BPC Raised £9.5 million Placing

Source: www.gulfoilandgas.com 10/1/2020, Location: South America

Highlights:
- Successful Placing to institutional investors to raise gross proceeds of £9.5 million ($12 million) through the issue of 475,000,000 new ordinary shares at a price of 2p each
- Placing proceeds enhance the Company's overall funding capacity, including in particular for the anticipated costs of the Company's 100% owned and operated Perseverance #1 well, expected to spud prior to the end of 2020, targeting a recoverable P50 prospective resource of 0.77 billion barrels of oil
- The rational for this Placing, in the lead up to drilling of Perseverance #1, is the continuing drive to optimise BPC's funding strategy, so, as previously announced, to achieve lower cost of capital / less aggregate dilution / greater certainty
- Based upon the proceeds from this Placing in combination with the Company's existing cash balance and the amount available from the existing Conditional Convertible Notes, and assuming no change to the anticipated cost of Perseverance #1, the Company now does not expect to have to draw further on the previously announced £16 million zero-coupon, second ranking convertible bond facility

Simon Potter, Chief Executive Officer, commented:
" Since mid-2019 we have been diligently implementing a funding strategy designed to ensure we have access to the funds we need, as and when we need them, such that we can efficiently discharge our licence obligation and the technical objectives for the Perseverance #1 well.

Today's placing is another milestone in the implementation of that funding strategy. The placing proceeds, being certain, immediately available and at a known dilution compared to other existing funding options, give us the opportunity to simplify the capital structure of the business whilst leaving us in a much stronger overall financial position. With the success of the placing we are also able to materially reduce the need to rely on other previously announced financing instruments, without affecting our overall ability to proceed with Perseverance #1 or other aspects of our recently enlarged business.

At the same time, with a view to continually seeking to strategically enhance the overall financial and operating capacity of the Company, we continue to consider a wide range of other funding options. Many of these are newly available to us consequent on the broadening of our asset base in recent months.

I look forward to advising shareholders of our progress in this regard - the next few months will continue to be both a busy and exciting time for our Company. "

Overview:
BPC, the Caribbean and Atlantic margin focused oil and gas company, with exploration, production, appraisal and development assets across the region , is pleased to announce that it has raised £9.5 million ($12 million) before expenses through a firm placing of 475,000,000 new ordinary shares of 0.002p each ("Ordinary Shares") (the "Placing Shares") at a price of 2.0 pence each (the "Placing"). The Placing was undertaken via an accelerated book-build process. The Placing Shares were placed to a range of institutional investors.

Related Party Transaction:
Simon Potter and certain non-board management have agreed to subscribe for, in aggregate, 15,503,875 Placing Shares, representing a $400,000 investment in the Company. The investment accounts for approximately 3.3 per cent. of the gross proceeds of the Placing. Simon Potter's participation in the Placing, amounting to 7,751,938 Placing Shares, is deemed a related party transaction pursuant to the AIM Rules for Companies, by virtue of his status as a director of the Company. The independent directors (being those directors other than Simon Potter) consider, having consulted with the Company's nominated adviser, Strand Hanson Limited, the terms of Simon's participation in the Placing to be fair and reasonable insofar as shareholders are concerned.

Placing Rationale:
The Board considered that it would be prudent to undertake the Placing at this time, given the desire to achieve greater immediate certainty as to the Company's ability to meet the anticipated costs of upcoming activities across BPC's portfolio of assets in The Bahamas, Trinidad and Tobago, Suriname and Uruguay.

In particular, BPC is focused on the immediate funding needs for the Perseverance #1 well, expected to spud prior to the end of 2020 in The Bahamas. The Company is continually seeking to simplify the capital structure of the business whilst pursuing funding alternatives that represent a lower cost of capital / less aggregate dilution / greater certainty than facilities currently in place .

Based on the current estimated cost of Perseverance #1, the Placing proceeds will now allow BPC to reduce reliance on previously announced convertible note financing instruments, and in particular afford the ability to not draw further on the previously announced £16 million (approximately $21 million) second ranking, variable conversion price convertible bond facility with a Bahamas-based family office (the "Zero-coupon Facility").

The Board notes that as compared to previously announced convertible note financing instruments, the Placing proceeds are certain and represent a known level of dilution (with reference to the Zero-coupon Facility) , and will be immediately available. The Board considers that in the current market environment, this represents a better outcome for shareholders as compared to reliance on the Zero-coupon Facility , which remains to be drawn, and given the variable conversion price mechanism introduces a degree of uncertainty as to the ultimate extent of dilution should the facility be drawn.

The net proceeds raised from the Placing will be directed by the Company to meeting the Company's ongoing funding needs, and in particular the drilling of the Perseverance #1 well.

Funding Strategy Update:
In the Board's view, the Placing should be considered in the broader context of the coordinated strategy adopted by the Company since September 2019 toward securing the funding required for the drilling of an initial exploration well - Perseverance #1 - in The Bahamas, with drilling now expected to commence before the end of 2020. More recently, this funding strategy has been expanded to include the program of work being planned through 2021 across BPC's expanded portfolio of assets in Trinidad and Tobago, Suriname, and Uruguay.

The elements of this funding strategy, as enacted to-date, are:
1. Approval by the shareholders of the Company, in September 2019 (and reapproved in August 2020), of an enlarged share placement capacity of up to 1.8 billion new ordinary shares, so as to provide the Company with maximum flexibility in the process of securing funding for planned activities;

2. An open offer to the then existing shareholders, in October 2019, which raised gross proceeds of approximately US$4.3 million through the issue of 166.4m new ordinary shares at a price of 2p each;

3. A successful institutional placing, in November 2019, to raise additional gross proceeds of US$7.1 million through the issue of 275.6 million new ordinary shares at a price of 2p each;

4. A Conditional Convertible Note Subscription Agreement, entered into by the Company on 10 October 2019 (and as more particularly described in the Company's announcement of that date and subsequently in the Company's Open Offer Circular as sent to all shareholders in October 2019 - the "Conditional Convertible Note"), whereby, subject to satisfaction of certain conditions precedent, the Company expects to be able to draw down on this funding prior to drilling of Perseverance #1 and raise an additional £10.25 million ( c.US$13.3 million). This convertible note funding instrument has a fixed conversion price of 2.5p per share, such that if fully drawn, and if all interest were accrued and the principal and interest fully converted into shares, a total of approximately 590 million new ordinary shares would be issued;

5. The Zero-coupon Facility, entered into on 19 February 2020, under which the Company initially drew £4.7 million, and under which approximately £11.3 million remains available for draw-down in instalments in November and December 2020 and January and February 2021. This convertible note funding instrument has a floating conversion price linked to the market value of the Company's shares, such that it is not possible to know in advance the level of dilution that would occur if the remainder of this facility was drawn in full. It is for this reason that the Company wishes to remove its need to rely on this facility.

In addition, the Company has sponsored the creation of a Bahamian domiciled mutual fund, with the primary objective of creating a vehicle through which qualified Bahamian investors could invest in the Company. Whilst not a core element of the Company's funding strategy, initial subscriptions to this fund successfully raised gross proceeds (in Bahamian dollars) equivalent to US$0.9 million through the issue of 35.3 million new ordinary shares at a price of 2p each.

Based on the anticipated cost of Perseverance #1, of between $21 million and $25 million, with an allowance for up to a further $5 million in contingencies, the combined amount of the Company's existing cash balance, the net Placing proceeds, and the Conditional Convertible Notes would result in the Company not having a need to further draw on the Zero-coupon Facility.

As previously advised, a core element of the Company's overall funding strategy is to seek to optimize existing funding sources in the run-up to drilling, with a view to securing funding that is cheaper, more certain, and/or less dilutive. The Placing should be viewed as a successful step in executing on this strategy. In this context the Company also notes that it is continuing to work on developing a range of other financing alternatives as part of its overall funding and risk mitigation strategy. A number of these alternatives are new, arising out of the Company's recently expanded operating asset base.

This includes:
(i) Surplus cash-flows from operations: The Company has indicated publicly that it's goal is to increase production across its asset base from current levels (approximately 400 - 450 bopd) to 2,500 bopd by the end of 2021. As production increases through 2021, and depending on the prevailing oil price, the Company would expect to see cashflows increasing accordingly, with the Company seeking to be in a position, by end of 2021, to be generating sufficient cash flows to cover all overhead and operating expenses, and with surplus free cash flow potentially making a considerable contribution to ongoing capital and exploration expenditures.

(ii) Farm-out options or similar transactions: For several years, the Company has been engaged in a process to secure all or part of the financing required to undertake drilling in The Bahamas via a "farm-in", whereby another entity (ideally, but not necessarily, a major or large independent international oil and gas company) will acquire an interest in the project, and in exchange will pay for all or a substantial part of the cost of drilling, and also potentially reimburse the Company a proportion of the past costs incurred by the Company on the project in the past. This is a fairly typical structure for financing in the oil and gas industry. A considerable number of suitable partners have engaged with the Company on the farm-in process, including undertaking technical and commercial due diligence and entering into negotiations, and some of these discussions remain ongoing.

(iii) Reserve-based lending facilities: The Company has indicated publicly that it is seeking to undertake a portfolio wide Competent Persons' Review (CPR), with a goal of 1 mmbbl of certified 2P reserves (net) by the end of 2020, and 10 mmbbl of certified 2P reserves (net) by the end of 2021. Certified 2P reserves are a readily monetisable asset, and the Company has commenced discussion with several providers of financing facilities that advance funding against the assessed value of 2P reserves ("reserve-based lending facilities", or "RBLs". Based on the level of targeted 2P reserves and typical RBL lending arrangements (including those currently under evaluation), access to in the order of $20m of capital is considered by the Company to be a realistic goal.

(iv) "Drill for equity" type arrangements: Another common financing structure in the oil and gas industry is a "drill for equity" type arrangement, whereby major service providers commute part of their fees into an ownership interest in the underlying project. Several such options may be available to the Company. For example, as previously announced, in the contract for the provision of a drilling rig with Stena Drilling, BPC granted several investment options to Stena Drilling such that, prior to 1 December 2020, Stena Drilling has the right (but not the obligation, and there can be no assurance that Stena Drilling will exercise the right, all or in part) to (i) subscribe for up to $10 million of new equity in BPC on the same terms and conditions as would apply in any BPC capital raising, or (ii) farm-in to the BPC southern licences on the basis of $10 million for a 10% non-operated working interest. If Stena Drilling were to seek to take up either of these investment options, the consideration could be satisfied either in cash or by way of offset against amounts payable by BPC under the Rig Contact. Similar "drill for equity" type arrangements may be possible in respect of drilling operations elsewhere in the BPC portfolio.

To the extent that any one or a combination of the above funding alternatives are successfully concluded on terms acceptable to the Company, the amount of capital available to the Company would likely materially increase, and would be additive to existing funding sources. Such funding could be applied towards eliminating reliance on convertible note funding instruments entirely, and/or expanding/extending the current work programme, or alternatively proceeds could be applied to a much broader work programme across the Company's asset base.

Placing Summary:
The Placing has raised, in aggregate, £9.5 million ( $12 million ) before expenses through the placing of, in aggregate 475,000,000 new Ordinary Shares at a price of 2.0p per share (the "Placing"). The Placing Shares to be issued will rank pari passu in all respects with the Company's existing Ordinary Shares and will represent approximately 12 per cent. of the Company's enlarged issued ordinary share capital, following Admission of the Placing Shares. Approximately 18.7 million unlisted warrants to subscribe for new Ordinary Shares at the Placing Price per share for a period of 24 months are to be issued to the Company's advisers as part compensation for services provided under the Placing.

Application will be made for the 475,000,000 Placing 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 the Placing Shares will commence from 8:00am on 8 October 2020 ("Admission").

Total Voting Rights:
Following Admission, the Company's issued share capital will consist of 3,894,807,846 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 3,894,807,846 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.

Working Capital:
The directors consider that the net proceeds of the Placing together with the Company's existing financial resources will provide sufficient working capital for its currently anticipated requirements for at least the next 12 months.

In circumstances where the convertible loan note financing instruments are not available (for example, where the conditions precedent set out in the subscription agreement for the Conditional Convertible Notes are not satisfied (or waived by the subscribers)), the Company may not have sufficient cash to complete the drilling of the Perseverance #1 well, which, in turn, puts the Company at risk of not meeting its licence obligations. In such circumstances the Company would look to secure funding by way of alternative sources. There can be no assurance, however, that the Company would be successful in securing any such alternative funding. Excluding any costs relating to the Perseverance #1 well, the Company currently has sufficient cash available to meet general working capital needs for at least the next 12 months .


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