TIDMBPC
RNS Number : 8346N
Bahamas Petroleum Company PLC
26 May 2020
26 May 2020
Bahamas Petroleum Company plc
("BPC", "Bahamas Petroleum" or the "Company")
Drill Rig Contract Signed, Drill Cost Estimate Significantly
Reduced, and update on timing and progress towards Commencement of
Exploration Drilling
Bahamas Petroleum Company, the oil and gas exploration company
with significant prospective resources in licences in The
Commonwealth of The Bahamas, is pleased to announce that, having
postponed its Perseverance #1 drilling operation from H1 2020 due
to the Covid-19 pandemic, it has entered into a definitive contract
with Stena Drilling for provision of a drilling rig as soon as Q4
2020. Consequent on the terms of this contract, the Company is able
to provide an updated and significantly reduced cost estimate for
its first exploration well in The Bahamas, along with a general
update on expected timing and progress toward drilling.
Highlights
-- Unconditional agreement with Stena Drilling for the provision
of a state of the art, sixth generation drilling rig, including
integrated supply of a Managed Pressure Drilling (MPD) unit.
-- Firm window for commencement of drilling between 15 December
2020 and 1 February 2021, consistent with licence obligations as
extended by the Covid-19 force majeure event.
-- Reduced estimated total cost of Perseverance #1, down by
approximately 15%, based on the contracted rig rate and rates for
other contracted services and equipment, reflecting changes to the
global operating environment.
-- Perseverance #1 well targeting recoverable P(50) oil
resources 0.77 billion barrels, with an upside of 1.44 billion
barrels. Reduced cost estimate creates scope for expanded formation
evaluation work in the success case, without increasing previous
estimated total capital requirement.
-- Optimal funding strategy and timing, including farm-out
process, being reassessed accordingly.
Simon Potter, Chief Executive Officer of Bahamas Petroleum
Company, said:
"In March 2020, we were within weeks of commencing the drilling
of our Perseverance #1 well when we were compelled to defer our
planned drilling programme due to the impacts of the Covid-19
pandemic. Immediately we undertook a range of activities necessary
to reschedule activity toward the end of 2020 and into the first
quarter of 2021, consistent with our licence obligations (as
extended for the declared force majeure event), by which time we
expect the worst of the broad suite of impacts of the pandemic to
be behind us. To this end we are pleased to announce that we have
today entered into a rig contract with Stena Drilling, which
provides a firm series of parameters on rig rate, provision of MPD,
mobilisation and demobilisation costs, and defines a revised
drilling window of 15 December 2020 to 1 February 2021.
This decision - to lock in a rig now, at an already favourable
rig rate, rather than try and second guess what markets and
availability will look like later in the year - speaks to our
intent to ensure Perseverance #1 is drilled at the soonest
opportunity, and provides the necessary certainty needed for
operational planning. Acting decisively in this way is consistent
with our single-minded focus on technical delivery. Importantly,
the commercial parameters in the rig contract have allowed us to
not only revise down significantly the anticipated well cost, but
also clears the way to revisit our funding strategy with adequate
time to ensure we have the funds available as and when we need
them, on the best possible terms. I look forward to updating
shareholders in the coming months as we continue making progress
towards recommencing operations."
Overview
BPC has an obligation to drill an initial exploration well prior
to the conclusion of the current exploration period of its four
conjoined licences in the southern territorial waters of The
Commonwealth of The Bahamas. That period was due to expire on 31
December 2020, but is extendable based upon declaration of force
majeure occasioned by the Bahamian and global response to the
Covid-19 virus pandemic, with the Company having submitted a force
majeure notice to the Government of The Bahamas in early March
2020, in accordance with the terms of its licences. Based upon the
licence terms and prevailing regulations (and allowing only for the
duration of disruption to operations to-date) the Company expects
that the current exploration period of its licences will extend
until at least April 2021 (however, given the likely further
continued Covid-19 related disruption the Company has sought
clarification from the Government on an extension to at least June
2021).
At the same time, the Company's long-stated policy has been to
avoid undertaking drilling activities during the peak of the
Bahamian hurricane season, which traditionally ends in November of
each year.
Accordingly, the Company has been working hard over the period
of Covid-19 related shut-downs to reschedule its drilling plans,
including all critical supply and service contracts, along with
finance arrangements, towards a revised operational objective of
drilling Perseverance #1 in the period December 2020 to April
2021.
Rig Contract
Consistent with this revised operational objective, BPC, on 24
May 2020, entered into an agreement with Stena DrillMax Ice Limited
("Stena"), a wholly-owned subsidiary of Stena Drilling Limited, one
of the world's foremost independent drilling contractors, for the
provision of a sixth-generation drilling rig (the "Rig Contract").
The Rig Contract is fully termed, binding and unconditional, and
provides the certainty of a firm time slot for the delivery of a
drilling rig on location in the window of 15 December 2020 to 1
February 2021.
The Rig Contract is in accordance with standard industry
documentation, and sets out all relevant commercial parameters and
costs - a summary of the key terms and conditions of the Rig
Contract is provided in Table 1 below. Establishing a definitive
time window for drilling, and agreeing operating parameters with
Stena, now allows the BPC drilling team to recommence planning for
operations without unnecessary distraction or uncertainty.
The Rig Contract entered into with Stena replaces the previous
contract for a drilling rig that the Company anticipated entering
into with Seadrill Limited, and provides for improved terms
(notably, an all-in rig cost, including managed pressure drilling
system, lower than that previously anticipated). The rig to be
provided by Stena is of an equivalent or higher specification to
that which would have been provided by Seadrill, and thus the
Company's existing drilling plan and Environmental Authorisation
will, subject to some rig-specific updating, continue to be
applicable for Perseverance #1 drilling operations. Over the coming
months the Company will be working with The Government of The
Bahamas to ensure an update and commensurate extension to the
existing authorisation
Table 1: Rig Contract Key Terms:
Rig A Sixth Generation drill ship, which shall be
provided with an integrated managed pressure
drilling system on board, and which may be any
of the Stena IceMax, Stena Forth, or Stena DrillMax
(or, subject to agreement, any other suitable
Stena vessel).
Drilling Window Stena must provide the rig on location to commence
drilling within a firm time window of 15 December
2020 to 1 February 2021.
------------------------------------------------------------------
Sequence to drilling On signing of the Rig Contract, BPC has paid
to Stena an initial down payment amount of $250,000
and the parties have commenced working together
collaboratively to prepare for drilling activities
in the drilling window on the basis of any one
of the identified Stena drilling rigs.
At any time after 1 September 2020 but prior
to 1 November 2020, Stena must provide to BPC
a commencement notice, which notice must specify:
(i) the specific drilling rig to be deployed
by Stena,
(ii) the location(s) which that drilling rig
will be mobilised from / demobilized to, and
(iii) the date within the drilling window on
which that drilling rig will arrive on location
and be ready to commence drilling operations.
------------------------------------------------------------------
Drilling Duration The duration estimated to complete the well,
which is approximately 30 -45 days.
------------------------------------------------------------------
Contract Payments BPC is to pay a fixed lump sum mobilization
fee of $2 million at such time as Stena delivers
a commencement notice to BPC. Once the rig arrives
on location BPC is to pay for the operating
use of the rig, inclusive of the use of the
managed pressure drilling system. In aggregate,
the total value of payments to be made by BPC
to Stena in respect of use of the rig, inclusive
of mobilization, is estimated to range between
US$8 million and US$11 million depending on
the duration of drilling activities.
------------------------------------------------------------------
Penalty regime If Stena fails to deliver a commencement notice
by 1 November 2020, or if, following delivery
of a commencement notice, Stena fails to provide
the nominated drilling rig, a penalty of $7.5
million will become payable by Stena to BPC.
------------------------------------------------------------------
Investment Options Consequent on entry into the rig contract, BPC
has granted several investment options to Stena
Drilling Limited (the "Optionholder"), such
that, prior to 1 December 2020, the Optionholder
has the right (but not the obligation, and there
can be no assurance that the Optionholder will
exercise the right, all or in part) to (i) subscribe
for up to $10 million of new equity in BPC on
the same terms and conditions as would apply
in any BPC capital raising, or (ii) farm-in
to the BPC southern licences on the basis of
$10 million for a 10% non-operated working interest.
If the Optionholder were to seek to take up
either of these investment options, the consideration
could be satisfied either in cash or by way
of offset against amounts payable by BPC under
the Rig Contact.
------------------------------------------------------------------
Revised Costs Estimate
The Company had previously provided guidance as to the estimated
total cost of drilling operations for the Perseverance #1 well -
most recently on 25 March 2020, when this estimated cost was
confirmed to be in the range of $25 million to $30 million. At that
time the Company also identified a number of contingency costs
relating to pace of drilling (rate of penetration or "ROP"), the
potential requirement for additional casing strings based upon
real-time drilling outcomes, and/or additional logging activities.
These contingencies (if required) were estimated to add up to a
further $5 million, such that in the extreme case of all
contingencies being required without any offsetting cost savings
being achieved, the cost of Perseverance #1 might be up to $35
million in total.
The revised firm pricing and operating parameters encapsulated
in the Rig Contract, as well as broader industry conditions
exerting downward pressure on pricing, has provided an opportunity
for the Company to revisit the cost of the Perseverance #1 well,
with a revised estimated cost now in the range of US$21 million to
US$25 million.
This revised estimate of US$21 million to US$25 million is not
only materially lower than the previous cost estimate (of US$25
million to US$30 million), but represents a narrower range (in
absolute terms) as compared to the previous cost estimate, given
the now greater certainty on specific input costs (and
notwithstanding that additional costs have been included in the
estimate to accommodate implementation of a number of possible
strategies for the mitigation of residual Covid-19 impacts - the
extent to which these will be required as yet unknowable, given
that the drilling window remains more than 6 months in the
future).
At the same time, potential operational contingencies relating
to real-time drilling results (as previously identified) are
essentially unchanged, such that on a like-for-like basis, the
total cost of Perseverance #1 is now estimated to be up to $30
million in total , representing an approximate reduction of 15% to
the previous well cost estimate (of up to $35 million).
Over and above this revised estimate, the Company has also now
scoped a further $3 million - $5 million of provisional cost
elements relating to an expanded range of formation evaluation
work, that the Company previously identified but that can now be
undertaken at the Company's election in a success case, subject to
capital availability (i.e. the identified cost savings mean,
assuming accuracy, in a success case, that considerable additional
work could be undertaken within the same $35 million capital
"envelope" as had previously been estimated).
In summary, BPC now estimates the total cost of Perseverance #1
to be in the range of $21 million to $25 million, a material
reduction from the most recent prior comparable estimate. In
addition, the Company continues to assess there to be up to $5
million in potential operating contingency costs, and has scoped up
to $5 million of provisional costs for additional formation
evaluation work that the Company could elect to incur in a success
case. However, the extent to which these contingent / provisional
elements are utilised will not be known until closer to or during
drilling operations, and decisions in relation to incurring these
items will be based on capital availability at that time.
Funding and Funding Strategy Update
Prior to the Covid-19 pandemic shut down, the Company had
commenced procurement of various long-lead or critical path
equipment items required for drilling, such as casing and
wellheads. Some of these items had been ordered and received but
not yet paid for; others had already been paid for. All items
received have been warehoused at minimal cost, and are available
for redeployment at recommencement of drilling activities. The
Company has also sought to work collaboratively with suppliers to
reschedule payment obligations where items had not yet been paid
for.
At the same time, prior to the Covid-19 shut down, the Company
had already undertaken and paid for a considerable amount of
preparatory work for drilling - largely reflected in "manhours" -
most of which expenditure will not need to be repeated for
recommencement of operations. Against this, the Covid-19 delay has
added an additional 6 months of general working capital needs.
The Company has current cash holdings of approximately US$12
million. Taking into account ongoing working capital needs and
costs associated with initiating the rig contract and readying for
operations, at the time drilling is ready to commence in late 2020
/ early 2021, it is anticipated the Company will have cash holdings
of approximately $9 million. Thus, on the basis of this revised
total well cost estimate of US$21 million to US$25 million (plus
potential contingencies), the Company's current funding "gap" for
Perseverance #1 is in the range of $12 million to $16 million (plus
a further $5 million to $10 million depending on the extent to
which potential contingency / provisional costs may be required /
opted for).
In this context, shareholders are reminded that the potential
funding sources established by the Company prior to the Covid-19
shut down continue on foot, and, if available and drawn (and when
aggregated with the Company's existing cash holdings), would more
than meet the Company's overall funding needs for Perseverance #1.
In summary, these potential funding sources are:
-- A Conditional Convertible Loan with Australian-based Bizzell
Capital Partners Pty Ltd for a total investment of GBP10.25 million
(approximately US$13 million). Once advanced, the Conditional
Convertible Loan would be for a term of 3 years, with a coupon of
12% per annum, convertible at a price of 2.5 pence per share.
Funding under the Conditional Convertible Loan remains subject to
satisfaction of a number of conditions precedent, and, as announced
on 25 March 2020, the parties to the Conditional Convertible Note
Loan had agreed a variation such that the date for satisfaction or
waiver of all conditions precedent and election to subscribe to the
Convertible Notes was extended to no later than 15 October 2020
(and, to the extent that the subscriber elects to subscribe on an
unconditional basis for at least GBP1.5 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; and
-- A GBP16 million (approximately $21 million) facility with a
Bahamas-based family office investor for a zero-coupon, second
ranking convertible bond (the "Facility"), entered into on 20
February 2020 and expanded on 17 March 2020 (and as more
particularly described in the Company's announcement of that date).
As at 17 March 2020, the Company had drawn down an initial tranche
of the Facility of GBP4.23 million (net of face value discount) ,
with the balance available to be drawn in four additional tranches.
As announced on 25 March 2020, in view of the Bahamas and US
Covid-19 situation, the parties to the Facility agreed to keep the
Facility on foot, and to replace the draw down dates of April, May,
June and July 2020 with revised draw down dates in November
(GBP1.19 million available net of face value discount ) and each of
December 2020 and January and February 2021 (GBP2.99 million
available per tranche net of face value discount ) . The parties
also agreed to further review the Facility terms and draw down
schedule once the overall market impact of the coronavirus response
is better understood.
In addition to the above noted facilities, given current market
conditions and the revised drilling timing the Company is now
actively seeking to revisit all potential funding sources for
Perseverance #1, with a view to optimising the availability and
cost of its funding. This includes continuing to pursue a farm-in,
and farm-in discussions remain on foot with a number of parties. As
noted above, consequent on signature of the Rig Contract, Stena
Drilling has also been granted certain options to invest in BPC or
the project.
Overall, given that drilling operations will not commence until
at least 15 December 2020, the Company now has in excess of 6
months to refine, implement and complete its optimal funding
strategy in a measured way. In doing so the Company's previously
articulated funding principles will remain unchanged:
(i) to ensure that funding is available as and when required;
(ii) to seek to minimise shareholder dilution from such funding,
such that the dilution required to secure the funding for the well
would be less than or at least no more than the dilution that would
result from a farm-in transaction; and
(iii) to create multiple funding sources with maximum flexibility and optionality.
***
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
Rory Murphy / James Spinney / Jack Botros 7409 3494
Shore Capital Stockbrokers Limited Tel: +44 (0) 207
Jerry Keen / Toby Gibbs 408 4090
CAMARCO Tel: +44 (0) 20
Billy Clegg / James Crothers 3757 4983
www.bpcplc.com
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
END
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