Bahamas Petroleum spikes after exploratory drilling announcement

Shares in Bahamas Petroleum rose more than 62% on Monday after it announced the Bahamian government agreed to exploratory drilling in its waters.

Exploration drilling to establish commercial viability ahead of any referendum process on the future of oil development, will allow the people of the Bahamas the data from which to make an informed decision.

Any subsequent referendum will only be conducted once the presence and scale of petroleum reserves is established, the government confirmed.

The company's initial drilling location in the area was identified in August 2012 following full data work, which showed hydrocarbon potential across the geological position.

In addition to the intervals assessed in 2011, another significant deeper section potential was confirmed on new data and the company has included evaluation of the potential section in its well objectives.

A compliant, executable plan for drilling operations, procurement, logistics and support is expected to take at least a year to complete, based on the existing front end engineering design study.

Farm-out discussions remain ongoing with a number of potential partners.

"Over the past year, the waters of the Bahamas have been exposed to petroleum activity through an active exploration programme in nearby Cuban waters. [The] announcement paves the way for an assessment of the potential of oil resources on the Bahamian side of the border," commented chief executive officer Simon Potter.

"Interpretation of the full 3D seismic data set has significantly reinforced and enhanced the company view of prospectivity, considerably reduced risk, particularly in the deeper section, and highlights all the technical ingredients for successful oil exploration," he concluded.

Analyst view

Analysts at Fox Davies commented the agreement was "a step forward, but no solution".

They added, "That the Bahamian government will allow operators to drill in its waters is good news and permits a certain element of forward planning, but any driller would be mad to contemplate executing a $50-£100 million campaign without knowing that they could valorise their investment.

"To do so would leave any company open to leverage and weaken any negotiating position with the government," analysts warned.