Bowleven — Update 21 November 2016

Bowleven — Update 21 November 2016

Bowleven

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Bowleven

Awaiting resolution on development solution

Year-end results

Oil & gas

21 November 2016

Price

25.00p

Market cap

£81m

US$/£0.8

Net cash* ($m) at 31 October 2016
*Includes the $15m payment in October

99

Shares in issue

325m

Free float

93%

Code

BLVN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.2

2.0

2.0

Rel (local)

7.3

3.4

(4.8)

52-week high/low

28.50p

18.20p

Business description

Bowleven is an AIM-listed, Africa-focused E&P with assets in Cameroon. Its main asset is its 20% net interest in the Etinde development, which holds 290mmboe of 2C contingent resource.

Next events

Etinde development concept agreement

2016/2017

Appraisal wells

2017

Analysts

Will Forbes

+44 (0)20 3077 5749

Elaine Reynolds

+44 (0)20 3077 5713

Ian McLelland

+44 (0)20 3077 5756

Bowleven is a research client of Edison Investment Research Limited

Bowleven’s year-end results brought few surprises. The company remains in a very strong cash position, with $99m on the books in October (and a $40m net drilling carry still outstanding). Reductions in G&A mean it should be able to retain this advantaged position for some time until a resolution is reached on the way in which its key Etinde asset will be developed. In the nearer term, Bomono should provide cash flows once bureaucratic delays are resolved. Discussions between the government and the operator (NewAge) are continuing on the best way to exploit the large gas/liquids resources and we believe this continued uncertainty is a key reason for the shares trading below our new core NAV of 50p/share (from 46p/share).

Year
end

Revenue
($m)

PBT*
($m)

Operating cash flow ($m)

Capex
($m)

Net (debt)/
cash ($m)

06/15

0.0

(14.1)

(10.4)

(35.1)

144.8

06/16

0.0

(7.0)

(6.9)

(48.2)

88.0

06/17e

0.0

(21.7)

(33.2)

(7.5)

75.2

06/18e

6.1

(26.7)

(30.9)

(42.0)

37.0

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Development concept still to be locked down

The government is seeking a ‘domestic-first’ solution, with gas being processed in country before exportation, while NewAge prefers an ‘export-led’ solution, with an objective of floating LNG development. The asset should provide substantial value in either scenario, so we are hopeful that a compromise can be reached to benefit all parties, especially given that successful appraisal drilling of the potentially large Intra Isongo could more than provide for both options. For the moment, we retain our base case of a domestic fertiliser plant with LNG option later.

Etinde appraisal wells may add substantially

The company is keen to get the appraisal wells drilled as soon as possible to provide clarity on the size of the Intra Isongo intervals, which could add materially to the current resources base. The timing of these wells (with a $40m net carry) seems to be dependent on the NewAge/government discussions, but we assume they will happen in 2017, and could be catalysts for the project and Bowleven.

Valuation: Core NAV adjusted to 50p/share

We have made minor adjustments to our valuation, lifting the core NAV to 50p/share (from 46p/share). This is clearly above the current share price, which is roughly equal to the current cash balance. Provided that investors can see a path through to the development of Etinde (we think it is very likely in the fullness of time), there is value in the company, irrespective of whether this is a fertiliser, gas-to-power, LNG or other solution. We would expect the heavy discount to asset value to start to unwind once the concept and timing of the exploitation of Etinde is decided. Additional value at Bomono, together with potential value to be unlocked in the event of an acquisition, could contribute further.

Valuation and sensitivities

We adjust our valuation to account for the year-end cash position, movement in the FX rate and some minor adjustments to field modelling. Our core NAV increases from 46p/share to 50p/share.

Exhibit 1: NAV summary

Asset

US$/£0.8
No. of shares: 325.01m

Recoverable reserves

 

Net risked value with varying discount rates

Diluted WI

CoS

Gross

Net

NPV

@12.5% DR

DR sensitivity (p/share)

%

%

mmboe

$/boe

$m

p/share

10%

15%

20%

Net (debt)/cash - June 2016 A

100%

100%

88

22

22

22

22

G&A NPV of three years, (includes share payments)

100%

100%

(27)

(7)

(7)

(7)

(7)

$25m on FID (assumed early 2018)

100%

83%

21

5

5

5

5

$15m on appraisal wells (cash now received)

100%

100%

15

4

4

4

4

Development

Etinde development

20%

50%

181

36

5.9

106

26

36

19

11

Core NAV

 

 

 

 

 

203

50

59

43

35

Potential development

CLNG extension

20%

20%

109

22

6.8

29

7

7

7

7

Bomono - Moambe small scale gas project

90%

50%

11

10

7.7

39

10

11

8

7

Possible development

Bomono - Zingana Power Supply

90%

10%

27

24

2.1

5

1

2

1

0

Cost of cash shortfall for development

100%

10%

(4)

(1)

(1)

(1)

(1)

Possible exploration NAV

 

 

 

 

 

69

17

20

15

13

RENAV

 

 

 

 

 

272

67

79

59

48

Rough Intra Isongo value

20%

10%

290

58

2.2

13

3

3

3

3

Source: Edison Investment Research, company accounts

Valuation sensitivities and risks

It is obvious that Etinde is an asset with strong economics; it is the route to (and timing of) monetisation that is currently unclear. Negotiation between the operator (NewAge) and the government towards a solution that is acceptable to all parties is prolonging development delays, but we are hopeful that the economics will win through – a faster development of the gas resource (of any kind) is better for the country and the contractors than indefinite delays. For the moment, we retain our assumption of a fertiliser plant (with added LNG later) as a base case until a development concept is finalised and announced. First gas in 2022 should be achievable if an agreement is reached in the next 12 months, but there is a risk that changes to the development solution means this may be optimistic. With a 12.5% discount rate assumed, there is material value leakage as a result of any delay.

We use a $70/bbl long-term oil assumption, to which the project is highly levered. The Etinde project (on an unrisked basis) would shift by around 15% for each $10/bbl move in oil price. Equally, if we were to apply an increased/decreased discount rate (of 2.5%), the unrisked NAV would decrease/increase by 36/26%.

However, because of the high cash levels and risking of the project, the effect on company core NAV is far more muted, as seen below.

Exhibit 2: Oil price and discount rate sensitivity (for company NAV)

Oil price ($/bbl)

50

60

70

80

Discount rate

7.50%

19%

32%

46%

59%

10.0%

(2%)

9%

19%

29%

12.5%

(16%)

(8%)

0%

8%

15.0%

(26%)

(20%)

(13%)

(7%)

17.5%

(33%)

(28%)

(23%)

(18%)

Source: Edison Investment Research

The small-scale Bomono project has the potential to provide useful incremental power to the Douala area and meaningful (if relatively modest) cash flows to Bowleven, once up and running. The tests of the exploration wells showed that commercial rates of 4-6mmcfd could be sustained and this should be enough to supply gas to mobile gas power units. Cash flows from the project will help offset the company’s G&A bill and contribute in future to any further development of Bomono (possibly of deeper horizons) or the Etinde development. The faster the delays are resolved, the quicker the company will see returns from its investment.

Financials

Part of Bowleven’s differentiation vs many others is its strong balance sheet. It held $88m as of the end of June, which was bolstered in October by the receipt of $15m (31 October cash balance $99m, and no debt). This leaves it well capitalised to survive the current lower oil price environment, invest in its assets and enables the management to makes judicious acquisitions where appropriate.

Given the net carry of $40m in the appraisal wells, we expect limited capex spend in Etinde in 2017, while Bomono development will depend on approvals and a possible partnering process. Neither project has outstanding work commitments giving the company more control over its near term cash position.

We expect spend to increase in 2018 as Etinde and Bomono are developed.

Exhibit 3: Financial summary

US$000s

2013

2014

2015

2016

2017e

2018e

Year end June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Revenue

 

 

0

0

0

0

0

6,124

Cost of Sales

0

0

0

0

0

(3,285)

Gross Profit

0

0

0

0

0

2,839

EBITDA

 

 

(10,592)

(11,604)

(11,471)

(20,246)

(34,032)

(31,713)

Operating Profit (before GW and except.)

 

 

(11,088)

(12,025)

(11,868)

(20,901)

(34,672)

(36,320)

Exceptionals

0

0

(75,959)

(122,305)

15,000

25,000

Goodwill and intangible amortisation

0

0

0

0

0

0

Operating Profit

(11,088)

(12,025)

(87,827)

(143,206)

(19,672)

(11,320)

Net foreign exchange gain/(loss)

0

0

0

0

0

0

Net Interest

7

(1,577)

(2,192)

13,937

12,955

9,586

Profit Before Tax (norm)

 

 

(11,081)

(13,602)

(14,060)

(6,964)

(21,717)

(26,734)

Profit Before Tax (FRS 3)

 

 

(11,081)

(13,602)

(90,019)

(129,269)

(6,717)

(1,734)

Tax

0

0

0

0

0

0

Profit After Tax (norm)

(11,081)

(13,602)

(14,060)

(6,964)

(21,717)

(26,734)

Profit After Tax (FRS 3)

(11,081)

(13,602)

(90,019)

(129,269)

(6,717)

(1,734)

Average Number of Shares Outstanding (m)

295

324.3

324.3

325.0

325.0

325.0

EPS - normalised (c)

 

 

(3.8)

(4.2)

(4.3)

(2.1)

(6.7)

(8.2)

 

 

 

 

 

 

 

 

 

EPS - FRS 3 (c)

 

 

(3.8)

(4.2)

(27.8)

(39.8)

(2.1)

(0.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

46%

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

-518%

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

-593%

BALANCE SHEET

Fixed Assets

 

 

533,437

551,446

306,558

214,522

221,382

258,775

Intangible Assets

532,507

550,745

304,662

213,669

214,529

218,322

Tangible Assets

930

701

1,896

853

6,853

40,453

Investments

0

0

0

0

0

0

Current Assets

 

 

52,150

42,351

212,029

149,819

137,042

98,755

Stocks

11,023

10,404

5,370

3,650

3,650

3,650

Debtors

16,385

6,493

6,431

2,955

2,955

2,955

Cash

19,742

20,454

144,751

88,026

75,249

36,962

Other receivables

5,000

5,000

55,477

55,188

55,188

55,188

Current Liabilities

 

 

(15,568)

(6,274)

(12,695)

(2,366)

(2,366)

(2,366)

Creditors

(15,568)

(6,274)

(12,695)

(2,366)

(2,366)

(2,366)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

0

0

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

0

Net Assets

 

 

570,019

587,523

505,892

361,975

356,058

355,163

CASH FLOW

Operating Cash Flow

 

 

(8,404)

(8,576)

(10,438)

(6,941)

(33,232)

(30,873)

Net Interest

556

177

139

450

12,955

9,586

Tax

0

0

0

0

0

0

Capex

(114,381)

(18,037)

(35,141)

(48,171)

(7,500)

(42,000)

Acquisitions/disposals

0

0

160,688

0

0

0

Financing

76

20,924

71

(186)

0

0

Other

0

4,482

9,016

0

15,000

25,000

Net Cash Flow

(122,153)

(1,030)

124,335

(54,848)

(12,777)

(38,287)

Opening net debt/(cash)

 

 

(142,481)

(19,742)

(20,454)

(144,751)

(88,026)

(75,249)

Effect of FX changes

(586)

1,742

(38)

(1,877)

0

0

Other

0

0

0

0

(0)

0

Closing net debt/(cash)

 

 

(19,742)

(20,454)

(144,751)

(88,026)

(75,249)

(36,962)

Source: Edison Investment Research, company accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Bowleven and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

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New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Bowleven and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Healthcare

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