BPC, the Caribbean and Atlantic margin focused oil and gas company, with exploration, production, appraisal and development assets across the region, is pleased to provide an update on cost estimates and funding arrangements for well operations in The Bahamas.
Highlights
- Sustained impact of Covid-19 means that BPC and Stena Drilling have decided to implement enhanced Covid-19 mitigation measures; this includes heightened isolation and testing measures for all crew and personnel, extended mandatory quarantine in secure hotel facilities, and private charter flights
- Enhanced Covid-19 mitigation measures and associated operational impacts means the cost estimate for Perseverance #1 is revised upward by approximately 15%, to between $24 million to $28 million (from $21 million to $25 million); contingency element expanded to $7 million (from $5 million)
- To provide appropriate financial headroom, the Conditional Convertible Note facility (as previously announced) has been increased by £4.75 million (c. $6.3 million) to £15 million (c. $20 million) in total, with an initial subscription notice issued for £3 million (c. $4 million, with funds anticipated before year end) and the balance of the facility to be provided in a timeframe consistent with the demands of operations (subject to satisfaction of certain conditions precedent)
Commenting, Simon Potter, CEO of BPC, said:
"Given the ever-evolving and escalating Covid-19 situation around the world, the sobering reality is that preventing the Covid-19 virus spreading onto the Perseverance #1 drilling installation in the first place is dramatically more cost effective than having to deal with it once it has arrived offshore. Hence the considerable efforts put in by BPC, Stena and participating contractors and service companies to develop even more stringent measures to detect and diminish the risk of infection, which are now being implemented, but which will come at a cost.
Fortunately, given the flexible range of funding options the Company has developed over the course of the last two years, we have successfully agreed an increase to the size of our Conditional Convertible Note facility by £4.75 million to offset this increased cost. Moreover, we are pleased that the providers of this facility have demonstrated their commitment to the project by agreeing to provide a portion of this facility unconditionally once the well is spud, and the balance expected to be available as required. In aggregate, these arrangements provide enhanced financial capacity, notwithstanding a worsening Covid-19 environment.
We are aiming to assess what hydrocarbon resource potential lies within the territorial waters of The Bahamas, for the mutual benefit of the nation and people of The Bahamas, the shareholders of BPC, and all other stakeholders. Safe, responsible, and uninterrupted operation is our key objective in the ever changing global Covid-19 environment, and these additional costs and increased funding arrangements reflect a prudent approach to achieving this objective."
Perseverance #1 Well - Cost Update
Over recent months BPC has undertaken an extensive body of work, in conjunction with Stena Drilling and a number of BPC's key contractors, to develop a Covid-19 mitigation plan. This plan is designed to minimise the chance of importing the virus on to the Stena IceMAX drill ship, and thus to ensure continuous operations whilst also providing a series of plans for outbreak containment and business continuity.
Accordingly, the Company's Covid-19 mitigation plan has defined a series of Covid-19 protocols (isolation, testing and quarantine) to be applied ahead of and throughout the drilling campaign. Moreover, given the highly fluid nature of the global Covid-19 situation, the Covid-19 plan as developed contemplates a wide range of potential Covid-19 scenarios, with a tiered range of specific mitigation measures applicable.
In recent days and weeks international measures taken to mitigate the ever-evolving Covid-19 situation have had an emerging impact on BPC's intended operations. For example, in the United Kingdom, where approximately half of the rig crew are based and where almost all of the rig crew will assemble pre-mobilisation, a national lockdown had been reimposed along with heightened tier responses. Equally, the United States, being the location from which much of the technical support and supplies for the rig will emanate, is experiencing record levels of Covid-19, and the likelihood of tighter restrictions and new lock-downs appear to be increasing. In The Bahamas a State of Emergency remains in place and there is considerable and growing uncertainty as to the uninterrupted availability of required services, for example regular scheduled flights and accommodation.
In view of this evolving situation, BPC and Stena Drilling have decided to move to implement an even more rigorous Covid-19 mitigation plan, so as to ensure creation of a series of effective Covid-19-free "bubbles" that completely isolate and test all crew, staff and vendor personnel on an enhanced basis, and thus "shields" the vessel to the maximum extent possible from the risk of Covid-19 importation / disruption. These measures include:
- enhanced quarantine and testing measures, where all crew and personnel will be required to undertake mandatory isolation in secure chartered hotel facilities for seven days or more (as opposed to domestic requirements in various relevant locations of up to three days),
- multiple and different Covid-19 tests before, during and after isolation and during transit (as compared, for example, to the USA which requires no Covid-19 testing for transit passengers),
- all transits being via private charter flights for all crew to and from the UK / USA and The Bahamas and then ultimately to the vessel (as compared to previous plans that involved commercial air flights, which may no longer be available and in any case pose considerably higher systemic risk),
- increased demobilisation procedures / costs, including BPC likely being required to bear a larger share of demobilisation costs than previously anticipated, as a result of Stena having notified BPC it has not found suitable follow-on work for the vessel after the completion of Perseverance #1, and
- maintaining flexibility on loading/offloading locations, greater inherent 'friction' in transit and loading procedures, and ultimately resultant increases in fuel costs.
In aggregate, these measures are considerably more stringent than current domestic requirements in each of The Bahamas, USA and UK in specific relation to Covid-19. However, BPC's core objective remains safe, responsible and uninterrupted operations for the entire duration of the Perseverance #1 well program. The continually unpredictable risk profile arising from the deteriorating global circumstances means that these enhanced Covid-19 measures are now considered prudent and necessary to achieving that objective.
Collectively, all of these measures are expected to add approximately $3 million of additional cost to the overall program. The Company has previously advised a cost estimate for of between $21 million to $25 million, with a possible contingency of up to $5 million.
The cost estimate of Perseverance #1 is now revised upward, to between $24 million to $28 million. The Company also considers that it would be appropriate to expand the contingency allowance to $7 million, such that if all contingencies were to materialise, the total cost of Perseverance #1 could be up to $35m, or approximately 15% more than previously contemplated.
Within this revised total cost estimate, BPC has already prepaid a number of items, including the rig mobilisation fee, purchase of wellheads and equipment, and advance payments to a number of suppliers, such that remaining cash outflows required to complete Perseverance #1 is estimated to be in the range of $19m - $23m (and the aforementioned $7 million contingency, which may be required all, in part, or not at all).
