Does Bahamas Petroleum have further to go?

Shares in Bahamas Petroleum have soared more than 40% year-to-date. Investors have questioned whether there has been a fundamental reason for the share price move, or whether it's just a "pump and dump".

Oil referendum not a worry

Some investors were of the view that the share price movement was a result of positive speculation over the outcome of the forthcoming Bahamas oil referendum in April, combined with very low current share price.

In September, the company announced that its obligation to drill a well early this year had been set back pending the referendum. It also told investors the government would waive any penalties, and there would be no impact on its licences, if delays on the administration's side - such as the referendum - prevented the company from hitting the 26 April date by which it had committed to "spud" an exploratory well in Bahamian water.

At the time, Bahamas Petroleum stated: "It is a testament of the company's relationship with the government and the Bahamian people that a proper partnership is forming in order to explore responsibly and safely the considerable opportunity presented by the potentially significant hydrocarbon resources in the Bahamas."

The explorer estimated development of a two-billion-barrel oil field at a 25% royalty level would generate some $30 billion (£19 billion) for the Bahamas over a 10-year period - or twice the nation's current budget spend every year for a decade.

Developing the Bahamian oil industry also has the potential to bring new jobs; improve economic growth and diversification; and serve as a sustainable source of government revenue - a catalyst that would help the country bump up its credit rating again after Moody's recent downgrade from 'A3' to 'Baa1'. The rating agency cited limited growth prospects; a deterioration of the government's balance sheet; and high levels of debt as reasons for its downgrade.

Bahamas "safe"

Other investors commented that the share price move could be a rush to invest in safe areas following the Algerian crisis.

They also pointed out that in March 2011, the oil and gas exploration company had raised approximately £45.6 million by placing c. 133.1 million new shares at 18.75p.

Takeover target?

Despite the upward move recently, shares in the company have plummeted about 60% since the 15p peak hit in February 2012, fuelling speculation over a potential takeover.

"Although personally I [personally] do not see Bahamas Petroleum drilling, [it is] more likely to be taken over on drilling approval," commented Interactive Investor user 'Belly ache', suggesting Statoil as the likely acquirer given its previous interest in drilling in the Bahamas.

He added: "This would give an adequate return against the current share price given the preparation work already carried out by the company, the risks absorbed and the funds expended."

Note: This article was amended on 24 January 2013.