Bahamas Petroleum boosted as legislation moves ahead and rig rates fall

By Amy McLellan

Shares in Bahamas Petroleum Company surged almost 20 per cent higher on Monday morning after the explorer provided a positive update on its frontier exploration project in The Bahamas.

Key was the news that the long-awaited Petroleum Act is making its progress through the Bahamian Parliament and is expected to become law in the near future, providing the legislative clarity that should help the AIM-quoted company land farm-in partners for its first deepwater wildcat.

BPC CEO Simon Potter said the proposed Act, a copy of which is available on the BPC website, would provide the regulatory certainty that would-be new entrants to the country need. As regular readers of Oilbarrel.com will know, the company has faced considerable headwinds after offshore exploration became a political hot potato in the wake of BP’s blowout in the Gulf of Mexico in 2010.

With the Act now making its way towards the statute books, Potter, whose company has intensively lobbied for political support for this fledgling new industry, said he was “more excited than ever about the future for the company”.

While the political uncertainty of recent years left the company in limbo, it has not wasted this time. The Isle of Man-based explorer has been busy analysing the reams of technical data it holds, work that it believes has only enhanced its confidence in the prospectivity of these little-drilled waters.

BPC has been studying the three historical wells that offset its acreage, which it says demonstrate the presence of an active petroleum system near sizeable 3D defined structures on its acreage

Work by Fluid Inclusion Technologies Inc on retained core and cuttings from the old wells demonstrated the presence of oil migration with a signature suggestive of light oil across multiple horizons, including the presence of multiple source rocks capable of generating large hydrocarbon volumes.
This backs BPC’s thesis that these waters hold a resource that can be measured in the billions of barrels, making it a world-class play.

Importantly, given the slump in the oil price, the company has also managed to slash the price-tag on its first exploration well. This used to stand at an intimidating US$120 million but having re-engineered the well plans and hired a leading rig broker to find a suitable rig as dayrates sink with the oil price, BPC now reckons it can bring the well in for between US$50 and US$60 million.

Potter said that as a result of this work, “the risk/reward proposition of financing an exploration well with exposure to so much upside is, I believe, unparalleled”.

The company has also been rejigging its economic scenarios, and now believes a field of 200 million barrels or less could be commercial and offer “robust profitability” even in the current oil price environment.

The company may need to find a partner to fund the exploration effort but, unlike many of its peers, BPC isn’t scrabbling for survival. It ended 2014 with cash reserves of more than US$10 million and no debt and cost-cutting efforts mean it can keep going for several years.

The Board, for example, agreed to forgo 20 per cent of remuneration to only be repaid, in shares, in the event of a successful farm-out or other arrangement to finance the first exploration well. In all, it reckons it has delivered 54 per cent saving in total operating costs over the past three years.

Analysts at SP Angel Corporate Finance were positive on Monday’s update, noting that that the company is “as well-placed as it could possibly be to benefit from the acreage positions that it currently has”. “The next 12 to 18 months are going to be essential, and the writing into the statute books of the hydrocarbon legislation is the first, and most important, step in the next leg of its journey,” said the analysts.

Shares in the £20.5 million market cap company were up more than 19 per cent at two pence per share in morning trading.