Chief Executive Officer Review

We have a singular objective at Bahamas Petroleum Company - to commence drilling on our exciting, highly prospective licences located in the southern waters of The Bahamas, adjacent to the Cuban border.  Your Company believes it has access to what could potentially be a world-class, multi-billion barrel petroleum resource.  The first step in realising that potential will be to responsibly and safely drill an off-shore exploration well - the first in The Bahamas in nearly 30 years and thus the first to harness the benefits of modern technology. 

CEO Review

This might sound simple, but activity of this type is complex and costly, and, most especially after the Gulf of Mexico tragedy, requires the simultaneous management and coordination of a number of challenging regulatory, operational, commercial and financial factors. The extent of progress towards our objective is not always immediately obvious to shareholders and certainly the pace of progress towards initiating drilling has been slower than management envisioned, or than shareholders expect.

Nevertheless, the last year has been one of considerable progress for Bahamas Petroleum Company, on many fronts.


At the start of 2013, the Company faced a number of regulatory challenges: (i) the Government of The Bahamas had previously announced it might seek a referendum on industry activities, (ii) the Company's existing licences needed to be renewed, and (iii) Bahamian regulations as they pertain to petroleum exploration had been identified by the Company (and the Government) as needing strengthening in order for this opportunity in The Bahamas to remain a globally attractive proposition. The ability to undertake any drilling activity in the future was entirely dependent on a resolution of these matters - none of which are directly in the control of the Company.  Seeking an unambiguous mandate on these matters has thus been a top priority for the Company, and it is pleasing to report significant progress in this regard:

(i) In March 2013, the Government of The Bahamas announced it would not pursue a referendum, deciding instead to first acquire the data required to make an informed decision on energy development, prior to any form of public consultation (if any). This decision removed crucial uncertainties and provided clarity and direction for future decisions by the Government, the Company and potential partners.

(ii) In July 2013, BPC received notification that the statutory term for the five licences held by the Company had each been renewed and extended for at least a further three years, with an obligation to commence the drilling of an exploration well by April 2015. As a further part of this renewal the southern boundary of the four southern licences are to be adjusted to conform to the maritime boundary between The Bahamas and Cuba, thus providing clear tenure over the full extent of the existing mapped structures.

(iii) The Company has been co-operating with, and continues to work closely with, the Government on updating the Bahamas petroleum industry environmental and safety regulations. It has recently been reported that these regulations, which will provide a modern framework to manage and govern industry activities, are now before Cabinet for consideration, and it is hoped that these will soon be available for public consultation and adopted soon thereafter.

These milestones now provide a very clear mandate for the Company and our planned activities going forward.


Over the course of several years your Company has undertaken a huge body of technical and environmental work.  This has included having located and obtained all relevant geological, geochemical and geophysical data related to the hydrocarbon potential of The Bahamas as well as having completed and had accepted a comprehensive Environmental Impact Assessment. The end-product is a coherent picture sufficiently defined to identify individual drill-ready prospects which, in the success case, would be capable of supporting significant commercial hydrocarbon production.  This prospect definition and risk mitigation work continued during 2013 and remains ongoing in 2014.

In totality, the work completed has substantially de-risked technical aspects of the project.  In particular, we have established that the source, faulted migration pathways, reservoir and seal in the (deeper) targeted sections of the early Cretaceous are in close juxtaposition - key components for successful exploration.  A Competent Persons' Report (CPR) was obtained that indicates the scale of the structures and the multi-billion barrel resource potential of the stacked plays, all of which has been reinforced through the 3D seismic interpretation work completed in 2013.  

In order to ensure that prospects are drill-ready a FEED study has been completed for a well location at the crest of Fold B at the southern end of the structure. More recently, the Company has comprehensively reworked anticipated drilling costs. These have now been substantially reduced, through adjusting the well location so as to optimise well execution and thus casing design, as well as reductions in daily rig rates based upon increased rig availability.

During 2013 work also continued to ensure that the Company will be in a strong operational position to commence drilling as soon as possible. The Company continued its detailed preparation of the required Environmental Management Plan (EMP), which includes preparation of the Oil Spill Contingency Plan, the Emergency Response Plan (both based upon a simulated worst-case discharge calculation - viewed as international best practice) and in particular a series of environmental sensitivity index maps identifying areas of high potential impact. Preparation of these maps has required extensive and wide public consultation including numerous visits to the 'family' islands to consult with fishing, environmental and community groups.


2013 CEO Review harbour

As the Company looks to move into an active operations phase, the opportunity has been taken to reshape the Board of the Company.

Bill Schrader joined the Board as Non-Executive Chairman, succeeding Adrian Collins who becomes a Non-Executive director.  Bill brings over 30 years' experience in the oil and gas industry, having served as Chief Executive Officer of several country operations at BP plc, as the President of the Azerbaijan International Operating Company and as Chief Operating Officer of TNK-BP. This wide-ranging career has given Bill an extensive industy network and proven ability to manage the interface with governments around the world.

Alongisde Bill, James Smith joined the Board as Deputy Chairman. James is a former Bahamas Minister of State in the Ministry of Finance, and member of the Bahamas' Senate. James is widely acknowledged as a leading expert on monetary policy and is a respected member of the greater Bahamas community.

Both additions to the Board bring wide ranging contacts and familiarity with both operating and economic factors relevant to our business.  Overall, the reshaped Board comes at a time when the Company is seeking to accelerate activity through to the next stage in its development, and to realise full value for shareholders.


In financial terms our objectives have been twofold: (i) to operate on a cost effective and prudent basis, so as to preserve cash and therefore options whilst remaining focused solely on progressing operations in The Bahamas; and (ii) to seek a financing solution for the cost of exploration drilling, which will require the Company to access approximately US$100 million of additional capital.

In terms of the first objective, our overall operating losses have seen continued reductions through 2013 and the first half of 2014 with 17% and 19% reductions respectively when compared with the comparative periods and the Company has seen an overall cash burn rate reduction of over 30% in the last few years.  Our most recently published cash balance as at 30 June 2014 reported $12.4 million and we expect to have a substantive balance retained at the end of 2014.

I would stress, however, that careful management of cash reserves has not compromised ongoing technical work, that is both necessary and essential to progressing the project and secure potential partners.  Rather, we believe we have been successful in finding a balanced approach: all work is carried out cost-effectively so that even given the current run-rate of expenditures we expect the Company can continue to operate effectively for several years. This situation will remain under constant review.

In terms of the second objective, our preference remains to secure a farm-in partner for the project. With the greater regulatory clarity and technical de-risking achieved through 2013 to date, we have been able to focus attention on this all-important task during the current year. To-date a comprehensive data-room has been assembled, and contact initiated in 2014 with a large number of companies to ascertain levels of interest, including hosting a number of visits to the data room from interested parties. Based on initial feedback, a structured farm-in process has been delineated which is being refreshed and will be further reinforced and pursued in the second half of 2014. These processes typically take many months to complete, and by their very nature are required to remain confidential, although shareholders will be apprised of developments as soon as is possible and appropriate. Our objective however is clear; to secure a farm-in partner, so as to enable exploration drilling to commence as soon as possible.


This last two years have presented many challenges for our Company, and progress has undoubtedly been slower than expected. Nonetheless, as CEO I can report to shareholders that the company achieved a number of significant milestones in this period. We continued to mitigate the technical risks associated with the venture, whilst strengthening our views on the technical scale of the resource. We obtained a refreshed mandate and timeline from the Government to proceed with exploration drilling, including reinforced well obligations, revised licence boundaries and the continued efforts of Government to bring modernised and strengthened guiding regulations to bear.  We restructured the Board and executive management, and maintained a financially disciplined cost base.  And we initiated a process of seeking potential new farm-in partner(s) to the opportunity.

Our employees have continued to work diligently, singularly focused on delivery of an exploration well as soon as possible, through realising all the enablers that will ensure this activity can be carried out safely and in a timely manner.  I thank them all for their efforts.


The outlook going forward has the Company progressing towards several clear targets, including a Bahamian listing and working on the Environmental Management Plan with continued engagement in the communities.  But the primary focus, on the back of the clear mandate for exploration drilling from the Government, is on successfully securing the financing needed to commence drilling activities, ideally in the form of a farm-out partner.

So, costs are under control and reducing, the technical case is continually revised and refreshed, discussions remain ongoing with various potential farm-in partners, and the sentiment towards the opportunity can only be significantly enhanced as Government continues to reveal and clarify their plans and support.

I look forward to brighter and successful days ahead.

Yours sincerely

 SP Signature

Simon Potter

Chief Executive Officer