BPC and Seadrill working to agree critical drilling plan dates for Bahamas well
- Exploration & Production
Bahamas Petroleum Company (BPC) has made progress toward drilling an initial exploration well in The Bahamas during 2020. The company is working on finalizing a long-form rig contract with Seadrill and preparing for drilling.
In an update on Thursday, BPC announced a proposed a £7 million (c. $8.5 million) open offer at a price of 2 pence per share to enable all existing shareholders to participate in the company’s next fundraising.
The company said it had developed a drilling schedule to target an initial exploration well in 1H 2020.
Following an announcement in August 2019 it had entered into a framework agreement with Seadrill, setting the terms for the potential use of Seadrill’s drilling rig for the first exploration well in the Bahamas in 2020, BPC said it had sent notice to Seadrill nominating rig delivery date (and expected well spud) for late 1Q 2020.
The framework agreement required BPC, on or before October 11, 2019, to notify Seadrill that it wishes to “Go-Firm”. Given the greater certainty and progress made in relation to funding, the company has thus now advised Seadrill that it wishes to “Go-Firm” on the provision of a drilling rig.
Accordingly, the company has notified Seadrill of its desire to secure a rig for an intended spud date in late 1Q 2020. Over the coming weeks the company and Seadrill will be working to finalize the rig contract, confirm the rig selection, and agree the critical drilling plan dates.
BPC noted that the governing document in relation to provision of the drill rig would be the rig contract, which remains to be entered into and is subject to Seadrill’s board approval process for contract commitment.
Simon Potter, Chief Executive Officer of Bahamas Petroleum Company, said: “I am pleased to advise shareholders of continued progress toward drilling an initial exploration well in The Bahamas during 2020. A farm-out remains our preferred funding option, and constructive discussions continue. At the same time, we are moving forward with additional components of a balanced funding strategy, so that we can deliver on drilling regardless of the outcome of these discussions. This includes giving our existing shareholders the first opportunity to participate in our next fundraising via an open offer.
“We have also signed the subscription agreement for our previously announced convertible note facility, and we have received a number of other funding proposals. Given the progress made in relation to our funding strategy, we have notified Seadrill of our desire to receive a rig in late 1Q 2020, and we are now working collaboratively with Seadrill on both finalizing the long-form rig contract and preparing for drilling.”
BPC expects to raise $20 million
The company has a clear and unambiguous obligation under its licenses to drill an initial exploration well in The Bahamas during 2020. Discharge of this obligation will then allow the company to enter the next exploration period, running for a further three years, and in the event of commerciality seek a 30 year production lease that would allow for a commercial development of any discovered reserves.
Over the last six months, the company has revised its drilling costs estimates to incorporate contracted pricing from service and equipment providers, and also to reflect a well design and drilling philosophy that will comply with the requirements of the company’s licenses whilst at the same time enable a full evaluation of the target structures. Accordingly, the company currently estimates a cost to meet its drilling objectives in the range of $20 million – $25 million.
The company currently has sufficient cash available to meet general working capital needs through to 2H 2020. Over and above these general working capital needs, it is necessary for the company to develop a degree of certainty as to the availability and timing of funding for drilling costs, primarily in order to enable the company to nominate, confirm and proceed to a definitive contract for the rig, and also to ensure other aspects required to start drilling, such as the procurement of long-lead items, provisioning and ancillary equipment, are available.
However, the bulk of the company’s expected cash outflows, and thus the company’s actual need for funding availability (outside of working capital), will generally only arise shortly before and during the course of drilling (thus late Q1 2020 and beyond).
It is in this context that that board has determined to proceed, in the first instance, with a proposed £7 million (approximately $8.5 million) open offer to existing shareholders at 2 pence per share with any entitlements not taken up by qualifying shareholders sought to be placed with investors.
At the same time, the company has entered into a subscription agreement for the previously announced and approved £10.25 million (approximately $12.5 million) conditional convertible loan facility.
In aggregate, therefore, the open offer and the conditional convertible notes would raise an aggregate amount of approximately $21 million, which exceeds the lower-end estimates for the total well-cost.
Still seeking partner
As previously announced, the company’s farm-out process continues, with a number of parties engaged in ongoing discussions, due diligence and/or commercial interaction. It remains the company’s preference to secure funding through this structure, albeit the company’s attitude to potential farm-in terms in ongoing negotiations will necessarily reflect the funding status of the initial well at the time a farm-out is successfully concluded (if at all).
To the extent that a farm-out is successfully concluded on terms acceptable to the company, the amount of capital available to the company would materially increase, and as previously noted could be materially additive to the funds raised through the open offer and conditional convertible notes.
Such funding could be applied towards all or a considerable portion of the costs in respect of the intended drilling, or alternatively proceeds from any farm-out could be applied to a broader work program than the current single well the company intends to drill in 2020.