Bahamas Petroleum Company, the oil and gas exploration company with significant prospective resources in licences in The Commonwealth of The Bahamas, wishes to provide the following update in relation to the timing for the drilling of Perseverance #1, its first exploration well in The Bahamas.
· As a result of the rapidly unfolding impact Covid-19 is having on operations, the commencement of drilling is now anticipated to be in late May/early June 2020 (vs prior estimate of April 2020)
· Notwithstanding the recent decline in oil prices, farm-in discussions in the context of the Company's overall funding strategy continue to advance
Timeline to Drilling
The Company's primary objective, as a prudent operator, is to ensure the safe and responsible drilling of Perseverance #1, on budget, and in fulfilment of the Company's licence obligation to the Government of The Bahamas, which is an initial exploration well in 2020.
The Company considers that safe, responsible and cost-effective drilling can best be delivered by ensuring continuous operations throughout the entire period of the drill plan. For this to occur, the Company, its major contractors, and all relevant staff and personnel must be operationally ready, with all necessary equipment available, all provisioning organised and a logistical plan completed, such that all aspects of operations can be safely executed uninterrupted throughout the duration of intended drilling activities.
The Company's well planning to-date has thus involved putting in place arrangements for reliable access to the range of globally-sourced equipment, goods, services and personnel required to execute the designed well, continuously for the 45 to 60 day critical period of anticipated drilling activity. For this reason the Company has also sought to plan for drilling to occur outside of the peak risk period for hurricanes in The Bahamas (being August to October), given that any unexpected downtime during operations introduces additional commercial risk, as from the Company's perspective downtime periods have to be paid for at essentially the same day rate as normal drilling operations. Any such downtime periods would therefore materially impact the overall cost of operations, and consequential business loss insurance is not available to cover such scenarios.
As shareholders will be aware, in recent weeks there has been a material adverse change in the global operating environment, characterised by the rapid spread of the Covid-19 virus and the extraordinary, unprecedented worldwide response to this issue. This in turn is creating disruptions to global supply chains (especially for goods and services emanating from Asia), limiting free movement for some project essential supplies, and creating onerous restrictions on travel for the movement and mobility of key project personnel, staff and contractors. As relates to the Company, this in particular includes:
(i) creating challenges in terms of determining a mobilisation window for a rig where continuity of operations throughout a 45 to 60 day drilling campaign can be assured;
(ii) impacting on the ability to plan for free movement of mission critical personnel to and from the drilling rig during operations, and indeed more broadly, impacting on the ability to finalise selection of an appropriate drilling rig to be available at the right time in the place required; and
(iii) necessitating a review of the integrity and availability of required equipment, goods and services, and consideration of any potential impacts to pricing and quality.
Moreover, according to most global commentators, it now appears likely that this high level of operating uncertainty will continue to prevail for at least the next 8-10 weeks, which unfortunately runs right through the Company's currently scheduled drilling window, thereby introducing a risk to the Company's ability to operate continuously, responsibly, and within currently established guidelines, timelines and, as a consequence, budgets.
At the time of the Company's AGM in September 2019, the Company indicated it was on course to commence drilling in H1 2020. The Board and management remain committed to delivering commencement of drilling within this timeframe along with thereafter uninterrupted drilling operations for 45 to 60 days. On this basis, spudding the well in the second half of May 2020 (and certainly no later than early June 2020), as opposed to previous estimates of April 2020 is now the Company objective. This revised target has the advantage of avoiding any expected peak in the Covid-19 response, whilst at the same time enabling operations to be completed before the peak risk period for hurricanes in The Bahamas.
However, to the extent the current adverse circumstances in the global operating environment persist, resulting in continued deferral of commencement of operations until after early June 2020, the next practical window to prudently commence operations (i.e., post the peak risk period of the Hurricane season) would be from mid-October 2020 onwards. The Company stresses that this is not the Company's planning objective, but the Company is seeking to develop a prudent "back-up" plan on this basis, so that in any credible scenario the Company can realistically meet its primary licence obligation - i.e., an initial exploration well in 2020.
As shareholders will appreciate, the current circumstances occasioned by the Covid-19 response are unprecedented, highly fluid, unpredictable, and of a global nature. The Company is actively monitoring the situation and its potential impact on an ongoing basis, in an effort to assimilate all relevant information and formulate a prudent, effective response as efficiently as possible. The Company will advise shareholders of any material developments as pertain to the Company and its planned operations, as and when appropriate.
Impact on Funding Strategy and Farm-in Process
The Company has previously provided guidance as to the estimated cost of drilling operations for the Perseverance #1 well, in the range of $25 million to $30 million, and with potential contingencies identified that, depending on real-time drilling results, could add up to an extra $5 million of cost.
The Company does not presently anticipate this cost estimate will change as a result of the rescheduled commencement of operations, given that, to-date, considerable effort has been made to minimise up-front commitment of capital to anything other than essential long-lead items, with expenditure focused on bits, casing and wellheads - all items that are essential to the Company's operation whenever it occurs, and which items may be temporarily stored and kept ready for immediate deployment as and when required, thus considerably reducing the project critical path once operations get underway.
Since 2019, the Company has been seeking to implement a coordinated and principled capital strategy based on ensuring funding needed for the drilling of Perseverance #1 is available as and when required, minimising resulting shareholder dilution, seeking capital that enhances strategic capability, and creating maximum flexibility whilst avoiding reliance on any one source of capital. This funding strategy (which has been more fully described in prior announcements by the Company) is unaffected by the change in project timing. As announced on 9 March 2020, the Company has been able to reach agreement with the subscribers to the Conditional Convertible Notes agreement to defer the date for satisfaction of conditions precedent to 15 April 2020, albeit access to these funds remain conditional on satisfaction of the noted conditions precedent.
At the same time, the Company has also continued its efforts to seek a farm-in or similar transaction as part of its overall risk mitigation and funding strategy, and has maintained an active dialogue with a number of interested parties, including a number of oil and gas majors and supermajors. No assurance can be provided that a farm-in or other funding transaction will be concluded, but to the extent that a farm-in or other funding transaction is successfully concluded on terms acceptable to the Company, the amount of capital available to the Company when drilling operations commence could materially increase, and would be additive to, existing funding sources.
Bahamas Fund Timing Update:
Further to the Company's announcement, on 20 February 2020, regarding the allotment of shares to the BPC Investment Fund Ltd (the "Fund"), in order to allow for additional time required for the Fund to complete the necessary administrative processes, admission to trading on AIM of the subscription shares is now expected to take place on or around 14 April 2020.
Simon Potter, Chief Executive Officer of Bahamas Petroleum Company, said:
"We have made consistent progress toward drilling of the Company's 100% owned and operated Perseverance #1 well, targeting recoverable prospective resources of 0.7 - 1.4 billion barrels of oil. As a prudent operator our primary objective is a safe well, best delivered by the ability to drill uninterrupted by external events for the period of the drill plan. Such a continuous operation is also the most cost effective. It is in this context that we have had to reassess the timing for commencement of drilling given the widespread disruption being caused by the global response to the Covid-19 virus. Whilst incredibly frustrating given all the hard work undertaken to get to the current state of drill-readiness, the responsible thing to do is to slightly reschedule commencement of operations, to later in 2Q 2020, to a time when continuous delivery of operations can be better assured whilst also still enabling operations to be completed before the peak risk period of the Bahamian hurricane season. Pleasingly, farm-out discussions in the context of our overall funding strategy continue to advance. We will update shareholders as appropriate over the coming weeks."