Bahamas Petroleum’s race against time (BPC)

By Richard Mason

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The clock is ticking at Bahamas Petroleum (LSE:BPC). 11 October 2019. That is the date at which Bahamas will need to demonstrate financial capacity in order to fulfil the company’s rig contract. If they don’t, then Bahamas Petroleum won’t be drilling in H1 2020.

Luckily, the company’s shareholders approved the authority to allot more shares. Unfortunately for existing shareholders, the amount that which they would need to raise (assuming they fund it with a placing) will surely leave a dent in the stock price and masses more shares being issued.

From the company’s ‘Progress towards Commencement of Exploration Drilling
and Notice of Annual General Meeting’ RNS:

“Revised estimate of initial exploration well cost down to between US$25 – US$30 million (or <US$50 million for a concurrent two-well campaign if funding permits)

Conditional agreement for a convertible loan investment of £10.25 million, approximately half the anticipated cost of a single well”

The company has laid the facts bare here. It needs £10.08m at today’s spot rate, in order to get the minimum of $25m the board says they believe they need, if they are to drill one will.

At a current market cap of £33m it’s a big ask. It’s a wildcat drill, so institutional involvement is, at least in my opinion, unlikely. It’s a roll of the dice where the odds are increasingly stacked against the chances of success.

So, who is going to fund this thing? Private investors? Probably not at the current valuation. If I were taking this placing I’d want 1.5p as an absolute maximum, and even then post-money it would leave a stretched valuation of £35m (assuming they raise £10m @ 1.5p).

With the price now approaching 2p, it’s a tough ask.

Farm-in

But a placing is not the only option. The company is still looking to receive a farm-in, and these discussions are on-going. How serious these discussions are is anybody’s guess, but if the company is going to receive one – they really need it soon. As in, next week.

The company has been trying to farm-out for years now, and the only company that was ever interested paid $1m in fees for exclusivity then decided to walk away. That suggests that the quality of the asset is just not that good. But crazy things happen on AIM – we’ll see!

If the company does achieve this, then this would be tremendous for the company. The clock is ticking, and if there was ever a time for management to stand up and be counted – now is that time.

Potential upside

If this drill does go ahead, then it will generate a lot of excitement and there would certainly be upside potential in the stock price. Fully funded drills always generate speculation and anticipation, because a drill can materially increase a company’s prospects and bag the share price, sometimes many times over.

However they fund it, whether via a placing, a farm-in, or both – if the drill goes ahead then I would be looking to take a long position at some point. As of now, I’m currently short.

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Author: Richard Mason

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.