Shares in Bowleven are in the doldrums, despite having crazy amounts of oil in reserves. The company operates in Cameroon and has farm-out agreements with major energy firms.
Their offshore operation in Cameroon is the most promising and the most valuable. Having carried out tests, Bowleven’s JV partners estimate of up to 2 TCF of gas and liquid resources at P90. That is approximately 344m Barrels of Oil Equivalent (bboe) and also economically viable.
Bowleven has a 20% interest and has approx. claims of 69m barrels.
Further drilling is expected. All that remains is the timetable for production and the level of gas flow per day.
SHARE PRICE: 32 Pence (unchanged)
MARKET CAPITALISATION: £98m.
On today’s results, Bowleven reiterated their 80% farm-out agreement of their Bomono assets to Victoria Oil and Gas company. That caused the company to impair $45m of assets.
On the financial front, Bowleven net loss is reduced to $53.7m, although most came from impairments. The real operating cost is $8m (£6.2m).
Bowleven’s real asset still lies in their cash deposits of $85m (£60m) and deferred consideration (assets for sale) of $40m (£28m), which is equivalent to £88m.
It has no debt and total liabilities amount to $1.5m.
This cash burn amounts to $2.3m, thanks to $15m and $1.5m in net proceeds of assets and share issue.
Having replaced Kevin Hart (not the comedian) as the new CEO, new boss Eli Chahin (also a senior advisor of Alix Partners, according to his LinkedIn account) said: “Much progress has been made and the benefits of the relentless effort will be clearer into 2018. The task in hand is clear. We are determined to protect cash, maintain capital discipline and optimise the value and return from our assets.”
This is very positive for shareholders to hear.
In the past five to six years, Bowleven had a rollercoaster ride. Not so long ago, there were potential takeover bids for the business of up to £600m. The shares were trading as high as £4/share, due to high energy prices.
Now, shareholders will be waiting for Bowleven gas production from their major partners, who have invested a lot of capital.
Looking at Bowleven, I sense the new management has the right strategy to take the company forward. The mindset of conserving cash (when suitable) would stop the decline in their share price.
I see the following risk for shareholders: –
1). Trust in Bowleven’s new management team;
2). Political risk and dramatic change in energy policies;
3). When will shareholders see gas production;
4). The level of daily gas production attributable to Bowleven.
At under £100m in market capitalisation, Bowleven has the potential to monetise 20% of their assets with minimal operating costs. That is the attractive feature of Bowleven. Until we get a definite update from Bowleven about their deadline to gas production and information on the daily gas flow, then it is all speculation.
The downside to Bowleven has run its course, in my opinion. The potential for future revenue at low operating costs is immensely attractive. So, at this level of valuation, there is a good potential to see market value at least doubling.
But, remember the risks involved (see above) and always do your homework.
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The above analysis is based on my opinion and nobody else. It does not constitute professional investment advice. Data is correct on at the time of availability. I don’t hold the company’s shares unless stated.