TIDMBPC
RNS Number : 6951G
Bahamas Petroleum Company PLC
27 November 2020
27 November 2020
Bahamas Petroleum Company plc
("BPC" or the "Company")
Perseverance #1: Cost Estimate and Funding Update
BPC, the Caribbean and Atlantic margin focused oil and gas
company, with exploration, production, appraisal and development
assets across the region, is pleased to provide an update on cost
estimates and funding arrangements for well operations in The
Bahamas.
Highlights
-- Sustained impact of Covid-19 means that BPC and Stena
Drilling have decided to implement enhanced Covid-19 mitigation
measures; this includes heightened isolation and testing measures
for all crew and personnel, extended mandatory quarantine in secure
hotel facilities, and private charter flights
-- Enhanced Covid-19 mitigation measures and associated
operational impacts means the cost estimate for Perseverance #1 is
revised upward by approximately 15%, to between $24 million to $28
million (from $21 million to $25 million); contingency element
expanded to $7 million (from $5 million)
-- To provide appropriate financial headroom, the Conditional
Convertible Note facility (as previously announced) has been
increased by GBP4.75 million (c. $6.3 million) to GBP15 million (c.
$20 million) in total, with an initial subscription notice issued
for GBP3 million (c. $4 million, with funds anticipated before year
end) and the balance of the facility to be provided in a timeframe
consistent with the demands of operations (subject to satisfaction
of certain conditions precedent)
Commenting, Simon Potter, CEO of BPC, said:
" Given the ever -evolving and escalating Covid-19 situation
around the world, the sobering reality is that preventing the
Covid-19 virus spreading onto the Perseverance #1 drilling
installation in the first place is dramatically more cost effective
than having to deal with it once it has arrived offshore. Hence the
considerable efforts put in by BPC, Stena and participating
contractors and service companies to develop even more stringent
measures to detect and diminish the risk of infection, which are
now being implemented, but which will come at a cost.
Fortunately, given the flexible range of funding options the
Company has developed over the course of the last two years, we
have successfully agreed an increase to the size of our Conditional
Convertible Note facility by GBP4.75 million to offset this
increased cost . Moreover, we are pleased that the providers of
this facility have demonstrated their commitment to the project by
agreeing to provide a portion of this facility unconditionally once
the well is spud, and the balance expected to be available as
required. In aggregate, these arrangements provide enhanced
financial capacity, notwithstanding a worsening Covid-19
environment.
We are aiming to assess what hydrocarbon resource potential lies
within the territorial waters of The Bahamas, for the mutual
benefit of the nation and people of The Bahamas, the shareholders
of BPC, and all other stakeholders. Safe, responsible, and
uninterrupted operation is our key objective in the ever changing
global Covid-19 environment, and these additional costs and
increased funding arrangements reflect a prudent approach to
achieving this objective."
Perseverance #1 Well - Cost Update
Over recent months BPC has undertaken an extensive body of work,
in conjunction with Stena Drilling and a number of BPC's key
contractors, to develop a Covid-19 mitigation plan. This plan is
designed to minimise the chance of importing the virus on to the
Stena IceMAX drill ship, and thus to ensure continuous operations
whilst also providing a series of plans for outbreak containment
and business continuity.
Accordingly, the Company's Covid-19 mitigation plan has defined
a series of Covid-19 protocols (isolation, testing and quarantine)
to be applied ahead of and throughout the drilling campaign.
Moreover, given the highly fluid nature of the global Covid-19
situation, the Covid-19 plan as developed contemplates a wide range
of potential Covid-19 scenarios, with a tiered range of specific
mitigation measures applicable.
In recent days and weeks international measures taken to
mitigate the ever-evolving Covid-19 situation have had an emerging
impact on BPC's intended operations. For example, in the United
Kingdom, where approximately half of the rig crew are based and
where almost all of the rig crew will assemble pre-mobilisation, a
national lockdown had been reimposed along with heightened tier
responses. Equally, the United States, being the location from
which much of the technical support and supplies for the rig will
emanate, is experiencing record levels of Covid-19, and the
likelihood of tighter restrictions and new lock-downs appear to be
increasing. In The Bahamas a State of Emergency remains in place
and there is considerable and growing uncertainty as to the
uninterrupted availability of required services, for example
regular scheduled flights and accommodation.
In view of this evolving situation, BPC and Stena Drilling have
decided to move to implement an even more rigorous Covid-19
mitigation plan, so as to ensure creation of a series of effective
Covid-19-free "bubbles" that completely isolate and test all crew,
staff and vendor personnel on an enhanced basis, and thus "shields"
the vessel to the maximum extent possible from the risk of Covid-19
importation / disruption. These measures include:
-- enhanced quarantine and testing measures, where all crew and
personnel will be required to undertake mandatory isolation in
secure chartered hotel facilities for seven days or more (as
opposed to domestic requirements in various relevant locations of
up to three days),
-- multiple and different Covid-19 tests before, during and
after isolation and during transit (as compared, for example, to
the USA which requires no Covid-19 testing for transit
passengers),
-- all transits being via private charter flights for all crew
to and from the UK / USA and The Bahamas and then ultimately to the
vessel (as compared to previous plans that involved commercial air
flights, which may no longer be available and in any case pose
considerably higher systemic risk),
-- increased demobilisation procedures / costs, including BPC
likely being required to bear a larger share of demobilisation
costs than previously anticipated, as a result of Stena having
notified BPC it has not found suitable follow-on work for the
vessel after the completion of Perseverance #1, and
-- maintaining flexibility on loading/offloading locations,
greater inherent 'friction' in transit and loading procedures, and
ultimately resultant increases in fuel costs.
In aggregate, these measures are considerably more stringent
than current domestic requirements in each of The Bahamas, USA and
UK in specific relation to Covid-19. However, BPC's core objective
remains safe, responsible and uninterrupted operations for the
entire duration of the Perseverance #1 well program. The
continually unpredictable risk profile arising from the
deteriorating global circumstances means that these enhanced
Covid-19 measures are now considered prudent and necessary to
achieving that objective.
Collectively, all of these measures are expected to add
approximately $3 million of additional cost to the overall program.
The Company has previously advised a cost estimate for of between
$21 million to $25 million, with a possible contingency of up to $5
million.
The cost estimate of Perseverance #1 is now revised upward, to
between $24 million to $28 million. The Company also considers that
it would be appropriate to expand the contingency allowance to $7
million, such that if all contingencies were to materialise, the
total cost of Perseverance #1 could be up to $35m, or approximately
15% more than previously contemplated.
Within this revised total cost estimate, BPC has already prepaid
a number of items, including the rig mobilisation fee, purchase of
wellheads and equipment, and advance payments to a number of
suppliers, such that remaining cash outflows required to complete
Perseverance #1 is estimated to be in the range of $19m - $23m (and
the aforementioned $7 million contingency, which may be required
all, in part, or not at all).
Conditional Convertible Note Funding Update
On 10 October 2019, BPC entered into a Conditional Convertible
Note Subscription Agreement to provide financing through
convertible notes ("Conditional Convertible Notes"). Under this
agreement, BPC expected to raise gross proceeds of GBP10.25 million
through the issue of convertible notes ("Notes") to a syndicate of
Australian-based investors (the "Subscriber"). On 20 October 2020,
BPC and the Subscriber agreed to extend the date for satisfaction
of all of the conditions precedent such that the last date for
satisfaction (or waiver by the Subscriber) of those conditions
precedent was agreed to be 15 December 2020. However, it was also
agreed that to the extent that the Subscriber elected to subscribe
on an unconditional basis for at least GBP1.5 million of Notes
prior to 30 November 2020, the date for the satisfaction (or waiver
by the Subscriber) of the conditions precedent would be further
extended to 15 January 2021.
The Subscriber and BPC have today agreed a further amendment to
the terms of the Conditional Convertible Notes Subscription
Agreement whereby (i) the total amount of Notes available for
subscription under that agreement is increased to GBP15 million,
(ii) a new condition precedent under that agreement has been added,
to the effect that subscription of Notes is conditional on the spud
of Perseverance #1, and (iii) a new schedule for availability of
funding, such that if the Subscriber elected to subscribe on an
unconditional basis for at least GBP1.5 million of Notes prior to
30 November 2020, the date for satisfaction of conditions precedent
in respect of the balance of the facility is extended to 15 January
2021, and if by that date the Subscriber has subscribed for a
further amount of Notes in excess of GBP5 million, the last date in
respect of subscription of the remaining GBP7 million will be three
days after the date that operations are concluded. BPC retains the
right to scale back the Notes by up to 50%, should it elect to do
so, at no cost or penalty.
At the same time, the Subscriber has provided an initial
subscription notice in the amount of GBP3 million, and has waived
all conditions in respect of that subscription other than that the
well has spudded by 28 December 2020. In parallel, BPC and the
Subscriber have agreed the appointment of a trustee to hold the
Notes, once issued. This initial subscription notice satisfies the
requirement noted above to subscribe on an unconditional basis for
at least GBP1.5 million of Notes prior to 30 November 2020.
The net effect of these variations to the Conditional
Convertible Note Subscription Agreement is that, subject to the
spud of Perseverance #1, BPC will receive GBP3 million of
additional funding shortly after spud, and (subject to satisfaction
or waiver of conditions precedent) expects that it will receive at
least a further GBP5 million in mid-January 2021 (that is, during
the course of drilling), and will have access to the balance of
funding (GBP 7 million) at the conclusion of drilling operations
(that is, at the point in time at which final actual costs of
Perseverance #1, including contingency requirements, will be
known), with BPC retaining the right, at its election, to scale
back up to 50% of the Notes prior to drawdown.
This funding schedule is consistent with BPC's anticipated
funding needs through the course of drilling, and minimises cost to
BPC (specifically, interest at 12% per annum does not accrue on
Notes until funding is actually advanced).
In terms of potential dilution, assuming the full value of the
Notes were to be drawn without any scale back (and assuming further
that all interest on the Notes was settled in cash, which is BPC's
current expectation) a total of approximately 600 million new
ordinary shares would be issued to the Subscriber. This potential
issuance was approved by shareholders at the 2019 Annual General
Meeting, and is consistent with BPC's communicated funding
strategy.
In aggregate terms, this means that BPC's funding arrangements
stand at $37 million, consisting of current cash holdings, the
proceeds of the initial note subscription to be received on 28
December 2020, and the further note drawdowns expected in mid -
January 2021 and on conclusion of well operations (the note
drawdowns being subject to satisfaction or waiver of the relevant
conditions precedent). As previously noted, remaining cash outflows
required to complete operations are, inclusive of the increased
cost estimate, expected to be in the range of $19m - $23m (plus the
aforementioned $7 million contingency, which may be required in
full, in part, or not at all).
Update on Other Funding Sources
The Company continues to work actively on a range of other
financing alternatives as part of its overall funding and risk
mitigation strategy, and will continue to seek access to
incremental capital, most relevantly for activities across the
Company's broader portfolio of assets in Trinidad and Tobago,
Suriname, and Uruguay. These alternatives include:
-- Surplus cash-flows from operations: As a full-cycle
exploration and production company, BPC expects to see cashflows
available from production such that it can be in a position, by end
of 2021, to be generating sufficient cash flows to cover all
overhead and operating expenses, and with surplus free cash flow
potentially making a considerable contribution to ongoing capital
and exploration expenditures.
-- Farm-out options or similar transactions: For several years,
the Company has been engaged in a process to secure financing
whereby another entity will acquire an interest in the project in
The Bahamas, and in exchange will pay for all or a substantial part
of the cost of drilling and cash payments in respect of back costs,
thus freeing up capital for redeployment elsewhere in the Company's
operations. Discussions remain ongoing.
-- Reserve-based lending facilities: The Company has
commissioned a Competent Persons' Review (CPR) of certain of its
production and development assets in Trinidad and Tobago and
Suriname, which is expected to be completed shortly. On completion
of this work, the Company expects that it will have a readily
monetisable asset in the form of certified 2P reserves, and the
Company has commenced discussion with several providers of
financing facilities that advance funding against the assessed
value of these reserves.
-- "Drill for equity" type arrangements: Another common
financing structure in the oil and gas industry is a "drill for
equity" type arrangement. Several such options may be available to
the Company, including the previously announced option granted to
Stena Drilling to "swap" part of the fee for use of the Stena
IceMAX into equity in BPC .
-- Zero coupon Facility : In addition, the Company has a
facility for Zero-coupon variable conversion price convertible
notes, entered into on 19 February 2020, under which approximately
GBP11.3 million remains available for draw-down in instalments
through the course of drilling. Given the Company's current finance
sources there is no evident requirement for this facility to be
drawn, and given the unknown level of potential dilution were this
facility to be drawn the Company has no present intention to do
so.
-- Bahamian domiciled mutual fund : The Company has a sponsored
fund with the primary objective of creating a vehicle through which
qualified Bahamian investors could invest in the Company. Should
this fund grow, additional capital may become available to the
Company.
To the extent that any one or a combination of the above funding
alternatives are successfully concluded on terms acceptable to the
Company, the amount of capital available to the Company would
likely materially increase, and would be additive to existing
funding sources.
However, even based upon the revised anticipated total well
cost, and therefore a future capital requirement of $19m - $23m
with an allowance for up to a further $7 million in contingencies,
the combined amount of the Company's existing cash balance and
proceeds of part of the Conditional Convertible Notes represent
sufficient resources required for the completion of Perseverance
#1.
In circumstances where neither the Conditional Convertible Notes
nor the Zero-coupon Facility are available (for example, where the
conditions precedent set out in the Conditional Convertible Note
Subscription Agreement are not satisfied (or waived by the
Subscriber)), the Company would need to rely on seeking alternative
funding, and there can be no assurance that the Company would be
successful in securing any such alternative funding.
Excluding any costs relating to the Perseverance #1 well, the
Company currently has sufficient cash available to meet general
working capital needs for at least the next 12 months .
Regulatory Statements
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
For further information, please contact:
Bahamas Petroleum Company plc Tel: +44 (0) 1624
Simon Potter, Chief Executive Officer 647 882
Strand Hanson Limited - Nomad Tel: +44 (0) 20 7409
Rory Murphy / James Spinney / Jack Botros 3494
Shore Capital Stockbrokers Limited - Tel: +44 (0) 207 408
J oint Broker 4090
Jerry Keen / Toby Gibbs
Investec Bank Plc - J oint Broker Tel: +4 4 (0) 207
Chris Sim / Rahul Sharma 597 5970
CAMARCO Tel: +44 (0) 020 3757
Billy Clegg / James Crothers / Hugo Liddy 4980
Notes to editors
BPC is a Caribbean and Atlantic margin focused oil and gas
company, with a range of exploration, appraisal, development and
production assets and licences, located offshore in the waters of
The Bahamas and Uruguay, and onshore in Trinidad and Tobago, and
Suriname. BPC is currently on-track for drilling an initial
exploration well in The Bahamas, Perseverance #1, in late 2020 /
early 2021, with the well targeting recoverable P(50) prospective
oil resources of 0.77 billion barrels, with an upside of 1.44
billion barrels. In Trinidad and Tobago, BPC has five producing
fields, two appraisal / development projects and a prospective
exploration portfolio in the South West Peninsula. BPC's
exploration licence in Uruguay is highly prospective, with a
potential resource of 1 billion barrels of oil equivalent. In
Suriname, BPC has an onshore appraisal / development project.
BPC is listed on the AIM market of the London Stock Exchange. www.bpcplc.com
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END
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