It has been some time since there has been a really big exploration drill for an AIM listed company, but that is exactly what should be coming soon for Bahamas Petroleum (BPC)...
It has taken over a decade - due to drilling regulations and the cost of financing a well - but it looks like the company will finally get to the deep water Perseverance-1 prospect, with spudding expected to happen before the end of the year. In terms of the drilling in the Gulf of Mexico, the company has been trying for years to find a farm out partner, given that a single well is expected to cost at least $21 million, but so far it hasn’t had any success. However, it is now in a position to go ahead and drill this 100% owned licence on its own, following the recent news of the successful completion of a placing to raise £9.5 million at 2p. With the additional funds coming from previous placings, including an open offer for existing shareholders, alongside a convertible note instrument, with a conversion price of 2.5p, which will yield a further £10.25 million. It does also have a zero coupon convertible facility in place as well, under which it has already drawn £4.7 million, but it is not expecting to have to draw the remaining £11.3 million at this time – which is good news for shareholders as the conversion price of that is floating and dependent on the prevailing share price at the time.
The basin where the company is to drill is already known to hold potentially large amounts of oil, and this well alone is targeting recoverable prospective resources of up to 0.77 billion barrels, on a P50 basis. Given the current size of the company, should the drill be successful there is large upside potential, even given that its market cap already stands at around £75 million.
Success on this drill would also be very likely to attract drilling partners for future work, and would play a big part in helping to fund any future exploration activity – I would certainly expect to see a farm out or similar, given the likely size of any find, even allowing for the current state of the oil industry during this period of low crude prices. In terms of the chances of the well proving to be a success, they are fairly typical of this type of drill, if not higher than some, with estimated COS upwards of 23%. The operations of Bahamas Petroleum aren’t limited to drilling in this area, as it does also have some production in Trinidad and Tobago, following its recent merger with Columbus Energy, but the circa 500bopd that it produces is nowhere near enough to justify its current market cap - although it is planning to expand that to as much as 4,000bopd via future development that it has planned - and for me the main interest here and reason for buying the shares revolves around this upcoming drill, and that will be what makes or breaks the company. It really is one of those ‘red or black’ types of shares and you are gambling on the drill being a success otherwise the share price will get hammered, even from the current level of around 2.2p. But should the drill be a success then the flipside of that is that you could make a lot of money in an instant as the share price will open up much higher if the drill indicates significant volumes of recoverable oil are present. I also think that interest in this drill will build towards the spud date and in the run up to the drill hitting its target depth, so for those who buy in at this level, around the placing price, there should be plenty of chance to de-risk along the way, which would be prudent given that the odds aren’t in your favour – although you could argue that the implied odds are somewhat better, given the potential size of share price increase if you are correct. So for me, this is well worth a speculative buy of the shares down at this share price, and even more so as the placees and convertible note holders should have plenty of chance to sell should they wish – unlike placings which occur immediately prior to, or even during, drilling.
Filed under: Bahamas Petroleum, Cineworld, David Lenigas, Yu Group, Weir Group, Manolete
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