Shares in AIM-quoted oil explorer Bahamas Petroleum (BPC:AIM) are in free-fall as an exclusivity agreement with an unnamed oil major which had promised a farm out deal on its assets offshore The Bahamas is set to come to an end.
Amid volatile trading the shares are currently down 60.6% to 2.5p. For those unfamiliar with the vernacular in the oil industry a farm out is when a company gives up an interest in an oil and gas asset, typically to a larger peer who in return will help fund the development of said asset.
This article explains the Bahamas Petroleum story in more detail. It has largely been one of unfulfilled potential with regulatory, financial and political obstacles to drilling in its near-decade long life as a public company.
As well as raising the prospect of a maiden well on the company’s licences, the exclusivity agreement provided much-needed cash flow to keep the business ticking over.
WHAT DO THE EXPERTS THINK?
As AJ Bell investment director Russ Mould observes the company is losing both ‘a useful stream of income in the form of exclusivity payments as well as a potentially credible partner to help target the billions of barrels of oil which could be recovered from its licences offshore The Bahamas’
He adds: ‘The company will now open up the assets to other third parties but securing investment can be a protracted process and there is also the question of why this unnamed oil firm walked away. Investors might conclude that to lose one partner is unlucky but to lose two is careless.’
Broker Cantor Fitzgerald is similarly pessimistic. ‘A blow for the company, and will kick hopes of exploration in the Bahamas into the long grass for a few years.’
