TIDMBPC
RNS Number : 3153L
Bahamas Petroleum Company PLC
12 January 2021
12 January 2021
Bahamas Petroleum Company plc
("BPC" or the "Company")
Funding Strategy: Reconciliation & Exercise of 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.
Highlights
-- Put option exercised to raise a further GBP3.75m (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
GBP3.75m, 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.
Table A: BPC Overall Capital Requirement, from August 2019
Item Amount Notes
Perseverance Up to The estimated total cost of Perseverance
#1 #1, as previously advised (most recently
on 27 November 2020), is in the range
of $24 million - $28 million, with
identified contingencies of up to
$7 million.
(The Bahamas) $35 million
------------------ -------------------------------------------------
2021 Work Program Approximately This represents the previously advised
(Trinidad and $20 million cost of the base program of work
Tobago, Suriname planned for Trinidad and Tobago and
and Uruguay) Suriname in 2021 (refer to BPC's
announcement of 1 December 2020),
inclusive of (i) the cost of drilling
of the Saffron #2 appraisal well
and up to 7 production wells thereafter,
(ii) the cost of drilling of the
Weg Naar Zee appraisal well and extended
well test and up to 6 production
wells thereafter, and (iii) the cost
of drilling 2 exploration wells in
the South West Peninsula of Trinidad
and Tobago, and (iv) a modest expenditure
of $200,000 during 2021 in relation
to early stage technical work in
Uruguay.
As noted in previous announcements,
unlike in The Bahamas (where the
obligation to drill Perseverance
#1 is fixed against a defined timetable)
the majority of the funding needs
in Trinidad and Tobago, Suriname
and Uruguay, are discretionary. That
is, BPC has the ability to control
the scale and timing of capital deployment.
However, BPC has established an operating
target of achieving 2,500 bopd by
the end of 2021, and a corresponding
financial target of a revenue run-rate
by the end of 2021 of >$35 million
per annum. Successful drilling of
appraisal and production wells (and
thus expenditure of capital) is critical
to the ability to achieve these targets.
------------------ -------------------------------------------------
G&G Approximately This represents estimated total overhead
$11 million expenses for 3 years from July 2019
- June 2022 (based on actual expenses
in the period July 2019 to December
2020, and projected expenses in the
period January 2021 to June 2022).
BPC notes that its overhead cost
historically was in the order of
$3 million per annum, and has increased
to approximately $4 million per annum
after the Columbus merger. BPC notes
further that almost a full year of
incremental operating cost (further
boosted by the need for drill team
oversight as operational readiness
was maintained) has had to be "absorbed"
due to the postponement to the Perseverance
#1 program arising from the Covid-19
pandemic.
------------------ -------------------------------------------------
Other Expenses Approximately Comprises fees and other fixed licence
$12 million expenses, business development expenses,
merger costs, fundraising fees, repayment
of Lind facility consequent on the
merger with Columbus, and various
other items, inclusive of an estimated
$1.5 million in legal fees that have
been or are expected to be incurred
in relation to defending environmental
legal actions in The Bahamas.
------------------ -------------------------------------------------
TOTAL $78 million
------------------
Summary of Funding Strategy, to-date
A. Pre-rig mobilisation (August 2019 - November 2020)
In the period August 2019 (i.e., from the time of articulation
of the strategy for funding Perseverance #1) until November 2020
(i.e., the time of the mobilisation of the Stena IceMax to the
drilling location in The Bahamas) BPC's total funding position was
as follows:
-- As at August 2019, BPC had available cash resources of approximately $2 million.
-- In November 2019, BPC successfully undertook an open offer to
all shareholders, raising gross proceeds of $4.3 million through
the issue of 166.4 million ordinary shares at a price of 2p
each.
-- In November 2019, BPC successfully undertook a placing to
institutional investors, to raise gross proceeds of $7.1 million
through the issue of 275.6 million ordinary shares at a price of 2p
each.
-- In February 2020 and March 2020, BPC drew-down, in aggregate,
$6.2 million under a zero-coupon variable-conversion price
convertible note facility provided by a Bahamian family office
investor. Over the course of February 2020 to June 2020, these
amounts were converted into a total 310 million ordinary
shares.
-- In June 2020, BPC received $0.9 million, and issued 35.3
million ordinary shares at a price of 2p each, to a Bahamian mutual
fund sponsored by BPC for the purposes of enabling qualified
investors in The Bahamas to acquire an indirect ownership interest
in BPC.
-- In October 2020, BPC successfully undertook a placing to
institutional investors, to raise gross proceeds of GBP9.5 million
($12 million) through the issue of 475 million new ordinary shares
at a price of 2p each.
In summary, therefore, by the time of mobilisation of the Stena
IceMax, BPC had secured $32.5 million in cash, ($2 million of
pre-existing cash and $30.5 million in cash raised incrementally),
and had issued approximately 1.26 billion shares to secure that
funding. This was against a clearly articulated anticipated
Perseverance #1 well cost of up to $35 million.
In addition, the Company had secured two further sources of
capital potentially available to it, but not yet accessed, as
follows:
-- Consequent on the spudding of Perseverance #1 and
satisfaction of other conditions precedent, BPC could potentially
draw GBP15 million (US$20 million) under a fixed-conversion price
convertible loan facility, which, if all drawn and converted at
2.5p per share, would require the issuance of a further 600 million
new ordinary shares, and
-- Access to approximately $15 million in respect of the
residual availability under the zero-coupon variable-conversion
price convertible note facility provided by a Bahamian family
office investor (as noted above).
B. Post-rig mobilisation (November 2020 - Present)
It was in this context that on 14 December 2020, as previously
announced, BPC entered into a Funding Agreement with an
institutional investment fund managed by Lombard Odier Asset
Management (the "Investor"). This agreement was specifically
entered into so that BPC did not need to rely on any further
drawn-down under the zero-coupon variable-conversion price
convertible note facility, which, given the variable-conversion
price mechanism, could have resulted in BPC being required in the
future to issue an indeterminate number of shares. By contrast,
under the Funding Agreement, a fixed number of 375 million shares
was issued to the Investor at a price of 2p each, to secure GBP7.5
million ($10 million) in immediately available funds.
At the same time, BPC entered into a Funding Option Agreement
with the Investor, under which BPC was granted an option to place a
further fixed number of up to 187.5 million shares to the Investor,
at a price of 2p each, to raise up to a further GBP3.75 million (
$5 million) (the "Put"). If the Put is exercised, the Investor has
the option to double the amount the subject of the Put on the same
terms and conditions (the "Call"). As advised on 7 January 2021,
the parties had agreed that the last date for exercise of the Put
by BPC is 13 January 2021.
Subsequently:
-- In January 2021, BPC drew-down the initial GBP3 million
(approximately US$4 million) available under the Company's
fixed-conversion price conditional convertible loan facility,
which, if all ultimately converted at the fixed price of 2.5p per
share, would require the issuance of 120 million new ordinary
shares, and
-- Today, under the terms of the Funding Option Agreement, BPC
has exercised the Put, pursuant to which BPC will receive gross
proceeds of GBP3.75 million (approximately US$5 million) through
the issue of 187.5 million new ordinary shares to the Investor, at
a price of 2.0p each.
C. Current Funding Position
In aggregate, the foregoing can be summarised as follows: from
August 2019 to the date of this announcement (inclusive of the
exercise of the Put as announced today), BPC has secured a total
cash funding of approximately $52 million. In order to secure this
funding, BPC has issued a total of approximately 1.9 billion
ordinary shares (assuming the first tranche of the fixed-conversion
price conditional convertible notes is ultimately converted).
This compares directly to the expectation in August 2019, which
was that BPC would be required to issue 1.8 billion shares to
secure just the funding for Perseverance #1, which at that time was
estimated to be in the order of $30 million.
D. Potential Funding Position
In addition, if (i) the balance of BPC's fixed-conversion price
conditional convertible note facility (assuming satisfaction of
conditions precedent) is fully-drawn, BPC will secure an additional
$15 million in funding, and (assuming eventual full conversion)
will be required to issue a further 480 million shares (effectively
at 2.5p per share), and (ii) if the Investor exercises the Call,
BPC will secure an additional $5 million in funding, and will be
required to issue a further 187.5 million shares at 2p per share.
In sum total, therefore, BPC might secure an additional $20 million
in funding, for which a further approximately 667 million ordinary
shares might need to be issued (assuming the remainder of the
convertible notes are ultimately converted).
Thus, in aggregate, across the period and assuming the full
realisation of all elements of the Company's funding strategy a
total issuance of approximately 2.6 billion new ordinary shares
will have seen the Company secure approximately $72 million in
funding, however BPC notes that the balance of funding under the
fixed-price conditional convertible note facility, and any proceeds
of the Call, are not assured. This amount of funding is sufficient
to see not just the Perseverance #1 well completed, but also
essentially see the 2021 work program in Trinidad and Tobago and
Suriname completed, as well as having covered the total associated
costs of operating the business in the period (subject to the
caveat above).
To the extent that the balance of funding under the fixed-price
conditional convertible note facility and any proceeds of the Call
are available and used, these sources of funding represent a known
and fixed level of dilution: approximately 667 million new shares
to secure $20 million of capital. Given that these sources of
funding are not assured, BPC's stated strategy thus remains to
continue to seek alternative funding sources on superior terms,
that would result in lower level of share issuance, and thus
obviate the need for the Company to rely on these funding sources.
Potential replacement sources of capital that BPC is constantly
considering, as previously advised to shareholders, include
cash-flows from operations, farm-out options or similar
transactions, and reserve-based lending facilities.
To the extent that any one or a combination of funding
alternatives are successfully concluded on terms acceptable to BPC,
the Company would be able to scale back the use of the
fixed-conversion price conditional convertible notes, or if not,
the amount of capital available to the Company would likely
materially increase, and would be additive to existing funding
sources.
In circumstances where neither the balance of the
fixed-conversion price conditional convertible notes is available,
nor the Call exercised, BPC would need to rely on seeking
alternative funding if it was to be able to complete the full
intended program of work for 2021 (most particularly in Trinidad
and Tobago and Suriname). There can be no assurance that BPC would
be successful in securing any such alternative funding, and if this
were the case, the planned program of work in Trinidad and Tobago
and Suriname might need to be curtailed or deferred.
Exercise of Put Option
As noted above, under the terms of agreements entered into o n
14 December 2020 with an institutional investment fund managed by
Lombard Odier Asset Management (the "Investor), BPC was granted an
option to place a further fixed number of shares to the Investor,
to raise up to a further GBP3.75 million ( US$5 million) (the
"Put"). If the Put is exercised, the Investor has the option to
double the amount the subject of the Call on the same terms and
conditions (the "Call"). As advised on 7 January 2021, the parties
had agreed that the last date for exercise of the Put by BPC is 13
January 2021.
BPC has today exercised the Put, such that BPC will issue
187,500,000 new ordinary shares of 0.002p each, at a price of 2.0
pence each, for immediate gross proceeds of approximately GBP3.75
million (US$5 million). This additional issuance represents approx.
3.5% of BPC's fully diluted share capital. The Investor now has
until the earlier of (a) the date of BPC's RNS announcement of the
result of the Perseverance #1 well results, and (b) 12 February
2021, to exercise the Call, failing which the Call lapses.
Consequent on the exercise of the Put by BPC, the Investor will
also be issued with warrants, valid for one year, to subscribe for
a further 46,875,000 shares at a price of 3.0p per share and a
further 46,875,000 shares at a price of 4.0p per share . As
previously advised, in respect of shares issued pursuant to the
Call or Put, the reconciliation date for any potential future
payment to the Investor by BPC is 16 April 2021.
Dilution Reconciliation
A. Current Dilution
As noted, until 2019, it had always been BPC's stated funding
strategy to seek to meet the cost of the drilling of Perseverance
#1 through a farm-in.
Most market commentators at the time assumed that in order to
secure the funding for Perseverance #1 via a farm-in, BPC would
have been required to "sell" at least a 75% interest in the
licences, and cede operatorship and control.
In August 2019, BPC had approximately 1.7 billion shares in
issue. At present, BPC has approximately 4.7 billion shares in
issue (including the shares to be issued to the Investor pursuant
to the Put as exercised today). Of that total, however,
approximately 1.0 billion were issued in respect of the Columbus
merger (a transaction that did not involve raising of any
cash).
This means that as at today (excluding the shares that were
issued to effect the merger with Columbus), a total of
approximately 1.9 billion shares have been issued, in stages under
various funding arrangements described, to secure total funds of
$52 million. This compares to the expectation, in August 2019, of
needing to issue 1.8 billion to secure $30 million to fund the
well.
Therefore, whereas most commentators prior to mid-2019 were
expecting BPC's ultimate interest in Perseverance #1 to be diluted
by about 75% (for which the well would have been paid for, but
beyond that BPC would have been a company with no other assets
besides a non-operated 25% interest in the project in The Bahamas),
and whereas in August 2019 the approval obtained from shareholders
allowed for 50% overall dilution in the expectation of securing $30
million, the end result has been a dilution of, on a like for like
basis, 55% through which BPC has both fully-funded the well in The
Bahamas (for which it retained 100% ownership and full control), as
well as funded the overhead costs of the business in the
period.
B. Total Potential Dilution
As noted, if the balance of the fixed-conversion price
conditional convertible note facility is available and ultimately
fully drawn, and if the Investor exercises the Call in full, a
further 667 million shares may ultimately need to be issued,
increasing the overall issued share capital of BPC to approximately
5.4 billion.
This means that, assuming the full realisation of all elements
of BPC's funding strategy enacted incrementally since August 2019,
a total issuance of approximately 2.6 billion shares will have seen
the Company secure approximately $72 million in funding. This would
be a level of funding sufficient to see not only the Perseverance
#1 well completed, but the bulk of the 2021 work program in
Trinidad and Tobago and Suriname completed, as well as having
covered the total associated costs of operating the business in the
period.
In dilution terms, this would mean since August 2019, inclusive
of $72 million of funding and the merger with Columbus, there will
have been a total aggregate issuance of approximately 3.6 billion
shares, which represents a total dilution of approximately 65%. As
a result, BPC would have delivered not only a fully funded
Perseverance #1 well in The Bahamas, but also expanded the business
and its asset portfolio to include a suite of production, appraisal
and development assets in three other complementary jurisdictions,
and funded an extensive program of value-adding work on those
assets through to the end of 2021.
The Board considers that this compares favourably (i) to the
potential outcome under a farm-in in 2019 (as noted, a reasonable
assumption was that BPC would have been required to dilute at least
a 75% interest in the licences, and cede operatorship and control),
and (ii) the expectation in 2019 that a total dilution of around
50% would be required to secure $30 million in funding).
Moreover, the Board considers that the nature of BPC, and the
investment risk proposition that BPC now represents, has been
radically transformed in the process. Additionally, this outcome
has been achieved against a backdrop of fairly extraordinary market
circumstances: depressed equity markets (particularly in the energy
sector) through 2020 owing to Covid-19 and associated oil price
weakness, and material cost and timing implications 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.
Total Voting Rights
In satisfaction of commissions payable in respect of the Funding
Option Agreement, the Company had agreed to make payment in the
form of cash. The Company's advisers have agreed to receive
ordinary shares in the Company in lieu of those cash fees.
Consequently, the Company is issuing 9,375,000 ordinary shares in
settlement of cash fees otherwise payable (the "Adviser Fee
Shares").
Application will be made for the, in aggregate, 196,875,000
ordinary shares issued under the Put and the Adviser Fee Shares to
be admitted to trading on the AIM market of the London Stock
Exchange ("AIM") and it is expected that admission will take place,
and trading in those ordinary shares will commence from 8:00am on
15 January 2021 ("Admission").
Following Admission, BPC's issued share capital will consist of
4,703,548,349 ordinary shares, with each ordinary share carrying
the right to one vote. The Company does not hold any ordinary
shares in treasury. This figure of 4,703,548,349 ordinary shares
may therefore be used by shareholders in the Company, as the
denominator for the calculations by which they will determine if
they are required to notify their interest in, or a change in their
interest in, the share capital of the Company under the FCA's
Disclosure Guidance and Transparency Rules.
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
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 7409
Rory Murphy / James Spinney / Jack Botros 3494
Shore Capital Stockbrokers Limited - Tel: +44 (0) 207 408
J oint Broker 4090
Jerry Keen / Toby Gibbs
Investec Bank Plc - J oint Broker Tel: +4 4 (0) 207
Chris Sim / Rahul Sharma 597 5970
CAMARCO Tel: +44 (0) 020 3757
Billy Clegg / James Crothers / Hugo Liddy 4980
Notes to Editors
BPC is a Caribbean and Atlantic margin focused oil and gas
company, with a range of exploration, appraisal, development and
production assets and licences, located offshore in the waters of
The Bahamas and Uruguay, and onshore in Trinidad and Tobago, and
Suriname. BPC is currently drilling an initial exploration well in
The Bahamas, Perseverance #1, with the well targeting recoverable
P(50) prospective oil resources of 0.77 billion barrels, with an
upside of 1.44 billion barrels. In Trinidad and Tobago, BPC has
five producing fields, two appraisal / development projects and a
prospective exploration portfolio in the South West Peninsula.
BPC's exploration licence in Uruguay is highly prospective, with a
management estimate of potential resources of 1 billion barrels of
oil equivalent. In Suriname, BPC has an onshore appraisal /
development project.
BPC is listed on the AIM market of the London Stock Exchange. www.bpcplc.com
END
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