BPC.L Regulatory News (BPC)

20 February 2020

Bahamas Petroleum Company plc

("Bahamas Petroleum" or the "Company")

£8 million ($10.5 million) Convertible Loan Facilityand Funding Strategy Update

Bahamas Petroleum Company plc, the oil and gas exploration company with significant prospective resources in licences in The Commonwealth of The Bahamas ("The Bahamas"), is pleased to announce that it has entered into a binding, zero-coupon, second ranking, unsecured convertible loan note facility (the "Facility") for up to £8 million (approximately $10.5 million) (before expenses and fees), of which 90% is available for cash draw down. The first tranche of today's Facility, being £2.43 million is unconditional and is immediately available. The Facility has been entered into with a substantial Bahamian based institutional family-office investor.

Highlights:

·; The Company has entered into an agreement for a zero-coupon, second ranking, unsecured £8 million ($10.5 million) convertible bond facility, of which 90% is available for cash draw down, provided by an institutional family-office investor based in the Bahamas

·; Facility will see immediate cash inflow of £2.43 million (approximately $3.2 million), with access to the balance of the facility available to be drawn at the Company's election, in four committed instalments through the course of drilling of the 100% owned and operated Perseverance #1 well, expected to spud in April 2020, targeting recoverable prospective resources of 0.7 - 1.4 billion barrels of oil

·; Company continues to evaluate farm-in options as part of its overall risk mitigation strategy which could further expand its available funding resources, if appropriate

Simon Potter, Chief Executive Officer, commented:

"We continue to make rapid progress toward the drilling of Perseverance #1, our first exploration well in The Bahamas, expected to commence in April 2020.

Since mid-2019 we have progressively been implementing a coordinated funding strategy, with a view to ensuring we have access to the funds necessary for drilling, as and when we need them. This measured approach means that we have now secured a funding package with considerably less overall dilution to shareholder equity than most commentators expected would be required. Moreover, through this process we have consistently put the interests of our shareholders first - for example, in October 2019 we provided our existing shareholders with the first option to subscribe for additional shares at a substantial discount to the then prevailing (and the current) share price.

Today's facility affords us greater overall funding availability, and a high degree of financial flexibility so that we can respond as may be needed to real-time drilling results. We will see some immediate cash inflow to help manage the timing of cash-flow needs in advance of drilling (for example for long-lead/critical path items and advance credit payments required by service providers). Thereafter, the remaining funds are committed, and available if the Company elects to draw on the facility as we progress through drilling.

At the same time, we continue to consider several farm-in options, with a view to further strategically enhancing the overall financial and operating capacity of the Company."

Critically, with this Facility and the Conditional Convertible Loan Note, shareholders can take greater comfort that the well can be delivered if we were to 'go it alone', or if we were to choose to drill with a partner. The next few months will thus continue to be both a busy and exciting time for our Company."

Funding Strategy Update:

The Facility comprises a further part of a coordinated strategy by the Company toward securing the funding required for the drilling of an initial exploration well - Perseverance #1 - in The Bahamas, with drilling expected to commence in April 2020, and targeting recoverable prospective resources of 0.7 - 1.4 billion barrels of oil.

Other 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 166.4m 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 Note"), whereby, subject to satisfaction of various conditions precedent prior to 9 March 2020, the Company expects to raise additional gross proceeds of £10.25 million (c.US$13.3 million). If fully drawn, and if 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; and

5. The Facility now entered into, which if fully draw and fully converted, based on the Company's current share price, would require the Company to issue a total of approximately 200 million new ordinary shares.

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 now closed, raising 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 (please see below for further information on the allotment of these shares). 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 fully drawn, and today's Facility, if fully drawn) would see total funding availability of approximately $36 million, and issuance of approximately 1.3 billion new shares. In both cases, this represents a considerably smaller overall equity issuance, and therefore dilution (approximately 30%), than the 1.8 billion shares approved by shareholders of the Company in September 2019.

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. 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. However, given that a number of the conditions are necessary prerequisites to drilling commencing, the Directors are confident that the conditions precedent can be satisfied in a timely manner such that funding under the Conditional Convertible Note Subscription Agreement will be available as and when required. The Facility entered into today provides a further level of funding certainty, in that if for whatever reason all or part of the funds under the Conditional Convertible Notes Subscription Agreement are not available, funds from the Facility could be drawn in lieu, subject to the conditions set out below.

Facility Rationale:

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

In 2019, the Company advised an estimated cost for the Perseverance #1 well in the range of $20 million to $25 million. Since then, the Company has made considerable progress in terms of contracting for various equipment and services necessary to the drilling of the well, as well as finalising certain key cost inputs for the well including logistical support (helicopters and supply vessels), manpower planning, fuel supply and other consumables. Further, to maximise the capacity to drill the well safely at all times (and as contained within the Safety Case included in the Company's Environmental Authorisation) the Company has decided to employ a managed pressure drilling system ("MPD") integrated onto the drilling rig, which will add an additional cost to the day-rate for the rig. Finally, taking into account other operational requirements, the loadout, mobilisation and demobilisation of the rig will take approximately one week longer than originally contemplated. As a result, the estimate for the base cost of the Perseverance #1 well has now been revised to be in a range of $25 million to $30 million.

Additionally, a number of potential contingency elements have been identified, including the provision for additional, optional casing strings (depending on actual conditions encountered whilst drilling, and which may be required to provide greater assurance the target depth can be reached) and the possibility for an expanded data gathering, logging and sampling program (if merited by positive real-time drilling results). These additional items could, if not offset by a reduction in drilling time or other costs, add up to another $5 million to the total estimated cost of the well (although there is no surety that this will be the case - the need for these items will, as noted, only be decided real-time during the course of drilling operations).

In terms of cash-flow, in order to stay on track to deliver the Perseverance #1 exploration well in Q2 2020, 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 9 March 2020 (as previously announced on 30 January 2020).

Accordingly, recognising the need to provide both greater funding assurance and flexibility to meet the full estimated potential cost of the well in all operating scenarios, and so as to better manage cash-flow and thus avoiding the potential of any unnecessary delay to the project timeline, the Board has determined that securing further staged funding capacity would be prudent. The Company has accordingly sought to secure access to additional staged funding capacity by entry into the Facility. Part of the funds from the Facility will be drawn immediately, the amount drawn reflective of ongoing procurement activities and the Company's resultant cash needs ahead of anticipated funding from the Conditional Convertible Notes. The balance of the Facility funds will be available in staged instalments through April, May, June and July 2020, matched both to the expected timing of the drilling of Perseverance #1 and the payment schedules/conditions for equipment and contractors employed during the course of drilling.

The Facility is thus consistent with the Company's coordinated funding strategy for the drilling of the Perseverance #1 well, which is to ensure appropriate funding is available as and when required, whilst at the same time seeking to minimize overall dilution to shareholders.

Facility Summary:

The Company has entered into the Facility for up to £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 £2.43 million to be made immediately, with four further instalments of £1.19 million 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. 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

Bahamas Fund Timing Update:

Pursuant to the Company's announcement, on 14 February 2020, regarding the allotment of shares to the BPC Investment Fund Ltd (the "Fund"), admission to trading of the subscription shares is now expected to take place on or around 13 March 2020 to allow additional time for the Fund's necessary administrative processes to be completed.

Working Capital:

The directors consider that the proceeds of the Facility together with the Company's existing access to financial resources will provide sufficient working capital for its currently anticipated requirements for at least the next 12 months.

For further information, please contact:

www.bpcplc.com

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.