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Bahamas Petroleum Company - £8m ($9.8m) Expansion to Convertible Loan Facility

Bahamas Petroleum Company plc, the oil and gas exploration company with significant prospective resource s in licences in The Commonwealth of The Bahamas ("The Bahamas"), is pleased to announce that it has successfully agreed to an expansion of its existing zero-coupon, second ranking, unsecured convertible loan note facility by £8 million (approximately $9.8 million, before expenses and fees) to £16 million.



Highlights:


· The Company has entered into an agreement to expand its zero-coupon, second ranking, unsecured convertible bond facility from £8 million to £16 million , of which 90% is available for cash draw down, provided by an institutional family-office investor based in the Bahamas


· The expansion of the facility will see immediate additional cash inflow of £1.8 million (approximately $2.2 million), with access to the remaining balance of the facility (being £11.4 million in aggregate) available to be drawn at the Company's election, in four committed instalments through April to July 2020


· The estimated cost of drilling the 100% owned and operated Perseverance #1 well, targeting recoverable prospective resources of 0.7 - 1.4 billion barrels of oil, is the range of $25 million to $30 million (with potential contingencies identified of up to an extra $5 million) - inclusive of the facility expansion, if all funding sources available to the Company (as previously announced) are available, fully drawn, and not been scaled-back or replaced. the Company's overall funding capacity for its strategy is now approximately $45 million (as set out below under "Funding Strategy Context")



Simon Potter, Chief Executive Officer, commented:


"In February, as part of a coordinated funding strategy toward drilling of Perseverance #1, we put in place an £8 million facility for a zero-coupon, second-ranking convertible bond, provided by a substantial Bahamian-based investor. At that time we drew down the first tranche of that facility (£2.43 million), with four further tranches remaining available to us in April - July 2020 if we so choose. This gave us immediate cash to help manage our front-ended cash-flow needs whilst providing us a high degree of financial flexibility in order that we could respond to operational needs as they arise and react to real-time drilling outcomes to ensure a full and comprehensive evaluation of our prospects as we drill.


Materially increasing the size of the facility with the same investor on an immediate, unconditional basis is, in and of itself, a tremendous boost for the project. Moreover, for the Company to achieve this in the face of the decline in oil price and the global adverse impact of the Covid-19 virus is an enormous vote of confidence in the Company, our planned drilling activity and the robust nature of our prospects. Notwithstanding current turmoil in the world's financial markets and the disruption associated with the Covid-19 virus, including interruption to our drilling schedule, the project team remains together, focused and intent on delivery. I look forward to updating shareholders further over the coming weeks."



Funding Strategy Context:


Since 2019, the Company has been pursuing a coordinated strategy toward securing the funding required for the drilling of an initial exploration well - Perseverance #1 - in The Bahamas, targeting recoverable prospective resources of 0.7 - 1.4 billion barrels of oil.


The elements of this funding strategy, as enacted to-date, are:


1. Approval by the shareholders of the Company, in September 2019, of an enlarged share placement capacity of up to 1.8 billion new ordinary shares, so as to provide the Company with maximum flexibility in the process of securing funding for the planned exploration well;


2. An open offer to the then existing shareholders, in October 2019, which raised gross proceeds of approximately US$4.3 million through the issue of 166.4 million new ordinary shares at a price of 2p each;


3. A successful institutional placing, in November 2019, to raise additional gross proceeds of approximately US$7.1 million through the issue of 275.6 million new ordinary shares at a price of 2p each;


4. A Conditional Convertible Note Subscription Agreement, entered into by the Company on 10 October 2019 (and as more particularly described in the Company's announcement of that date and subsequently in the Company's Open Offer Circular as sent to all shareholders in October 2019 - the "Conditional Convertible Notes"), whereby, subject to satisfaction of various conditions precedent prior to 15 April 2020, the Company expects to raise additional gross proceeds of £10.25 million ( c.US$13.3 million). Pursuant to an amendment to that agreement as announced on 9 March 2020, prior to 31 March 2020 the Company has the right, should it elect to do so, to scale back the Conditional Convertible Notes by up to 50%, at no cost or penalty to the Company. If not scaled back, fully drawn, and assuming all interest were accrued and the principal and interest fully converted into shares, a total of approximately 590 million new ordinary shares would be issued;


5. An £8 million (approximately $10.3 million) facility for a zero-coupon, second ranking convertible bond (the "Facility"), entered into on 20 February 2020 ( and as more particularly described in the Company's announcement of that date) whereby the Company drew down an initial tranche of the Facility of £2.43 million (net of face value discount), and has access on an unconditional basis to four additional tranches of £1.19 million (net of face value discount) each in April, May, June and July 2020, available for draw-down through the course of drilling should the Company elect. I f fully draw and fully converted, based on the Company's current share price, the Facility would require the Company to issue a total of approximately 200 million new ordinary shares; and


6. The expansion of the Facility now entered into, whereby the initial tranche of the Facility has been increased by a further £2 million , available on an unconditional basis, and fully drawn down such that the Company will see immediate cash inflow of £1.8 million (approximately $2.2 million). In addition, the existing tranches available, should the Company elect, for each of May, June and July 2020, have now each been increased by £2 million . I f fully draw and fully converted, and based on the Company's current share price, this expanded component of the Facility would require the Company to issue a total of approximately 250 - 300 million new ordinary shares (based on a market price range of 2p - 2.5p).


In addition, the Company has sponsored the creation of a Bahamian domiciled mutual fund, with the primary objective of creating a vehicle through which qualified Bahamian investors could invest in the Company, and thereby share in the ownership of the Company's nationally significant project. Whilst not a core element of the Company's funding strategy, initial subscriptions to this fund have raised gross proceeds in Bahamian dollars equivalent to US$0.9 million through the issue of 35.3 million new ordinary shares at a price of 2p each. The Company has also agreed to make available to the fund in March 2020 up to a further 40 million shares at a price of 3.35p each, which if taken up by the fund would raise a further $1.4 million.


In aggregate, therefore, the above elements (including the Conditional Convertible Notes, if not scaled back and fully drawn, and the expanded Facility, if fully drawn) would see total funding availability of approximately $45 million, and issuance of approximately 1.6 billion new shares. In both cases, this represents considerably more capital availability, greater flexibility, and a smaller overall equity issuance, and therefore lower dilution, than the 1.8 billion shares approved by shareholders of the Company in September 2019.


The Company has previously provided guidance as to the estimated cost of drilling operations for the Perseverance #1 well, in the range of $25 million to $30 million, and with potential contingencies identified that, depending on real-time drilling results, could add up to an extra $5 million of cost. As such (assuming the Conditional Convertible Notes become available, are not scaled back, and are fully drawn, and the expanded Facility is fully drawn) the Company now has access to funding in excess of this well cost estimate (even if contingencies are considered).


In parallel, the Company also continues to evaluate farm-out options or similar transactions as part of its overall risk mitigation and funding strategy. To the extent that a farm-out or similar transaction is successfully concluded on terms acceptable to the Company, the amount of capital available to the Company would likely materially increase, and would be additive to existing funding sources. Such funding, if secured, could also be applied towards reducing reliance on convertible note funding, meeting contingencies (if they arise), expanding/extending the current work programme, or alternatively proceeds could be applied to a much broader work programme in the event of a successful exploration well and thereafter a licence extension into a 2021 - 2023 work period.


Attention is drawn to the fact that (as detailed above) draw down of funds from the Conditional Convertible Note Subscription Agreement remains dependent on a number of conditions first having been satisfied by 15 April 2020 (and, in certain circumstances, by 15 May 2020 - refer to the Company's announcement of 9 March 2020 for details). To the extent the conditions are not satisfied there is a risk that the Company will not be able to receive the funding contemplated in the Conditional Convertible Note Subscription Agreement, unless those conditions are waived by the subscribers. The expansion of the Facility provides a further level of funding certainty, if for whatever reason all or part of the funds under the Conditional Convertible Notes Subscription Agreement are not available (or alternatively if the Company, elects to scale back the quantum of the Conditional Convertible Notes).



Rationale for Expansion of the Facility:


The net proceeds raised from the expanded Facility will be additive to the Company's existing funds and the Conditional Convertible Loan Notes, should these become available. These aggregate resourceswill be directed by the Company to meeting the costs of drilling of the Perseverance #1 well.


As previously advised, in order to stay on track to deliver the Perseverance #1 exploration well, over recent months the Company has commenced a number of long-lead work-streams. This has included the procurement of various long-lead items for future delivery (including wellheads, drill bits and casing) and the custom manufacturing of certain items of essential equipment. Moreover, a number of equipment suppliers and service providers are requiring all or part payment in advance, given that Perseverance #1 is a single well programme. As a result the nearer term cash needs of the Company in the lead-up to drilling have increased (albeit the cash needs towards the end of drilling have correspondingly decreased). At the same time expected cash inflow from the Conditional Convertible Note facility remains subject to satisfaction of conditions precedent, the deadline for which has been extended to 15 April 2020 and, in some circumstances, to 15 May 2020 (as previously announced on 9 March 2020).


Further, as announced on 13 March 2020, the Company is now working toward spudding the Perseverance #1 well in the second half of May 2020 / early June 2020 (as opposed to previous estimates of April 2020) thereby seeking to avoid any expected peak in the Covid-19 response, whilst at the same time enabling operations to be completed before the peak risk period for hurricanes in The Bahamas. However, the Covid-19 situation is fluid and evolving on a daily basis, and to the extent the current adverse circumstances were to result in the need for deferral of commencement of operations until after early June 2020, the next practical window to prudently commence operations would be from mid-October 2020 onwards. Whilst this is not the Company's planning objective, this enhanced funding package provides both greater funding assurance and flexibility to meet the full estimated potential cost of the drilling of the well in each of these operating scenarios. In addition, given the current operating environment, where an enormous amount of uncertainty exists as a result of the extraordinary and unprecedented global response to the spread of the Covid-19 virus, and the significant decline in oil prices and global equities markets, the Board considers it prudent to both maximise immediate funds as well as the range of accessible sources of capital when available.



Facility Summary:


The Facility as previously entered into was for £8 million zero-coupon, second ranking, unsecured convertible loan notes (the "Notes"). Key terms are as follows:


· Amount: face value of up to £8 million (approximately US$10.5 million)


· Use of funds: to provide staged capital (as required) toward completion of the Perseverance #1 well and associated payments


· Form of investment: zero-coupon, second ranking, unsecured convertible loan notes


· Note Subscriber: A Bahamian registered institutional family-office investor


· Structure: An initial draw-down of £2.7 million (with £2.43 million cash received, net of face value discount) to be made immediately, with four further instalments of £1.325 million (with cash of £1.19 million to be received net of face value discount) each available to be drawn at the Company's sole election at the start of each of April, May, June and July 2020 (subject to customary termination provisions) - ie: the Company can elect to draw additional funds if required through the course of drilling of the Perseverance #1 well


· Term: 3 years from time of draw-down


· Coupon: Zero. However, Notes when drawn will be issued at 90% of face-value, equating to the equivalent of an embedded coupon of 3.33% per annum, effectively paid in advance. As noted, the Company will thus receive net proceeds (before fees) of £2.43 million on the initial draw-down, and should the Company elect to make additional draw-downs, net proceeds of £1.19 million per draw-down will be received.


· Priority: On a return of capital (by way of liquidation or otherwise) the Notes will rank second to the Conditional Convertible Notes, but will rank senior to all ordinary shares on issue to the extent of the face value of the Notes


· Security: the Notes will be unsecured


· Repayment: At end of the term, unless redeemed or converted prior


· Conversion: The holder of Notes may at any time prior to maturity elect to convert the face value of the Notes into fully paid ordinary shares in the Company


· Conversion Price: The lower of (i) a 25% premium to the price of the Company's ordinary shares on the date of draw-down, or (ii) the lowest closing bid price of the Company's shares on the five days prior to the date of conversion


· Early Redemption: The Company has the right to redeem the Notes in cash at 105% of face value; if the Company serves an early redemption notice, the holder has a 3 day period to elect to first convert the notes;


· Conditions to future draw- downs : if the Company's share price falls below 2 pence for five consecutive trading days, there can be no further draw-downs; and no material adverse events subsisting at time of draw-down


· Fees: the Company has agreed to pay a 3% arranging fee to the arranger of the Facility in respect of the entire face value of the Facility (ie: £240,000), and an additional raising fee of 3% of any amounts drawn, the latter payable to the arranger of the Facility only if and when additional funds are drawn under the Facility


· Change of control: the Facility contains a change of control provision (per the United Kingdom Corporations Act 2010 or the sale/transfer of 50% or more of the assets of the Company) pursuant to which the investor can require the Company to redeem the Notes at a price of 105% of face value


The expansion of the Facility is on the following basis (note that amended terms apply to the full £16 million facility):


· Expansion Amount: face value of £8 million (approximately US$9.8m million)


· Use of funds: to provide additional capital (as required) toward completion of the Perseverance #1 well and associated payments


· Form of investment: zero-coupon, second ranking, unsecured convertible loan notes


· Note Subscriber: A Bahamian registered institutional family-office investor


· Structure: Drawn-down of an additional £2 million (with net cash received by the Company of £1.8 million after face value discount) immediately and added to the initial draw-down under the Facility, with an additional amount of £2 million (each of which would, if drawn, provide an incremental £1.8 million in cash after face value discount) added to each of the tranches available to be drawn, at the Company's election, on each of May, June and July 2020 (subject to customary termination provisions)


· Conversion Price: The conversion price mechanism for the entire Facility is amended to be the lower of (i) a 25% premium to the price of the Company's ordinary shares on the relevant date of draw-down, or (ii) the average of the three lowest closing bid price of the Company's shares on the ten days prior to the date of conversion


· Conversion Restrictions : A new term has been added to the Facility such that (i) the subscriber may not issue a conversion notice for 5 days after a draw-down, and (ii) any conversion notices must be for a minimum of £500,000 per conversion notice


· All other terms and conditions of the Facility (as described above) are unchanged, and apply equally to the expanded Facility amount

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