The Tribune

• $3m cash to meet $22m payables/liabilities

• $15m recapitalise to stay ‘going concern’

‘• Engaging’ Davis Gov’t on licence renew

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The oil explorer seeking to renew four drilling licences in Bahamian waters yesterday admitted it is in “a stressed financial position” with outstanding bills exceeding its cash resources by $19m.

Eytan Uliel, the former Bahamas Petroleum Company’s chief executive, told shareholders of the renamed Challenger Energy Group that the company must urgently “pursue a creditor restructuring and recapitalisation plan” otherwise there was a risk it may be unable to continue as “a going concern”.

In a message that coincided with the unveiling of Challenger’s 2021 first half results, Mr Uliel said the six months to end-June had “not produced the positive, value-creating outcome hoped for” - partly as a result of its Perseverance One well failing to uncover commercial quantities of oil in Bahamian waters some 90 miles west of Andros.

He added that the $10m cost overruns on its Bahamas exploratory well, which took the total price tag to $45m, were a key factor behind Challenger’s increasingly strained financial position. And the $12m in unpaid bills, or payables, owed to various suppliers and vendors on Perseverance One account for 54.5 percent or the majority of the oil explorer’s $22m liabilities.

These liabilities, or payables, dwarf Challenger’s $3m in remaining cash resources that are being depleted at the rate of $200,000 per month to cover overhead costs while its Trinidad-based exploration activities are currently “cash flow break even” and will not be positive until 2022.

The oil exploration outfit’s presently troubled financial position will raise questions as to whether it has the financial wherewithal to pay for four new Bahamas exploration licences, and fulfill any terms and conditions that may be imposed, plus whether the Government should even be entertaining negotiations with it until the talked-about restructuring takes place.

However, the Davis administration while in Opposition indicated it would take a more sympathetic approach to oil exploration in Bahamian waters so long as it met the necessary health and environmental safeguards. And Mr Uliel yesterday revealed Challenger was already “engaging with the new administration” on the process for its licence renewal.

He also hit out at Bahamian environmental activists for worsening Challenger’s financial woes via their Supreme Court legal challenge earlier this year that sought to block Perseverance One’s drilling, going so far as to accuse them of “harassment” via the press and social media in a bid to damage its corporate reputation.

“Well operations were also successfully carried out despite attempts by environmental activists to derail the company’s Government-approved operations - both through the Bahamian court system (a process which ultimately did not succeed) - and through concerted efforts to undermine the reputation of the company and its staff by harassment of itself, service providers and the public in the press, on social media and various other means,” Mr Uliel wrote.

“Overall, whilst these attempts failed to halt drilling operations, they did impact the company’s access to previously established financing options in the lead-up to and during the drilling campaign.”

Challenger, though, has not given up on The Bahamas just yet. Mr Uliel said the data obtained from Perseverance One supported deeper drilling into the ocean seabed, and the company is still seeking a joint venture or “farm-in” partner to share the technical, financial and other risks associated with drilling a second exploratory well in this nation’s waters.

“In parallel, in March 2021, the company notified the then-Government of The Bahamas of its intent to renew the four southern licences into a third three-year exploration period. A new Government was elected in The Bahamas in September 2021, and the company is engaging with the new administration on the renewal process,” Mr Uliel said.

BPC’s shareholders did not take kindly to yesterday’s grim financial news, with the company’s share price dropping below one UK penny to hit 0.85, having dropped by the equivalent of 30 decimal places from 1.15p the day before on 224 trades that exchanged a volume of 22.7m shares.

“In financial terms, the company’s activities through the first half of 2021 have not produced the positive, value-creating outcome hoped for,” he said. “Quite simply, technical results below expectation on two successive wells in The Bahamas and Trinidad (and substantial cost increases), coupled with inherited debts from Columbus, has placed the company in a stressed financial position.”

The latter statement refers to the former BPC’s merger with Columbus to create Challenger, and the Challenger chief added: “In The Bahamas, the Perseverance One well did not result in a commercial discovery at the Perseverance One location.

“At the same time, as a result of various issues during the course of drilling, the eventual cost of the well was approximately $10m more than initially budgeted, with a final cost of approximately $45m.”

Challenger, at end-June 2021, has $7m in cash resources to meet what was then estimated to be payables and borrowings of $23.3m. Included in the latter sum were $10.1m in bills owed to suppliers and vendors on Perseverance One, as well as $2.4m owed on financing instruments that funded the well’s drilling.

However, cash resources have now dwindled to $3m, while total payables remain at $22m and outstanding Perseverance One bills at $12m.

“The group currently estimates that it has a need for, in aggregate, approximately $15m in funding in order to continue to meet its obligations as and when they fall due over the coming 12 months or, in the alternative, achieve creditor settlements that would reduce the amounts payable, and thus have the same economic effect,” Mr Uliel told shareholders.

Describing these bills and liabilities as “unacceptably high”, he added: “The company’s ability to meet all of its anticipated obligations over the 12 months from the date of the 2020 annual report is dependent on this outcome - that is, successful completion of a process to definitively address the outstanding payables/liabilities position and secure additional funding for ongoing operations and work programmes in 2022, and in so doing place the company on a stable, debt-free footing for the future.

“It should be noted that if the company is unsuccessful in achieving its restructuring and recapitalisation plan there is a risk to the company continuing as a going concern.” However, should it overcome this hurdle, Mr Uliel said rising global oil prices as well as its Trinidad production were cause for optimism.