oil-producing country, it must balance that choice against its current economy and way of life. "And the principal underpinning of our economy and way of life is the natural environment, so this asset must be protected as far as possible."
Norway is considered a world leader in the petroleum industry. It began offshore production in the North Sea in 1971, and now produces almost 2 million barrels of oil per day, as well as large quantities of natural gas. The Norwegians have also implemented a strong regulatory and legal framework to govern the industry.
"We sought to get an understanding of this framework," Deveaux said, "of the environmental issues involved, and of the investment approach for oil revenues. There must be a full national debate on these issues. We must have accountability and transparency."
Norway established a sovereign wealth fund in 1985 to invest a significant portion of its oil and gas revenues. This fund is currently valued at some $600 billion and is based on the principle that petroleum resources belong to society as a whole. The state secures a large portion of the profits created through taxation and public ownership of a share of oil and gas fields, pipelines and shore facilities, Deveaux said. The state also owns 67 per cent of Statoil, and receives annual dividends which amounted to $2.35 billion in 2011.
"To ensure that revenues are used for the benefit of the Norwegian people, the total net cash flow from petroleum activities is transferred to the fund, which also earns income from investments," he said. "These receipts are gradually phased into the national budget by covering the non-oil deficit. As a result, Norwegian workers are guaranteed a pension when they retire and enjoy universal healthcare. Responsibility for management of the fund is delegated to the central bank.
"The supply of oil is finite," he added. "If The Bahamas chooses to become an oil-producing province careful thought must be given to the proper management of whatever wealth that will bring to the nation before the resource is exhausted. Such planning requires the same stewardship that should be applied to the sustainable use of resources such as forests, water, arable land or fisheries. They must be exploited and managed responsibly."
In Norway, the Ministry of Petroleum and Energy has principal responsibility both for governance of the industry and for managing the resources on the Norwegian continental shelf. It ensures that activities are carried out in accordance with the law and government policy. Legislation governs prospecting and production licences, development and operational plans, pipeline licences and decommissioning procedures. It also includes robust environmental and safety regulations.
The Norwegian Petroleum Directorate is the technical arm of the Ministry. It exercises administrative authority in connection with the exploration and production of petroleum deposits. Other government agencies involved include the Ministries of the Environment, Labour, Fisheries and Coastal Affairs, and Finance.
PETRAD is a non-profit government foundation established in 1989 to facilitate the sharing of Norway's accumulated knowledge and experience related to petroleum management. It provides training for government officials from around the world, drawing on key personnel and lecturers from the entire Norwegian and international petroleum industry. Over 10,000 participants from 90 countries have taken part in this training.
"They insisted that before exploration and drilling activities begin, it is essential to have in place a comprehensive legal and regulatory framework that deals with every aspect of the industry including health and safety procedures, licensing procedures, joint ventures, environmental and transportation procedures, and most importantly transparent rules to deal with the huge sums of money that can be generated by this industry.