Bahamas Petroleum Co (BPC.L) Funding Strategy: Reconciliation & Put Option

BPC, the Caribbean and Atlantic margin focused oil and gas company, with production, appraisal, development and exploration assets across the region, is pleased to provide the following update on its funding.


· Put option exercised to raise a further £3.75m (through the issue of 187.5 million new ordinary shares at 2p per share), bringing total funding since August 2019 to $52 million, with current undrawn potential funding sources in-place for up to a further $20 million

· If remaining potential funding sources are available and drawn in full, this would represent successful completion of BPC’s current funding strategy, initiated in August 2019, securing a total of $72 million

· This represents adequate funding to meet not just the costs of drilling the Perseverance #1 well (at 100% ownership, operatorship and control), but also the costs of an extensive 2021 work program on a suite of production, appraisal and development assets in three other complementary jurisdictions, as well as all geological and geophysical (G&G) costs across the business through to mid-2022

· Perseverance#1 targeting resources of between 0.77bn and 1.44bn barrels of oil and the 2021 work programme is targeting exit production of c.2,500 bopd (2020 exit rate of 500 bopd)

Simon Potter, CEO of BPC, said:

“In August 2019, BPC embarked on a bold strategy to self-fund the drilling of Perseverance #1 in The Bahamas, as well as to seek to complement that high-impact exploration activity with production and thus cash generative assets. We knew it would require capital to facilitate such a growth strategy, and, accordingly, we laid out a clear plan as to how we would secure that capital incrementally over time.

Now, with drilling in The Bahamas well underway, and with a broad program of value-adding work about to kick off in Trinidad and Tobago and Suriname, we continue to draw on the various elements of the funding package we worked hard to put in place over the past 18 months. Today’s option exercise, to raise a further £3.75m, is consistent with that strategy.

Given the range of components to our funding, we are today providing shareholders with a clear reconciliation of our delivery against the funding strategy we articulated in August 2019. This represents, in our view, a transparent and accurate measure by which the Board and management should be held accountable.

We believe that the delivery of our funding package, and thus the portfolio-wide work program it supports, represents a considerable achievement when considered in the context of depressed equity markets (particularly in the energy sector), oil price weakness, and the material cost, timing and operational challenges caused by both Covid-19 and the last-minute – but ultimately unsuccessful – legal challenge to BPC’s drilling operations in The Bahamas.”

Background to BPC’s Funding Strategy

In February 2019, the Government of The Bahamas granted an extension of BPC’s licences to the end of 2020, which included the consequent obligation to drill an exploration well within that time period. This unequivocal licence tenure, for the first time in many years, led to a considerable increase in corporate activity. Initially this activity was focussed on subsurface work aimed at final reduction of petroleum system uncertainties to support delineating an optimal well location. Thereafter, considerable technical work was undertaken to underpin an effective well plan and contracting strategy, and to ensure this licence commitment could be safely and responsibly discharged within the timeframe allowed, through delivery of an appropriate exploration well consistent with the licence obligation, ultimately named Perseverance #1.

Until that point in time, BPC’s strategy for securing the funding for Perseverance #1 was via a farm-in. This common oil industry funding would have seen a third party – normally a larger oil company (a ‘major’) – “acquire” a percentage of BPC’s project in The Bahamas, in exchange for meeting the costs of the well.

However, with a very clear deadline established by the Government for the drilling of the well, during the course of 2019 BPC determined that it could not rely solely on securing a farm-in on acceptable terms, on a timely basis. Thus, whilst continuing to actively seek such a farm-in, the Company determined to pursue an alternative funding strategy in parallel, being the ability to self-fund Perseverance #1 and operate the well at 100% equity.

Under this alternative funding strategy, BPC would be required to have access not only to the capital necessary to maintain and operate the business and cover the corporate overheads, but also would be required to raise all of the capital needed for the well (albeit correspondingly would retain 100% ownership and full control of the asset).

It was in this context that in August 2019 BPC articulated a funding strategy that, in the absence of a farm-in, would see the Company nonetheless be in a position to proceed with Perseverance #1. The core of that strategy was the intent to raise capital in stages, and to thereby incrementally move from a position of being almost entirely unfunded to being fully funded by the time drilling of Perseverance #1 was underway. This funding strategy included, of necessity, making use of hybrid financing arrangements – primarily tranche-based convertible note funding structures.

Underpinning this alternative funding strategy was shareholder approval granted in September 2019 for BPC to issue up to 1.8 billion shares to secure the necessary quantum of funding. At the time, BPC had approx. 1.7 billion shares on issue, such that the reasonable expectation was that a total equity dilution of approximately 50% would be required to secure the funding needed for Perseverance #1. This strategy was overwhelmingly approved at the AGM held in September 2019 (and again at the AGM in July 2020).

In June 2020, BPC was awarded an offshore exploration licence in Uruguay, and in August 2020 BPC completed a merger with Columbus Energy Resource Plc (“Columbus”), the effect of which was to transform BPC from a single-asset project into a portfolio business, with a suite of assets that included not just high impact exploration assets, but now also production, near-term development, and appraisal assets in multiple jurisdictions.

The core rationale for the merger with Columbus was the intention that the suite of assets introduced in Trinidad and Tobago and Suriname could, with appropriate work, become material cash-flow generating assets within a 12-18 month horizon. At the same time, the Columbus assets brought with them their own capital needs – predominantly those associated with funding of an extensive appraisal and production drilling campaign (as more particularly described in BPC’s RNS of 1 December 2020).

BPC’s Aggregate Capital Requirements

Since August 2019, BPC has regularly provided updates to shareholders as to the evolving capital needs of the various components of its business – initially in relation to Perseverance #1 only, but, subsequent to the merger with Columbus, also in respect of the portfolio of assets in Trinidad and Tobago, and Suriname.

For the benefit of clarity, Table A below serves to summarise BPC’s aggregate capital requirement commencing August 2019 (when BPC’s current capital strategy was advised to shareholders). In summary, this shows BPC’s total capital need as being approximately $78 million, from 2019 through to the point at which both Perseverance #1 and the extensive work program planned in Trinidad and Tobago and Suriname to the end of 2021 are expected to have been funded and completed.

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