By NEIL HARTNELL
Tribune Business Editor
Oil exploration opponents yesterday seized on Bahamas Petroleum Company's (BPC) latest corporate filing to argue their assertion that it lacked sufficient funding for its first well had been proven correct.
Environmental activists, who failed to persuade the Supreme Court to halt BPC's exploratory drilling despite being given permission to proceed with the Judicial Review challenge to the project's permits, told Tribune Business the company's latest disclosure shows it only possessed $32.5m in cash to cover the Perseverance One well's $35m costs when it mobilised the Stena IceMAX drill ship.
They jumped on a summary of BPC's post-August 2019 capital raising efforts, which said: "By the time of mobilisation of the Stena IceMAX, BPC had secured $32.5m in cash, ($2m of pre-existing cash and $30.5m in cash raised incrementally), and had issued approximately 1.26bn shares to secure that funding. This was against a clearly articulated anticipated Perseverance One well cost of up to $35m."
Casuarina McKinney-Lambert, the Bahamas Reef Environment Educational Foundation (BREEF) executive director, yesterday told this newspaper of BPC: "It appears, from their own filings, that BPC did not have adequate funding to complete the well at the time that they started drilling. This also leaves us concerned as to whether they have sufficient funding to address any unforeseen incidents.
"We have also been trying to understand the insurance coverages that they may have in place and whether they are sufficient to address clean-up and restoration in The Bahamas and neighbouring countries. The company also stated that they have 'tourism and fisheries covered' and we still do not understand what that statement means."
BPC's finances, and whether it has sufficient funding to complete the Perseverance One well in waters 90 miles west of Andros, is an issue that was raised in the Judicial Review challenge. Joe Darville, the Save the Bays executive chairman, alleged in an affidavit that financing - rather than the COVID-19 pandemic - was responsible for BPC delaying plans to start drilling in March/April 2020.
"It is very clear, upon a review of [BPC's] June financial statements, that BPC needed the [licence] extension for other reasons as it still lacked a joint venture partner at this stage," Mr Darville alleged.
"Not disclosed in the Environmental Impact Assessment (EIA) is the tenuous finances of the project proponent, BPC, which on September 28, 2020, reported losses over the first half of 2020 of nearly $2.2m with no operating revenues and 'cash of less than $13m as of June 30, 2020".
BPC's corporate filing yesterday showed that it had raised a collective $17.6m from shareholders and new investors between August 2019 and March 2020 which, when added to the $2m it had already available, provided it with a total $19.6m war chest to finance Perseverance One at the initial March/April drilling date.
While that is more than $15m short of the well's now-estimated $35m cost, BPC's filing said that at the time it had "access to approximately" the same amount from unnamed Bahamian family office investor who had already kicked-in $6.2m in return for 310m shares in the company.
This would have largely covered Perseverance One's costs in March/April had this become necessary. And BPC's corporate filing yesterday made clear it "had secured two further sources of capital potentially available to it" beyond the $35m in cash it already possessed by the time the Stena IceMAX was mobilised.
These two sources, worth up to a combined $35m, would have covered the well's costs and enable BPC to hit back at the activists' 'lack of financing' allegations. Simon Potter, BPC's chief executive, also refuted these charges in his December 11, 2020 affidavit, in which he described them as "false".
"The suggestion that the BPC decision to postpone the planned drilling operation in April 2020 was due to constraints on its financial resources is false," Mr Potter asserted. "BPC was and is able to fund all its activities as required.
"The company is one of the larger oil and gas companies publicly listed on the AIM (Alternative Investment Market) of the London Stock Exchange. As such, it has access to the capital markets and other possible sources of financing if and when required.
"The sole reason for the postponement of the drilling operation from April 2020 was the COVID-19 pandemic reaching The Bahamas and other countries relevant to the planned drilling operation, such as the United States."
BPC yesterday revealed that it it will incur an estimated $1.5m legal bill "in relation to defending environmental legal actions in The Bahamas". But, subsequent to Perseverance One's drilling start, it has received a further $19m in financing from an institutional investment fund managed by Lombard Odier Asset Management.
"From August 2019 to the date of this announcement,, BPC has secured a total cash funding of approximately $52m. In order to secure this funding, BPC has issued a total of approximately 1.9bn ordinary shares," the oil explorer said yesterday.
"This compares directly to the expectation in August 2019, which was that BPC would be required to issue 1.8bn shares to secure just the funding for Perseverance One, which at that time was estimated to be in the order of $30m."
BPC said it had potential access to a further $20m via the issuance of another 667m ordinary shares in the company, and added: "In aggregate, across the period and assuming the full realisation of all elements of the company's funding strategy, a total issuance of approximately 2.6bn new ordinary shares will have seen the company secure approximately $72m in funding....
"This amount of funding is sufficient to see not just the Perseverance No.1 well completed, but also essentially see the 2021 work programme in Trinidad and Tobago and Suriname completed, as well as having covered the total associated costs of operating the business in the period."
BPC has thus financed its activities in The Bahamas through the issuance of new shares to existing and new investors in return for their speculative investments. The company admitted that original shareholders' stakes have been diluted by more than was originally intended, which has caused some grumbling and dissent among BPC shareholders based on their message board postings.
However, BPC argued that its financing strategy has been more beneficial than the original goal of seeking a joint venture or 'farm in' partner, which would have resulted in it giving up a 75 percent stake in the Perseverance One well to another oil/energy group.
"A total of approximately 1.9bn shares have been issued, in stages under various funding arrangements described, to secure total funds of $52m. This compares to the expectation, in August 2019, of needing to issue 1.8bn to secure $30m to fund the well," BPC said.
"Therefore, whereas most commentators prior to mid-2019 were expecting BPC's ultimate interest in Perseverance One to be diluted by about 75 percent (for which the well would have been paid for, but beyond that BPC would have been a company with no other assets besides a non-operated 25 percent interest in the project in The Bahamas), and whereas in August 2019 the approval obtained from shareholders allowed for 50 percent overall dilution in the expectation of securing $30m, the end result has been a dilution of, on a like-for-like basis, 55 percent through which BPC has both fully-funded the well in The Bahamas (for which it retained 100 percent ownership and full control) as well as funded the overhead costs of the business in the period."
Mr Potter said in a statement: "In August 2019, BPC embarked on a bold strategy to self-fund the drilling of Perseverance One in The Bahamas, as well as to seek to complement that high-impact exploration activity with production and thus cash generative assets. We knew it would require capital to facilitate such a growth strategy, and, accordingly, we laid out a clear plan as to how we would secure that capital incrementally over time....
"We believe that the delivery of our funding package, and thus the portfolio-wide work programme it supports, represents a considerable achievement when considered in the context of depressed equity markets (particularly in the energy sector), oil price weakness and the material cost, timing and operational challenges caused by both COVID-19 and the last-minute - but ultimately unsuccessful - legal challenge to BPC's drilling operations in The Bahamas."