Chief Executive Officer Review
2019 has been an exciting year for the Company thus far, there have been a number of significant developments taking place.
2019 In Overview
The first key development, in February 2019, was the Government of The Bahamas extending the second exploration period in respect of the Company’s licences to 31 December 2020, thereby clearly mandating that an initial exploration well must be executed within this timeframe. This extension provided the clarity and certainty needed to press ahead with a single-minded purpose: to do everything necessary to move forward toward drilling of a first exploration well in 2020.
As a first step, in March 2019 the Company successfully raised $2.5m in working capital through an institutional placing. This placing was designed to ensure the Company had adequate financial resource to continue the technical, environmental and operational work in support of well planning, and the commercial work in seeking to secure financing of the well.
In terms of technical work, the Company undertook four separate subsurface studies relevant to exploration well planning, in each case making use of expert third-party consultants. These studies have all produced positive results which, taken collectively, highlight the likely presence and quality of a world-class source rock and petroleum system located precisely in the BPC licence area, with charge and migration pathways evident to deliver hydrocarbons into the identified structures. The Company also believes that hydrocarbon indicators have now been established from the 3D data with the reservoir rock demonstrating a well-developed fault and fracture system that will significantly influence the final selection of an exploration well drill site, so as to provide the highest confidence of encountering hydrocarbons.
In terms of environmental work, in early 2019 the Company was notified of the engagement of Black & Veach to act for the Government in reviewing our Environmental Authorisation (“EA”) application (which was lodged in April 2018, and the issuance of which remains a prerequisite to commencing drilling under the new environmental regulations in The Bahamas). Since then the Company has been working collaboratively with The Government and its nominated advisers, with a view to finalising the EA process ahead of the Company’s intended drilling activity.
A considerable body of work has been undertaken necessary to assure the timely, safe and cost-effective delivery of a well in 2020. Notably, in August 2019 the Company announced (i) a framework agreement with Seadrill, a leading global offshore rig provider, for the provision of a 6th generation rig in 1H 2020, (ii) the appointment of Halliburton for the provision of integrated well services, and (iii) the appointment of BakerHughes GE for the provision of various well-related equipment. Seadrill, Halliburton and BakerHughes GE are global leaders in oilfield services provision, and we are extremely pleased to have been able to secure the involvement of these firms in our project. Over the coming months, we will be working hard to finalize long-form contracts with each of these parties, and working actively with these parties as we prepare for drilling operations. We have also begun to build out the Company’s professional team, so as to ensure that as we move toward drilling we have available to us the services of staff who are suitably experienced, and thus capable of delivering the well.
Commercially, the engagement of Seadrill, Halliburton and BakerHughes GE and the agreed rates established for the rig, equipment and ancillary well services in those engagements has allowed the Company to finalise its well costing estimates, such that we are currently estimating the cost of the initial exploration well will be in the range of $20m – $25m. This represents a substantial decrease on previous costs estimates, largely due to the competitive rate at which the rig will be provided, expected improvements in drilling Rate of Penetration (“ROP”) based upon the technical advances in drill bit technology, and the ability to source a rig out of the Gulf of Mexico resulting in lower estimated logistical and support costs.
With the benefit of key parameters having been established – namely, an unambiguous obligation to drill a well in 2020 and an estimated well cost of between $20m – $25m – the Company has been able to move forward with the all-important task of securing the funding necessary to support the intended drilling campaign. To date, the Company’s focus has been predominantly on securing funding via a farm-in agreement, and farm-in discussions are continuing. Multiple parties are currently engaged in reviewing the opportunity, and it remains the Company’s preference to secure all or part of the required well funding through this structure.
However, in the past 6 months or so the Company has sought to broaden its approach to seek other sources of potential finance, such that if a farm-in is not secured, or if the terms of any potential farm-in are not satisfactory, the company can nonetheless proceed to drilling. Thus at its AGM on 17 September the Company presented its shareholders a number of special resolutions (all of which were overwhelmingly passed) designed to provide the Board with the flexibility to enter into a range of possible funding arrangements, as and when required and if considered to be in the best interests of the Company. In this regard, of the various options available, the Company has thus far entered into a £10.25m ($12.5m) conditional convertible loan note agreement, which, subject to contract and being available for draw-down, would provide access to approximately half the funding required for the initial exploration well.
The Company also received shareholder approval for a temporary authority to issue up to 1,800,000,000 ordinary shares and in November the Company completed the following:
- Open Offer closed with c.50% take-up from existing shareholders raising gross proceeds of US$4.3 million through the issue of 166.4m ordinary shares at a price of 2p each.
- Successful Placing to raise additional gross proceeds of US$7.1 million through the further issue of 275,641,455 ordinary shares at a price of 2p each.
- Aggregate gross proceeds of US$11.4 million from Open Offer and Placing representing an oversubscription of 60% against announced targeted fundraise amount.
- As a result of the Open Offer, the Placing and the Conditional Convertible Note, the Company expects to see gross cash inflows of approximately US$24.6 prior to March 2020.
When considered in aggregate, the proceeds of the Open Offer, the Placing and the Conditional Convertible Note (assuming all conditions precedent to the Conditional Convertible Note are either satisfied or otherwise waived and the Conditional Convertible Notes are fully subscribed, and assuming further that interest is capitalised and all principal and capitalised interest is ultimately converted) would result in approximately 1 billion new Ordinary Shares being issued, and total funding inflows over the next six months of approximately £19.1 million (approximately US$24.6 million), with cash inflows matched to the timing of operational requirements. The Company’s present estimate of the total cost for the drilling of the initial exploration well is in the range of US$20 million to US$25 million.
2019 has proved to be a year of positive progress and developments for BPC, with a number of key milestones having been achieved. The extension of our licences in February 2019 has given us a renewed clarity of focus: we have an obligation to drill a well in 2020, and shareholder value will best be delivered by getting on with that task. To this end we have taken steps to secure the rig, oilfield services and equipment we need, with leading global suppliers. We have continued our programme of technical work in support of well planning, we are working collaboratively with Government to progress our EA in a timely manner, and we have commenced building out our team so that we have experienced people in place for the drilling campaign. Farm-in discussions continue, albeit with the benefit of a known financial objective (a well cost in the range of $20m – $25m) we are now actively working in pursuit of a simple goal: to put in place a suitable set of financial arrangements sufficient to fund the intended initial exploration well, whether that is via a farm-in on acceptable terms, or by other means, whichever is in the best interests of the Company and its shareholders.
Chief Executive Officer