A year after an unnamed oil major pulled the plug on farm-out talks, is Bahamas Petroleum PLC (LON:BPC) finally back on track?
Looking at the share price, up 43% this week, you’d think the answer to the foregoing question was a resounding ‘yes’.
But that jump to 2.15p is a comparatively modest recovery from a low base given the stock was changing hands closer to 7p a little over 12 months ago.
Yes, the group is partway solving its funding conundrum and it should be applauded for assembling a stellar technical team ahead of work on its exploration licence areas next year.
A long way to go
However, there is a long way to go before it can actually test the multi-billion barrel oil potential of its offshore acreage, which sits on the maritime border with Cuba.
And crucially, it has yet to find a partner willing to shoulder some of the significant costs associated with a deepwater exploration campaign.
What should hearten investors is this: small-cap wildcatters have been able to find ‘big brothers’ for similar projects.
Eco Atlantic is a prime example, though its assets are offshore Guyana, rather than Bermuda. It had Tullow and French giant Total carrying the load on the Jethro-1 well, which uncorked a 180-foot oil column.
United Oil & Gas, meanwhile, has brought in Tullow to help unlock the potential of its Walton Morant Licence – this time in the seas off Jamaica.
The Eco deal, in particular, reveals that a comparative minnow is capable of deriving value from a significant asset.
And be in no doubt, what Bahamas is sitting on is potentially huge.
It believes the geology is very similar to two separate world-class oilfields in the form of Ku-Zaap-Maloob, Mexico’s most prolific discovery, and Genel’s Taq Taq operation in Kurdistan.
The tricky part continues to be testing this hypothesis on what lies beneath the Caribbean Sea.
But Bahamas in its latest announcement took a significant step forward in this regard.
It has entered into a series of agreements as part of a coordinated approach towards drilling an initial exploration well in the first half of next year.
Chief executive Simon Potter said there had also been “considerable progress on financial arrangements to fund the drilling, whether that be via a farm-in on acceptable terms, or by other means”.
So, it has an agreement on the table for a US$12.4mln convertible loan – though it should be noted this is around half of what’s required to fund an exploration well.
That said, it also mulling an alternative financing proposal.
Impressive is the fact Bahamas has managed to “revise down” its well costs from as much as US$50mln to the US$25-30mln range.
Good work. But to the seasoned observer, the latest moves look like a carefully choreographed way of demonstrating to potential partners that Bahamas can and will, if pushed, drill the well itself.
In short, it’s a warning not to squeeze too hard during negotiations.
Team deserves some good luck
You suspect, however, that boss Potter and his team would prefer to bring a deep-pocketed partner on board rather than having to foot a US$30mln exploration bill.
And let’s face it, they deserve some luck, particularly after taking salary haircuts to get the project this far.
Time will tell whether Bahamas can emulate the success of Eco Atlantic 1,800 miles to the south.
Patient investors who have backed multiple fundraisers will hope so, as will followers of the story, who have seen it unfold and at times unravel.