Proposed Merger FAQ’s
BPC & Columbus Merger: Answering Shareholder Questions
Why move from a single asset strategy to a portfolio strategy?
Even before the current global pandemic, the international hydrocarbons industry was and remains in a state of flux. Pure-play exploration with “huge” potential resources in frontier basins remains extremely exciting, but it is matched by a higher risk profile.
A portfolio approach offers many advantages, where individual asset risks can be naturally offset against each other as they emerge. Such portfolio attributes might include:
- Of varying maturity within the life cycle; number (more is better); onshore / offshore
- Of geography; of jurisdiction; of play-type
- Of investment timing; of resources; of people and skills; leadership
- Breadth, scale or critical mass
The international hydrocarbons industry has many euphemisms or ‘code words’ for the benefits of a having a diverse portfolio of assets at differing stages of maturity, such as the ability to “fill the hopper”, or keeping the “conveyor belt” running. The benefit being the ability to offset one outcome against another, which affords a greater ability to stick to an overall/aggregate plan of delivery, and therefore enhancing shareholder returns over the longer term.
The advantages of a portfolio strategy – scale, diversity, range and control – are, in BPC’s view, important ingredients to ensure a company survives and thrives in the changing industry landscape. A combination of BPC and Columbus greatly enhances the company’s ability to deliver outcomes with a level of assurance.
Why merge with Columbus?
BPC has a drill-ready project in The Bahamas and has recently been awarded a licence offshore Uruguay. The merger with Columbus will create a portfolio of complementary assets in multiple jurisdictions and at various stages of maturity, which BPC believes will allow risk to be spread across the diversified portfolio, enhancing shareholder value over time.
Specifically, the portfolio will include:
- production income in Trinidad – which can be grown organically through enhanced recovery techniques,
- near-term, low-cost appraisal prospects in both Trinidad and Suriname – of new discoveries or existing fields at a number of differing locations, and
- potential high-impact, high-value exploration activities – a near-term value catalyst from drilling in The Bahamas, and in the longer-term, in Uruguay.
Why has BPC done this now? Why not wait till after drilling Perseverance #1?
The industry and world are in unprecedented and entirely unpredictable times, which has resulted in significant demand reduction driving a collapse in oil prices. As a result, opportunities previously out of reach have suddenly became attainable; opportunities that were not there as recently as 6 months ago, and may very well not be there again in the future.
In BPC’s case, present circumstances have created a compelling opportunity to integrate, under BPC management control, a broad range of asset types and maturities, in complementary geographies, with compelling value upside for the future, at a price and on terms considered attractive by BPC. It is also an opportunity to create a company with a sizeable market capitalisation and a strong balance sheet, which BPC believes will afford a number of benefits, and be more attractive to institutional / longer term capital sources.
How does the merger with Columbus impact on the drilling of Perseverance #1?
It doesn’t. The same Perseverance #1 drill plan that existed a month ago exists today. The well remains the absolute priority of BPC’s management and drilling team and is on track to be drilled end 2020 / early 2021 – the earliest opportunity after the 2020 hurricane season abates.
- A rig is unconditionally contracted
- Service companies are engaged
- Long-lead / critical path items are purchased and warehoused
- A high-quality drilling team has been assembled
- Environmental Authorisation has been received
- Funding strategy in place
As far as Perseverance #1 is concerned – and as far as BPC management focus is concerned – nothing has changed.
Will Columbus’ assets divert cash from drilling in The Bahamas?
BPC has a clearly defined funding strategy in place, with a number of funding sources established, and with the objective being to ensure that the funding required for Perseverance #1 is available as and when required.
As such, the Board of BPC created very clear ‘rules of engagement’ for management in developing the proposed merger with Columbus. Fundamental was that the merger should in no way place a material call on BPC’s existing cash resources ear-marked for Perseverance #1.
As detailed in the Rule 2.7 RNS, the merger has been structured as an all-share merger. The majority of the costs and settlements consequent to the transaction are being paid in equity, not cash. This includes refinancing Columbus’ existing finance facility, which will be paid out in equity as part of the transaction – thus achieving the double aim of not consuming cash as well as placing the merged entity into a debt-free position.
Operationally, Columbus’ producing assets in Trinidad are generating revenue which BPC believe can be further enhanced by applying technical expertise and experience in order to achieve production growth. That revenue will also increase to the extent oil prices rise. Outwith production, the timing and pace of any exploration, appraisal and development activities across the Columbus portfolio are largely discretionary – meaning that BPC can decide when, how and to what extent it deploys capital.
Finally, BPC believes that the combination with Columbus will significantly improve the combined entity’s access to capital.
How did you value the transaction? Does it undervalue BPC?
BPC believes that it has secured the Columbus assets for an attractive price. It is well established in the international hydrocarbons industry that mature assets operated efficiently can contain considerable value. BPC believes that the Columbus portfolio holds material incremental production upside from operations optimisation and enhancements, as well as further development and exploration upside across the portfolio, which can be realisable in a relatively short timeframe.
BPC has a management team with extensive experience and a substantial track record of delivery in just such a mature oilfield, late stage development industry context.
Will there be any management changes?
BPC Executive management and Trinidad in-country management to remain in place and Columbus’ Executive Chairman will join BPC’s board as NED.
Will shareholders have a say on this transaction?
The transaction will be put to the BPC shareholders at an EGM to be called for the second half of July.
What are the important dates?
The Rule 2.7 RNS was released on 11th June. BPC and Columbus shareholders will have the opportunity to vote on the transaction at separate meetings in the second half of July and, following a positive vote and a court hearing, the transaction would close in the first half of August.
The transaction is unanimously recommended by both boards and the BPC board has received irrevocable undertaking and letter of intent to vote in favour of the transaction from shareholders representing 19.3% of the Columbus shares on issue.
The Columbus exploration portfolios in the South West Peninsula offers considerable potential, will you look to mature that resource?
Yes. BPC believes that the exploration portfolios in the South West Peninsula of Trinidad and in Suriname contain considerable potential These exploration assets are proximate to existing infrastructure and in addition, with the staff and expertise already existing in-country, the cycle-time from discovery to production is very short, especially when compared to offshore. Successful exploration, like the new Saffron discovery, can thus be monetised almost immediately – indeed, barrels produced from flowing/testing of the Saffron well were sold for cash.