Bahamas Petroleum Co (LON:BPC) Perseverance #1 Well Update

Bahamas Petroleum Company, the oil and gas exploration company with significant prospective resources in licences in The Commonwealth of The Bahamas, wishes to provide the following update in relation to the timing for the drilling of Perseverance #1, its first exploration well in The Bahamas.

Key Points

· As a result of the massive, unprecedented and adverse impact of the spread of the covid-19 virus, safe and responsible drilling operations in the planned May / June 2020 timeframe can no longer be assured; drilling operations are thus being rescheduled to October 2020 onwards

· The impact of the response to the spread of the Covid-19 virus, both globally and in The Bahamas, also constitutes a force majeure event under the terms of the Company’s licences; the Company has notified the Government of The Bahamas of such, which is expected to result in a corresponding extension to the current term of the licences

· Key elements of the Company’s finance package have been successfully rescheduled; the Company is in a strong cash position and in the coming months will be seeking to redefine operational plans and major contractor arrangements consistent with a revised work programme timetable

· Farm-in process continues; Company has begun considering other opportunistic strategic alternatives arising as a result of the current global crisis

Simon Potter, Chief Executive Officer of Bahamas Petroleum Company, said:

“Our primary objective is safe operations, best delivered by the ability to drill uninterrupted by external events for the period of the drill plan. Given the ever-evolving adverse impact of the response to the spread of the Covid-19 virus – which is changing daily and is affecting everyone and all enterprises, around the globe – it has become clear to us that if we continue to push forward with drilling in the first half of 2020, safe and responsible operations would be compromised. We have accordingly notified the Government of The Bahamas that a force majeure event has occurred, which is expected to result in an extension to the current term of our licences, and we are rescheduling our drilling plans accordingly, to after October 2020.

I know this will be disappointing for shareholders, as it is for management and the Board alike, given all the progress we have thus far made toward drilling of the Perseverance #1 well, but as a prudent operator we need to assess the risks objectively and act appropriately. Shareholders should be encouraged, however, that we are in a strong position to resume drilling activities toward the end of 2020, compared to where we were just a year ago. The Company has cash reserves, and financial backers intent on flexibly supporting the Company. We have a robust drill plan that has been risk-assessed and reviewed by insurers and contractors alike, a range of long-lead and critical path items have already been purchased and will be warehoused ready for immediate redeployment, and the rig market is changing rapidly such that there will likely be a surfeit of capable rigs towards the end of this year in a competitive price environment. We also have an approved Environmental Authorisation from the Government of The Bahamas, farm-in discussions remain on foot, and the current crisis is presenting a number of interesting alternative opportunities for us.

Moreover, the Company’s prospect has not changed: the same rocks will still be there at such time as safe and responsible operations can resume, and shareholders can rest assured that the entire team at the Company will continue working towards drilling with the same commitment, passion and belief that has got us to this stage.

The spread of the Covid-19 virus represents a global threat to our collective way of life, and we all have to face reality over the coming months – which in the case of our Company means pausing our drilling plans for a time, as hard as that may be. We hope that all of our shareholders, stakeholders, employees and contractors take care, and stay safe and well in this extremely difficult time for all.”

Timeline to Drilling

The Company’s primary objective, as a prudent operator, is to ensure the safe and responsible drilling of Perseverance #1, on budget, and in fulfilment of the Company’s licence obligation to the Government of The Bahamas, which is an initial exploration well in 2020.

Safe, responsible and cost-effective drilling can best be delivered by ensuring continuous operations throughout the entire period of the 45 – 60 day drill plan. For this to occur, the Company, its major contractors, and all relevant staff and personnel must be operationally ready, with all necessary equipment available, all provisioning organised, and a logistical plan completed such that all aspects of operations can be safely executed uninterrupted throughout the duration of intended drilling activities.

Given the rapidly unfolding, unprecedented and widespread adverse impact occasioned by the global response to the spread of the Covid-19 virus, the Company has concluded that safe and responsible operations can no longer be assured during the first half of 2020.

For example, national and regional shutdowns (which are being expanded on an almost daily basis) are impacting the ability for drilling rigs and other mission critical equipment to get properly prepared and certified for drilling; and travel bans and border closures (being revised and added to daily) are making it difficult, and in some cases impossible, for key project personnel, staff, crew and contractors to move freely to be where they are needed, when they are needed. Moreover, as at 17 March 2020 The Bahamas has declared a state of emergency, such that a curfew is now in place, most international flights in and out of The Bahamas have been suspended, and in the limited circumstances where inbound flights are allowed, mandatory isolation on arrival is required.

There is presently no certainty as to when these onerous operating conditions and restrictions will change or cease – most commentators cite anywhere from 30 days to up to 4 months – and all of this is occurring at a time when preparation for drilling (in the window of May / June 2020) would be entering into a critical phase.

This is further compounded given the need to take into account the timing of the traditional hurricane season in The Bahamas. This is because prudent operation requires drilling operations to occur outside of the peak-risk period of the Bahamian hurricane season (being July – mid October). In other words, even if normal operations were able to resume in the very near term (which appears entirely unlikely), the minimum impact of the currently existent circumstances would be to delay drilling of the Perseverance #1 well until after the 2020 hurricane season in The Bahamas.

The Board has thus concluded that if the Company was to continue to seek to commence drilling in the first half of 2020, there would be an unacceptable level of risk to the Company’s ability to operate continuously, responsibly, safely, and within currently established guidelines, timelines and, as a consequence, budgets.

By contrast, all present indications are that the Covid-19 virus response will “peak” during the first half of 2020, and operations for the Company (and indeed for almost all other businesses that are all being likewise adversely affected) can resume thereafter.

Accordingly, the Company has determined to postpone drilling operations until mid-October 2020 onwards, being after the expected peak in the Covid-19 response, and also after the peak risk period for hurricanes in The Bahamas.

Force Majeure

The Company has notified the Government of The Bahamas that, as a consequence of both the international and Bahamian response to the spread of the Covid-19 virus, a force majeure event has occurred (it being noted that the Company’s licences and Bahamian regulations specifically define epidemic to be a force majeure event). As such, the Company is entitled to a corresponding extension to the current exploration term of its licences, equivalent to the duration of the force majeure event (up to a maximum of 1 year).

The Company notes that the precise duration of the force majeure event (and hence requisite extension) is presently unknown (it can only be determined once the current force majeure event is over), but at this stage the Company has notified the Government of The Bahamas of the force majeure event in compliance with licence terms.

The impact of the response to the Covid-19 virus on the Bahamian economy and the people of The Bahamas will be extreme, given that the Bahamian economy is heavily dependent on tourism. To this end, the Company has committed to ensuring continuity of employment through this crisis for all of its local Bahamian staff, and to continue its previous support for a number of local Bahamian organisations and charities.

Impact on Well Cost and Operational Readiness

The Company has previously provided guidance as to the estimated cost of drilling operations for the Perseverance #1 well, in the range of $25 million to $30 million, and with potential contingencies identified that, depending on real-time drilling results, could add up to an extra $5 million of cost. The Company does not presently anticipate this cost estimate will change as a result of the rescheduled commencement of operations.

In the coming months, the Company will be systematically re-evaluating all major contract and supply arrangements, so as to ensure the Company is a position to commence drilling operations in accordance with the revised timeline.

In particular, as a result of the global Covid-19 crisis, a large number of international drilling programmes have been cancelled or postponed, and almost all major rig contractors are presently revisiting their forward work programmes. This is expected to have knock-on effects to (potentially greater) rig availability and (potentially lower) rig pricing in the revised drilling window. The Company is already revisiting discussions with a range of contractors for securing a suitable drilling rig for the revised drilling window.

In the course of preparing to drill in the April – June timeframe the Company has made commitments to purchase a range of long-lead or critical path items comprising wellheads, bits and casing, and associated running gear. These items have been moved from the warehouses where they were being readied for shipment to the drill ship to more secure and protected locations for storage, but equally ready for immediate redeployment.

Many manhours have been spent by the drilling team in compiling the procedures, policies, project plans and associated documentation necessary to undertake drilling, as well as completion of a rig contract. The vast majority of this documentation will remain the same, current and germane for the resumption of activities, regardless of when that may be. The Houston-based drilling team has been stood down pending resumption of normal activities later in 2020, but can be readily reassembled in good time to enable future drilling.

Impact on Funding Strategy


Since 2019, the Company has been pursuing a coordinated strategy toward securing the funding required for the drilling of an initial exploration well – Perseverance #1 – in The Bahamas, targeting recoverable prospective resources of 0.7 – 1.4 billion barrels of oil.

The elements of this funding strategy, as enacted to-date, are:

1. Approval by the shareholders of the Company, in September 2019, of an enlarged share placement capacity of up to 1.8 billion new ordinary shares, so as to provide the Company with maximum flexibility in the process of securing funding for the planned exploration well;

2. An open offer to the then existing shareholders, in October 2019, which raised gross proceeds of approximately US$4.3 million through the issue of 166.4 million new ordinary shares at a price of 2p each;

3. A successful institutional placing, in November 2019, to raise additional gross proceeds of approximately US$7.1 million through the issue of 275.6 million new ordinary shares at a price of 2p each;

4. A Conditional Convertible Note Subscription Agreement, entered into by the Company on 10 October 2019 (and as more particularly described in the Company’s announcement of that date and subsequently in the Company’s Open Offer Circular as sent to all shareholders in October 2019 – the “Conditional Convertible Notes”), whereby, subject to satisfaction of various conditions precedent prior to 15 April 2020, the Company expects to raise additional gross proceeds of £10.25 million ( c.US$13.3 million) (and in certain circumstances this date can be further extended to 15 May 2020). Pursuant to an amendment to that agreement as announced on 9 March 2020, prior to 31 March 2020 the Company has the right, should it elect to do so, to scale back the Conditional Convertible Notes by up to 50%, at no cost or penalty to the Company. If not scaled back, fully drawn, and assuming all interest were accrued and the principal and interest fully converted into shares, a total of approximately 590 million new ordinary shares would be issued;

5. An £8 million (approximately $10.3 million) facility for a zero-coupon, second ranking convertible bond (the “Facility”), entered into on 20 February 2020 ( and as more particularly described in the Company’s announcement of that date) whereby the Company drew down an initial tranche of the Facility of £2.43 million (net of face value discount), and has access on an unconditional basis to four additional tranches of £1.19 million (net of face value discount) each in April, May, June and July 2020, available for draw-down through the course of drilling should the Company elect. I f fully draw and fully converted, based on the Company’s current share price range, the Facility would require the Company to issue a total of approximately 250 – 350 million new ordinary shares; and

6. An expansion of the Facility entered into on 17 May 2020, whereby the initial tranche of the Facility was increased by a further £2 million and fully drawn down (such that the Company saw immediate cash inflow of £1.8 million, approximately $2.2 million). In addition, the existing tranches available, should the Company elect, for each of May, June and July 2020, were each increased by £2 million . I f fully draw and fully converted, and based on the Company’s current share price range, this expanded component of the Facility would require the Company to issue a total of a further approximately 250 – 350 million new ordinary shares.

In addition, the Company has sponsored the creation of a Bahamian domiciled mutual fund, with the primary objective of creating a vehicle through which qualified Bahamian investors could invest in the Company, and thereby share in the ownership of the Company’s nationally significant project. Whilst not a core element of the Company’s funding strategy, initial subscriptions to this fund have raised gross proceeds in Bahamian dollars equivalent to US$0.9 million through the issue of 35.3 million new ordinary shares at a price of 2p each. The Company has also agreed to make available to the fund in March 2020 up to a further 40 million shares at a price of 3.35p each, which if taken up by the fund would raise a further $1.4 million. However, the Company does not presently anticipate that any of this allocation will be taken up given the current condition of the capital markets.

In aggregate, therefore, the above elements (including the Conditional Convertible Notes, if not scaled back and fully drawn, and the expanded Facility, if fully drawn) would see total funding availability of approximately $45 million, and issuance of approximately 1.6 to 1.8 billion new shares.

Impact on Conditional Convertible Notes

As noted, under the terms of the Conditional Convertible Note Subscription Agreement (as amended) a number of conditions precedent must be satisfied prior to draw down by 15 April 2020 (and in certain circumstances, that date may be extended to 15 May 2020).

Given the occurrence of a force majeure event(s) (ie: the global coronavirus pandemic and its various impacts) and the Company’s decision to accordingly defer drilling operations to later in 2020, a number of the conditions precedent will not be able to be fulfilled by that date. These include:

1. Formal placement of an insurance policy for drilling operations;

2. Entry into a definitive contract for provision of a drilling rig; and

3. The Company entering into a long-form master services agreement for integrated well services.

Given this , the parties to the Conditional Convertible Note Agreement have agreed a further variation of the Conditional Convertible Note Subscription Agreement, such that the date for satisfaction or waiver of all conditions precedent and election to subscribe to the Convertible Notes is extended to no later than 15 October 2020. Further, to the extent that the Subscriber elects to subscribe on an unconditional basis for at least £1.5 million of Convertible Notes prior to 15 October 2020, the date for the satisfaction or waiver of the conditions precedent to draw-down of the balance of the Convertible Notes will be extended to 15 November 2020 (with accrual of interest not commencing until actual remittance of funds by the Subscriber to the Company, and therefore with no cost to the Company until that time).

Impact on Facility

As noted, under the terms of the Facility (as amended), the Company has access to additional funding in four committed tranches of convertible notes in each of April, May, June and July 2020. However, given the convertible structure of the Facility, the price at which shares may ultimately be issued should the Company draw on these future instalments is likely to be considerably less than the Company has previously considered appropriate, assuming the current share price of the Company were to continue to prevail at that time. Equally, to the extent that the Company’s share price trades at a level below 2p for five consecutive days, the provider of the Facility has the option, should it so desire, to withdraw from the Facility or not meet any or all future draw-down requests.

As such, the Company has entered into discussion with the Bahamian family office that has provided the Facility, which has maintained its full support for the Company and the project . To this end the parties have agreed to keep the Facility on foot, and to replace the current draw down dates of April, may, June and July 2020 with draw down dates in November and December 2020 and January and February 2021 – i.e., with revised draw down dates better matched to the revised drilling schedule and funding needs. The parties have also agreed to further review the Facility terms and draw down schedule once the overall market impact of the coronavirus response is better understood). The Company will advise shareholders on any developments in relation to this matter as appropriate.

Impact on Farm-In Process

In the coming months the Company will continue to assess options for a farm-out or similar transaction, and is pleased that, notwithstanding the global crisis occasioned by the Covid-19 virus and the recent material decline in global oil prices, a number of interested parties, including oil and gas majors and supermajors, have indicated that they would wish for discussions to continue, albeit on a timeline matched to the global operating situation and the Company’s revised drilling plans.

In addition, in recent weeks, the global crisis occasioned by the Covid-19 virus has seen a number of potentially value-creating alternative strategic options presented to the Company, which the Company is seeking to evaluate over the coming months. The Company will advise shareholders on this matter as appropriate.

Cash position

The Company has ceased all purchasing / contracting activity focussed on drilling activities in the first half of 2020, and will be moving to minimise cash outflows over the coming months as the full impact of the Covid-19 response plays out. To-date, considerable effort has been made to minimise up-front commitment of capital to anything other than long-lead items essential to the Company’s operation whenever it occurs, and which items, as noted above, are being kept ready for immediate deployment as and when required (and thus also considerably reducing critical path in the future once operational activity resumes).

The Company presently has $13 million cash at bank, with no debt other than £3.26 million in convertible loan notes issued under the Facility which have not yet been converted and which are repayable in 3 years if not converted during that term. Excluding costs related to drilling in the first half of 2020 (which as noted will now cease), the Company has an operating overhead of $2 – $2.5 million per annum, and is thus well positioned to be able to maintain basic operations prior to recommencing work toward drilling.


The worldwide and local Bahamian responses to the spread of the novel coronavirus are unprecedented, highly fluid and currently unpredictable force majeure events. The Company’s decision to accordingly reschedule drilling operations represents what the Board considers to be a prudent, measured and timely response to what are extremely onerous and unprecedented circumstances.

The Company will advise shareholders of any material developments as and when appropriate.

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