Monday, March 18, 2019
By NEIL HARTNELL
Tribune Business Editor
A Bahamas-based oil explorer has cemented “the certainty we’ve been craving” with a $2.54m working capital raise that will underpin all activities leading to the drilling of its first well by 2020.
Simon Potter, Bahamas Petroleum Company’s (BPC) chief executive, told Tribune Business yesterday that last week’s share placement had generated funding that will enable it “to put our best forward” as it seeks to secure the joint venture (farm in) partner and government approvals necessary to spud its first exploratory well.
Earlier, in an announcement to the markets on the capital raising, Mr Potter said “now, more than ever, we believe that the ingredients for success are present” - indicating that BPC feels its current licence, regulatory and financial certainty provide it with the strongest foundations it has ever enjoyed.
When asked by this newspaper whether BPC believed the stars were starting to align for its project, Mr Potter said that was “certainly the feeling”. However, he was quick to add that it was “not counting our chickens, not resting on our laurels”, and has much work to do to bring the exploratory well to reality before its current three-year licence expires at year-end 2020.
Already boosted by the government’s recent confirmation of that licence’s duration, BPC last week moved to capitalise on that clarity by raising $2.54m in gross proceeds from investors by selling 120m ordinary shares at a price of 1.6p - an amount equivalent to 7.1 percent of its new share capital.
“That’s just a small working capital raise,” Mr Potter explained yesterday. “We need enough working capital to ensure the company can run efficiently through the terms of the licence...
“Now that we and the government have established a level of certainty there’s a bunch of work we need to get done, and this working capital raise ensures we can get it done effectively and allows us to underpin that work.”
Putting the capital raising together with the licence confirmation, and both BPC and the government’s commitment to develop a process for obtaining the necessary environmental approvals, Mr Potter said of their combination: “It gives everybody the level of certainty we’ve been craving for the last few years, and we can certainly pass this on to any third party.
“It gives us the ability to put our best foot forward. That’s the best foot forward in geological terms and a technical sense, but also in an environmental sense to ensure we have a safe, environmentally responsible well.
“We’re not counting our chickens, not resting on our laurels. There’s quite a lot of work to be done to ensure we complete the well to the highest standard, environmentally and geologically, and ensure we complete the well to the highest standards environmentally and geologically, and choose the best location to maximise our chances of success.”
The capital raising’s completion clears the way for BPC to focus solely on its parallel paths of securing a farm-in, or joint venture partner, to share the multi-million dollar costs and technical burden of drilling that exploratory well plus obtain all the necessary environmental approvals from the Government.
BPC, in a presentation to investors just prior to last week’s capital raising, promoted its progress in resolving “above ground issues” relating to its licence extension and exploratory well drilling obligations as paving the way for further investment in the company.
It added that rising oil prices, and a renewed industry focus on exploration, had enhanced BPC’s prospects of finding a joint venture partner - a search it estimated to investors would conclude in the “next six to 12 months”.
BPC’s investor presentation pointed to “immediate upside potential from a successful farm-in process” together with the “longer-term upside” associated with a successful exploratory well. It estimated that the latter objective will be achieved in 12-18 months, consistent with when its second licence term ends.
The presentation showed the current three-year licence as expiring at the end of the 2021 first quarter, which is when that first full exploratory well must be dug, rather than year-end 2020. BPC was said to possess a 12-year exploration grant, divided into four three-year terms, and be in the second of those periods, which takes the full duration to end-2026 if the company so chooses.
Mr Potter yesterday explained that the 12-year licence was originally granted to BPC in 2007, but delays associated with establishing The Bahamas’ maritime boundary with Cuba and implementing the “upgraded and modernised” regulatory regime for oil exploration - both of which were outside the company’s control - had resulted in the extension.
Whether BPC extends its licence beyond end-2020 will depend on the results of its first well and meeting all its obligations, and Mr Potter said he and the company were firmly focused on “the chances of success and what that could mean for the Government in terms of national income and wealth creation for the people of The Bahamas”.
“We know what we need to do and are determined to carry that out to the highest possible standard,” he told Tribune Business, adding that “all work to-date has exceeded” what is required by the Bahamian regulatory regime in meeting international best practices.
BPC has a 30-year production lease “by right on application” once it discovers commercial quantities of extractable oil in Bahamian waters, and Mr Potter yesterday said the first exploratory well’s location will be closer to Cuba rather than The Bahamas.
Based near the two countries’ maritime boundaries, he added that it will be between 30-40 miles from the Cuban coast but “over 100 miles” from the nearest land in The Bahamas at south Andros.
BPC’s presentation reassured investors that the technical and financial aspects merits of its Bahamas project had not changed. It described the Government’s royalty terms as “attractive”, starting at 12.5 percent and increasing to 25 percent once production levels hit 350,000 barrels per day upon discovery.
The oil explorer added that discovery would be profitable even if global oil prices dropped to $30-$40 per barrel, and volumes recoverable were around 200m barrels or less.
With the “distressed” oil rig market enabling BPC to source equipment cheaply, the company’s presentation added that relatively modest water depths of 500m to 1,500 meant it its first exploratory well’s drilling into the seabed would likely cost between $25m to $60m.
BPC now has to work with the Government on developing a process for finalising its Environmental Authorisation application “that is consistent with the regulations”, with the two parties also having to determine and “reconcile” what licence fees are to be paid up to end-2020.
The need to do this has been caused as a result of the delays inflicted by the maritime boundary establishment and imposition of the new regulatory regime, with BPC suggesting it has paid $1.05m to-date “despite the inability to undertake licence activities”.
The company added that the previous $250,000 annual licence fee agreed with the Government may be modified due to “changing industry circumstances”, noting that the Government already held $620,000 on account relating to it.
“In 2018 the company submitted to the Government a proposed reconciliation.... which indicated a balance payment of approximately $200,000 for licence fees up to the end of 2020,” BPC said.
The company has set aside £390,000 to cover this, and gave investors a range of £200,000 to £800,000 between which these licence fees may fall. It will shift funds from elsewhere in its operations should this come in at the high end of estimates.
BPC, in a statement to the markets, said it was “confident” it will be able to secure a joint venture partner and that talks are ongoing “with a number of potential candidates”. Exclusive talks with one potential party last year came to nothing.
“Our focus at Bahamas Petroleum remains clear and unwavering: To drill an initial exploration well on our highly prospective acreage in The Bahamas,” Mr Potter added. “Now, more than ever, we believe that the ingredients for success are present. We have a world-class, drill-ready asset, with multi-billion barrel potential as certified by third parties.
“We have a robust technical case, as endorsed by the interest to-date of potential partners. The Bahamian regulatory regime is fully enacted, and we have a clear licence term through to the end of 2020, thus providing potential farm out partners with clarity as to tenure, term, schedule and operating environment.
“Now, with today’s placing, we have secured the funds needed as we continue to seek a farm-out agreement, and thereafter move forward to drilling of the initial exploration well and realising the offshore potential in The Bahamas.”