Dr Paul Crevello is no stranger to the oil-rich potential of the waters surrounding the golden beaches of The Bahamas. Time spent studying the regional geology in his graduate days was the prelude to 40 years as an exploration expert, working initially at Marathon Oil (NYSE:MRO) and then his own consultancy in more that 40 countries, before he returned to home territory in 2006. On the same day that Hardman Resources was acquired by industry giant Tullow Oil (LON:TLW) in September that year, Hardman’s founder Alan Burns met up with Crevello and explained his Bahamian plan. For Crevello, it was a simple decision: “I think it took about 15 minutes to explain the project; from what I knew, my background, I thought it was a good area all along,” he says.
Given its proximity to the Gulf of Mexico and Cuba’s offshore oilfields, The Bahamas has naturally been a target for oil companies in the past. However, a near total absence of geological and past drilling data combined with tumbling oil prices all but killed off exploration efforts by the mid-1980s. It took Burns and Crevello months of work to track down the information they needed to apply for their licences ahead of bringing their company Bahamas Petroleum Company (LON:BPC) to the Alternative Investment Market in September 2008.
Since then, Bahamas Petroleum has been stunned by the potential of what it has seen from early 2D seismic surveys over its 100% held licences to the south of the islands. The data shows multiple structures with 4-way closure ranging in length from 10 to 75 km. Further west, the company has been joined by Norwegian giant StatoilHydro (NYSE:STO), where test work is also ongoing and further license applications are in the pipeline. With a more detailed 3D seismic survey about to get under way and a £45.6m fundraising recently secured, Crevello is now eyeing the possibility of drilling the company’s first well in 2012.
Paul, oil exploration in The Bahamas has a relatively brief history that more or less came to a halt in the mid-1980s. What is your reading of the activity that has gone on there previously?
Well five wells were drilled. The initial one in 1947 by Superior Oil was right after World War II and it was a time when companies were looking for another Middle East. Superior drilled the first well and did find hydrocarbons in the Andros Island # 1 but it was more of an engineering feat, they lost about 11,000 ft of drill string and had to fish for quite a while to clear that hole, so it was quite a challenge. Then in 1958 a well was drilled on Cay Sal Bank by Gulf but it was a farm-in from Zapata Oil, which was a company that was run by Howard Hughes and George Bush Snr. That well had oil shows from 7000 ft down to TD at 18,000 plus ft. It was the first well that was actually drilled in such a major step-out from the Mississippi Delta, where all the wells were being drilled at the time, very close to inshore. This was considered a significant wildcat step-out but it was also during the Cuban revolution so I’ll leave it to your intrigue to fill in the rest, but it was one of the most expensive wells drilled at that time. When we announced the Statoil deal our PR group in Houston had contact with George Bush Snr and he was quite impressed and happy to see that it was being followed up on because he had strong beliefs that there was potential for good oil to be found there.
The next wells were drilled by Mobil and Chevron in 1971 and 1972. One was the Long Island #1, that was drilled way out to the east, and then the second one in 1972 was the Great Isaac #1 well that was drilled north of Bimini, almost opposite Fort Lauderdale. Both of those wells also had good oil shows in them and, in fact, the Great Isaac well had gas and condensate to the surface. In those days nobody was really after those types of hydrocarbons, they were after oil.
Then it sat quiet for a while. A lot of seismic had taken place in the 1970s and into the 1980s. Getty was one of the bigger ones to come in and shot quite a bit inboard from Bimini. Then Royal Dutch Shell (LON:RDSA) shot quite a bit of seismic in the shallow water down in the southern part of The Bahamas, and then Tenneco came along in the mid 1982-83 period and drilled their well in 1985. They basically picked up a concession at a time when the price of oil was going up and started drilling their well when the price of oil was going down; by the time they’d plugged and abandoned the well, oil was down to about $10 or $12 a barrel. So that pretty well shut down exploration in The Bahamas until about 2003 or so when the price of oil started coming back up again.
Now the seismic in those days used a cable that was only 4 km in length behind the boat and the acquisition of seismic in less than 30-40 ft of water was a major challenge. It remains a challenge today but it is well advanced now to a point where they can acquire very good data. But back in those days there were so many problems that it was very difficult to acquire seismic in shallow water depths. So all the data that you see shot in the shallow water, I would say 99% of it is very poor quality and you could not see anything below the upper surface. Tenneco’s geophysical technical team had to place a well based on their commitment and they could see these major structures in the deep water but at the time they didn’t have the technology to drill them at those depths - about 1600 ft - because nobody was drilling in more than 1000 ft in the mid 1980s. So they drilled in shallow water as close as they could get and had significant oil shows in the well. But then with the falling price of oil, and I guess as far as they were concerned the fact they didn’t hit any pool of hydrocarbons, they were facing an additional $260m exploration programme and they decided to pull the plug on it.
The Bahamas’ independence was in 1972 and the last well was drilled that year but now no-one can find any of the geological information preserved within The Bahamas, and that creates a problem. If you are a country that is trying to encourage exploration you have to have an open data room. If you don’t have data you can’t really convince companies to come and evaluate the potential property. So that is what started us on our treasure hunt of searching the world for data and it took us a good three years plus to pull it all together.
It must have taken a great deal of groundwork to try and figure out which licences you might be interested in and potential prospects. What has been your approach to producing accurate data?
It did, it took quite a bit of work but then in the end it turned out that we were the only ones that really had the full, comprehensive data set. A lot of the old majors had bits and pieces but nothing to the extent that we have and I think that is evident because all of them have come through our data room to review these studies. We then felt we had progressed enough with the vintage seismic data that it was time to really move on to our own phase of exploration. Last June there was a boat passing through the area on its way down to Trinidad to acquire some seismic and so we grabbed them for three days and ran some special testing, and that was with Spectrum. We used 10 km cable and special types of acquisition parameters versus the 4 km cable that was used in 1986, and that was important in capturing the large curvature of these folds. With the short cable you weren’t receiving all the technical information back from the sub-surface, whereas with the long cable we were able to evaluate the full potential of these folds. We could see that they were actually quite simple folds without any degradation of the reservoirs, without any significant faulting, and that’s important because it told us that the reservoirs had long continuity in reach, both across and along the length of these structures. That is in contrast to areas, perhaps in the northern Gulf of Mexico, where you have a lot of these structures that are quite heavily broken up by faults so it takes a lot more wells to drill them. We can test larger areas with fewer wells, so it was important to realise that.
Then we decided we had an opportunity with SeaBird, who were available to shoot seismic surveys, and we went out and did our first gridded 2D survey. From the vintage data we had a series of lines that had no real consistency to them, they were sort of criss-crossing and not in a fashion that could help you to find where the structures ended and where they began. So we designed a survey where we would just continually shoot at specified distances of 5 km until we saw the beginning of the folds and the end of the folds and that is what we did most recently in January. The early result that came out in mid-February was telling us that the structures were up to 70 km in length and over 100,000 acres in aerial size, which is huge in comparison to what you see in the northern Gulf of Mexico. For instance, prospects in the order of 10,000 to 15,000 acres are considered very large in the northern Gulf of Mexico where they are doing exploration off the Mississippi Delta. We had acreage that was multiple times that size and really approaching the size of the major folds that you see in the Middle East, in the Iran/Iraq Zagros fold belt or other major fold belts that you get in South America, anywhere you have these types of major plate collision zones.
That that was all extremely encouraging for us and we were planning our 3D survey to try and get something to take place in the autumn and had begun communicating with some of the major seismic companies. Because of circumstances in North African and Middle East, seismic boats became available because of the force majeure off the Libyan coast and so we were getting calls for availability of boats much sooner than we had anticipated. That was actually the impetus to go out and do the early raise; we had no intention to do that at such a time but to take advantage of these boats becoming available and then helping us progress our exploration programme more quickly we felt that was a good opportunity to go out and raise additional funds. We were quite successful at that, it was quite a healthy oversubscription, of which we turned back a considerable amount – we can only justify what we need to spend and that is what we did.
That brings us up to where we are. The 3D boat will show up now at the end of May, and the exciting thing about this survey is that it is the first time that CGGVeritas has applied their BroadSeis technology in the Gulf/Caribbean area. It is a new type of technology and they are going to be using 10 seismic cables that will be 8 km long and about 100 metres apart, so this is going to be a huge survey. Most certainly there has not been a 3D survey done in The Bahamas as of yet and this is going to be about a 3,000 km survey, which is large by any standards.
You have got your 100% licence areas in the south and you have also got joint applications with Statoil to the west, plus you are interested in other areas. Where is the focus at the moment and where will the 3D seismic survey take place?
The 3D survey will focus in the southern licences where we have these large folds, these prospects that are in the order of up to 70 km in length, with up to perhaps 1.5 km of vertical closure. What is important is that we were able to determine that these structures have full 4-way closure based on the formation of how these traps developed. Essentially you can picture this as an upside down bathtub up to 70 km long and that vertical closure is essentially the depth of the bathtub up to 1.5 km or more, and that is huge. That is the fill potential – it doesn’t mean it is going to be filled to that extent but it tells you that you have significant opportunity for large volumes to be filled provided enough hydrocarbons are generated. We know lots of hydrocarbons have been generated in the Cuban fold belt and we are essentially in the same geologic province as the oil that was sourced for Cuba and the oil that was sourced in the southern Gulf of Mexico, for those major fields that are in Mexico. Cantarell is a 35 billion barrel field, Golden Lane I think is about 10 billion. So all of these major fields in the southern Gulf of Mexico, within Mexico itself, are formed in the same types of geologic setting, the same age rocks and are being sourced by the same types of original source material that we have in our area. So all of these things are very exciting for us and I think show potential for positive results.
Obviously the BP incident in the Gulf of Mexico has had licensing implications for very many oil companies. Where do you stand in terms of securing new exploration licences and how straightforward will it be to get the go-ahead for drilling in The Bahamas?
We have been advised by the Government to move forward on our environmental impact assessments, both in the joint venture with Statoil and where we are doing our own work in the licences that we have 100%. So we have to do a well EIA, which we are currently undertaking and should be done in Q3, and we are also doing an environmental exploration EIA over the Cay Sal region, with Statoil running that as the operator. So the Government has given us indications to move forward on our exploration programmes. We are getting positive support from them. I think they realise the potential this could bring into the country if we were to develop a revenue stream based on production.
Ahead of drilling you are seeking to bring in a partner or partners to work with you. From the conversations that you have had, how optimistic are you that you’ll be able to form a joint venture that gets you what you want?
The farm-out talks are progressing very well, we have a lot of interest; we are in discussions with a couple of companies in bringing in multiple farm-in partners. With the new data set that is available on the recent 2D seismic there will be some additional discussions and review. We have major companies calling us that we didn’t have to go out and illicit a response from, they see the opportunity. So that is progressing very well. We intend to retain some of the acreage back but really the key is to bring a major partner that will operate – the type of partner that the Government is going to see has the respect among the industry and has the depth and the wherewithal to be able to meet any potential challenges that may occur in drilling.
It is a significant point to make, though, that the geology here in The Bahamas is not as risky an environment to drill as it is in the northern Gulf of Mexico. These limestone reservoirs do not have the type of overpressuring that you see in the very rapidly deposited sandstone reservoirs that they have coming off the Gulf of Mexico, Mississippi Delta. So that is a major difference. We have found that with the 10 or 12 wells that have been drilled in this region, in the Florida Keys, The Bahamas and the northern part of Cuba, that none of the wells have encountered highly overpressured reservoirs. So that risk is not really going to be there but at the same time you always have to be prepared, so our EIA work is undertaking ocean spill modelling. We are looking at the potential for something like that and this is something that we are in a very advanced stage with using the University of Miami. In fact, their Oceanography Department are probably the leaders in this type of computer technology. We have all the confidence that we are not going to have issues with the drilling but you just have to be prepared.
Bahamas Petroleum has had very little problem raising new money through the Alternative Investment Market. How far is your current funding likely to take you?
We are compliant through to the end of 2012, so we are in a good position to maintain our exploration programme and to cover these current exploration expenditures. At the same time we’ll be looking for cost recovery from our farm-ins, so we will be picking up additional cash from that and our intentions are to be carried on a multiple well programme. So it would be some time before anything is required.
Finally, if everything goes to plan, what timescales could you be working to in terms of progressing towards drilling?
We are looking at 2012 as a timing for the well, the reason being that the seismic will initiate here in the next month, it won’t be finished until the end of August, and then we’re looking at probably January by the time the data is fully processed, and that’s just computerised processing of the data to get it to the point where you can start looking at it. Then you are looking at several more months of interpretation before you finalise a well location. So that puts us pretty much into mid 2012 before we would be ready to drill a well.
Paul, thank you very much for your time.
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