By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An oil exploration firm yesterday said it was “encouraging for the Bahamas” that it had raised $3.25 million to finance its operations, despite “frustratingly slow progress” in finding a joint venture partner.

Simon Potter, the Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business that the new capital would assist efforts to tie-down a ‘farm in’ (joint venture) partner for the drilling of its first exploratory well.

That must now be drilled in waters south-west of Andros by April 2018, and Mr Potter said the recently-completed capital raising would provide BPC with sufficient funding to carry it through the partner search and well ‘spudding’.

“Discussions have been ongoing for a while,” Mr Potter said of the ‘farm in’ partner talks, “and we’d obviously like to bring those to a conclusion. This additional funding will help to facilitate that.

“There’s obvious support for the project within the London stock market, within the oil and gas sector, which is encouraging for the Bahamas - that a Bahamas-based company is able to get support for a project in the Bahamas from the London market.”

BPC’s 2016 annual report, published yesterday, acknowledged potential shareholder concerns over the protracted search for a well-drilling partner that has yet to conclude.

Bill Schrader, BPC’s chairman, blamed the delays partly on the former Christie administration taking almost four years to bring the Petroleum Act and associated regulations, which will govern the company’s activities, into being.

Following the June 2015 renewal of BPC’s licenses, Mr Schrader told shareholders that the company anticipated the new regulatory regime would have enjoyed “imminent passage” on to the statute book.

“However, it then took a further 13 months until July 2016 for the Bahamian Ministry of Environment and Housing to finally sign into force the updated Petroleum Regulations,” Mr Schrader wrote.

“The full enactment of the new Petroleum Act and associated regulations process thus ultimately took nearly four years, during which time the regulatory landscape for the industry going forward could not be clearly portrayed to potential investors, thus providing a considerable overhang to any [joint venture partner] discussions.”

Mr Schrader said the regulatory regime delays further impacted BPC by dragging it into a period of low global oil prices. With profits and returns negatively impacted by this, oil sector players pulled back on their exploration activities - including potential joint venture partnerships with the likes of BPC.

“In the same period of time (that is, while the Government was considering the final form of the new petroleum legislation and associated regulation), the price of crude oil fell sharply, and general oil industry sentiment weakened considerably,”Mr Schrader said. “Of specific impact to the company, industry capacity for frontier exploration investment risk (both above ground and below ground) contracted, and access to investment capital dried up.

“Notwithstanding this period of significant industry disruption, discussions with potential investors, as previously reported, continued uninterrupted, and are ongoing at the time of writing of this report. Indeed, BPC is confident of being able to conclude a farm-out, and several parties are presently engaged in late-stage commercial negotiations.

“This continuing interest reflects, we believe, the high technical quality, global scale and advantaged location [the Bahamas] of the company’s assets. However, the factors mentioned above have meant we have been unable as yet to progress those discussions to a finally concluded farm-out. It is no doubt disappointing to shareholders that these discussions have not yet produced a result, as it is to the Board.”

Mr Potter echoed Mr Schrader’s sentiments to Tribune Business yesterday, saying: “The characteristics of the project, being the exclusivity in the Bahamas and the small scale, means it’s still attractive notwithstanding the global drop in oil prices.

“Notwithstanding the backdrop of low oil prices, we’ve still been talking to companies throughout this period. We’re certainly optimistic.”

BPC’s task is to now secure a farm-in partner for that first exploratory well before its license extension expires in April 2018, otherwise it will likely have to seek a further extension from the Minnis administration.

Mr Potter said there had already been “a number of contacts with the new government”, and BPC was “looking forward to exchanges with the new administration” once it was settled in and the Budget debate completed.

The BOC chief executive, in his message to shareholders, said several potential partners had “completed extensive technical evaluations, and [are] presently engaged in late stage commercial negotiations”. However, he acknowledged that the company had expected to have tied down an agreement by now.

Mr Potter said part of the £2.6 million fund-raising, some £1.5 million, needed to be approved by BPC’s shareholders at a July 14, 2017, extraordinary general meeting (EGM).

He added: “With the funds received from this placement, the company’s funding will allow additional time to complete the farm-in process on the best terms possible.

“Indeed, a stronger balance sheet makes for an improved negotiating position, as we are able to demonstrate the ability to maintain discussions with multiple parties for an extended period, should that prove necessary.”

Mr Potter continued: “The majority of the funds raised via the placing - approximately 70 per cent - will go towards the various costs of holding the company and its licenses in good order pending a successful farm-in. This includes license payments, in-country operations, local professional staff and other essential expenses.

“It is worth noting that less than 8 per cent of the funds raised are allocated to executive and Board remuneration, with the Board and myself continuing to defer and commute the bulk of our compensation until, and only until, a successful farm-in or other financing sufficient for the drilling of an initial well is concluded.”

Mr Schrader concluded: “Despite the frustratingly slow progress in the core task of securing a farm-in partner, BPC’s project continues to be of interest to oil majors and large independents alike.

“Given the sheer scale of the project’s potential prize, coupled with technical ease of well execution and proximity to the world’s largest hydrocarbon market, and now with the benefit of our licenses extended, new legislation in place, and generally improving industry sentiment, we remain confident that we will eventually succeed in our objective.”