Commercial and Regulatory Update

RNS Number : 9425E

Bahamas Petroleum Company PLC

16 February 2015

 

16 February 2015

Bahamas Petroleum Company plc

("Bahamas Petroleum" or the "Company")

Commercial and Regulatory Update

Bahamas Petroleum Company, the oil and gas exploration company with licences in The Commonwealth of The Bahamas is pleased to provide the following market update.

Highlights

·     New Bahamian Petroleum Act legislative package introduced to the Bahamian Parliament's House of Assembly which is expected to have its second and third readings, and become law, in near future

·     Fluid inclusion analysis on three historical wells drilled in The Bahamas demonstrates presence of an active petroleum system in vicinity of sizeable 3D defined structures targeted for drilling within the Company's acreage

·     Company's first exploration well re-engineered, which with greatly reduced rig rates has reduced anticipated exploration well costs substantially, such that the Company is now targeting a total cost in the range of  US$50 million - US$60 million for this well

·     Updated economic studies indicate a minimum field size for economic development of less than 200 million barrels (versus current resource estimates measured in billions of barrels), and robust profitability even in the current oil price environment

·     2014 year-end cash reserves in excess of US$10 million, annualised G&A reduced significantly, management reviewing further cost reductions

Petroleum Legislation & Regulations

In December 2014, the Company advised that a new Petroleum Act and a suite of associated regulations to guide and govern oil exploration in The Bahamas had been placed before the Bahamian Parliament's House of Assembly. A second reading is anticipated in the coming weeks, followed by a consultation phase and third reading, and subsequent passage via the Senate into law. The Company therefore anticipates that the legislative package will be promulgated in the near future, a milestone event that will reinforce responsible and safe hydrocarbon exploration as an integral part of the National Energy Policy of The Bahamas.

A copy of the proposed Acts and associated regulations can be viewed on the Company's website www.bpcplc.com and for further information visit the Government's website: www.government.bahamas.bs.

Drilling Program & Operations

The Company remains singularly focussed on commencing drilling activities for its first exploration well as soon as possible and in line with its licence obligations. In anticipation of the new Petroleum Act becoming law, the Company is in discussion with the Government on what constitutes an operationally realistic, safe and responsible planning period for such a well and subsequent commencement of operations. In support of this objective, the Company has now completed important work focussed on further technical de-risking of the project and preparation for the intended drilling campaign, as follows:

(i)         Geochemistry analysis: In the second half of 2014 the Company commissioned a series of fluid inclusion analyses from Fluid Inclusion Technologies Inc., on retained core and cuttings in the Company's possession from three historical wells drilled in The Bahamas that offset the Company's acreage. All three wells demonstrated the presence of oil migration with a signature suggestive of light oil across multiple horizons. The results indicate an active, local oil generative source rock capable of generating large hydrocarbon volumes. The data further suggests the likely presence of multiple source rocks based upon API gravity variations within the inclusions. This work provides further technical support for the presence of an active petroleum charge system across sizeable 3D defined structures in the region, and more specifically, in the locality of the Company's intended drilling activity;

(ii)        Anticipated well costs: The Company has completed a program of work to substantially re-engineer its planned first exploration well. This work was based on 3D seismic data, an optimised drilling location, comparison of historic drilling performance in The Bahamas and for similar wells elsewhere so as to establish 'technical limits', and work conducted jointly with third party companies to embed modern technologies in the well equipment design so as to maximise rate of penetration (ROP). Further, during 2014 the Company also engaged a leading Rig Broker to reconsider rig options, in view of globally falling rig rates and increased availability. As a combined result of these initiatives, third party reviews and market information, the Company is pleased to advise that the anticipated cost of its initial exploration well (inclusive of appropriate contingencies and ensuring appropriate safety and environmental procedures) is now substantially reduced when compared to previous estimates. Thus the Company is targeting a total cost for this initial well in the range of US$50 million - US$60 million; and

(iii)       The Company has also updated its economic models, to reflect revised current global oil prices, reduced well costing estimates as noted above, all up-to-date technical data, and other relevant factors to an eventual field development, such as the project's proximity to existing infrastructure, contractors and service suppliers etc. Based on this work, the Company believes that the minimum field size for an economic development is less than 200 million barrels (versus current resource estimates measured in billions of barrels), and that the project would thus offer robust profitability even in the current (comparatively lower) oil price environment.

Financial

As at 31 December 2014, the Company had cash reserves in excess of US$10 million and no debt. Over the past 3 years the Company has taken a number of actions to reduce corporate overheads. Most recently this has included the Board's agreement to forgo 20% of remuneration to only be repaid, in shares, in the event of a successful farm-out or other arrangement sufficient to finance the first exploration well. These actions have resulted in a total operating cost savings of 54% in aggregate over the past 3 years (an average annual reduction of 22% on a year on year basis). Consequently, the Company considers that ongoing costs can be met from existing cash reserves for several years. Management continues to maintain a strict focus on costs with a view to further reductions where possible.

Simon Potter, Chief Executive Officer of Bahamas Petroleum Company, said:

"As we start 2015 we are more excited than ever about the future for the Company.

"The new legislation, tabled before the end of last year, is being given the priority attention such an important Bill for the country deserves, and thus there is high expectation it will become law in the near future, demonstrating the Government's continuing commitment to petroleum exploration in The Bahamas. Importantly, we believe the new law will provide the regulatory certainty that industry participants typically require before commencing new country operations. 

"Technical work through 2014 has continued to highlight the world-class potential of our acreage: present estimates are for field sizes consistent with those measured in the previous Company CPR, at a comparatively low break-even cost, thus providing huge competitive advantage in a world of lower oil prices.

"We have carefully managed our existing cash resources, and have been able to significantly reduce the expected cost of our first exploration well, whilst retaining technical, environmental and safety integrity. This means that the risk/reward proposition of financing an exploration well with exposure to so much upside is, I believe, unparalleled.

"All of these factors give confidence that during 2015 we will be able to secure the funding needed to pursue the enormous opportunity before us, in a manner that is value-enhancing for our shareholders."  

- Ends -

For further information, please contact:

Bahamas Petroleum Company plc Simon Potter, Chief Executive Officer	Tel: [phone]
Strand Hanson Limited - Nomad Rory Murphy / James Spinney	Tel: [phone]
CAMARCO Billy Clegg / Georgia Mann	Tel: [phone]

Notes to editors:

Bahamas Petroleum Company is an oil and gas exploration company with 100% owned offshore licences exclusively focused on the Commonwealth of The Bahamas. The Company is intent on delivering safe and environmentally responsible exploration.

www.bpcplc.com

 

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