Bowleven — Update 6 April 2016

Bowleven — Update 6 April 2016

Bowleven

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Bowleven

Interim results

Interim results

Oil & gas

6 April 2016

Price

20.25p

Market cap

£66m

US$1.4/£

Net cash ($m) at end March 2016

c 100

Shares in issue

327m

Free float

93%

Code

BLVN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.8)

(5.8)

(31.9)

Rel (local)

(4.3)

(4.7)

(24.9)

52-week high/low

31.75p

18.25p

Business description

Bowleven is an AIM-listed, Africa-focused E&P with assets in Cameroon and Kenya. Its main asset is its 20% net interest in the Etinde development, which will provide gas to a fertiliser plant for 20 years.

Next events

BEAA approval

2016

Appraisal wells at Etinde

Early 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 (BLVN) interim announcement gave little new news, although the confirmation that the appraisal wells may not be drilled until 2017 has affected the shares. Although disappointing, this delay has a very minor effect on valuation and will still enable the new operator (NewAge) to take advantage of low rig rates. At Bomono, the company is working with the government to progress the BEAA to enable a small gas-to-power scheme, producing useful cash flows. We have adjusted modelling slightly after Bowleven’s interim results (30 March), but this leaves the valuation unchanged. The share price is broadly supported by the current cash position of $100m (21p/share), leaving value at Etinde and Bomono upside available to long-term investors.

Year
end

Revenue
($m)

PBT*
($m)

Operational
cash flow ($m)

Capex
($m)

Net (debt)/
cash ($m)

06/14

0.0

(13.6)

(8.6)

(18.0)

20.5

06/15

0.0

(14.1)

(10.4)

(35.1)

144.8

06/16e

0.0

(2.4)

(10.9)

(33.9)

102.6

06/17e

6.3

(7.5)

(5.5)

(48.0)

68.0

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

Four options still being examined at Etinde

The consortium is still considering a number of options at Etinde, with the operator leading evaluation of LNG, power and fertiliser options. We note, however, the government has previously favoured the fertiliser solution, so we continue to use this as our base case for now. If and when appraisal success at the Intra Isongo unlocks greater resources, there may be enough gas for both a fertiliser and LNG solution, providing sound financial returns. We would not expect a decision until after the appraisal wells are drilled in 2017, but NewAge is looking at advancing an initial development utilising the existing wells via an offshore processing facility.

Bomono progressing

Bowleven submitted the Bomono Exploitation Authorisation Application (BEAA) in December. The award is pending but, once approved, development of the shallow gas intervals can be started, where an in-situ power generation scheme is planned. The initial wells were completed as producers, though the deeper intervals may be exploited in time. BLVN is compiling a full inventory of contingent and prospective resources and planning development. Discussions around gas sales are ongoing.

Valuation: Slight adjustment of NAV

The delay in the appraisal wells at Etinde has little effect on our valuation as we were already assuming drilling in late 2016/early 2017. We continue to assume FID is taken in FY17-18 with first gas in 2022 (earlier start-up is possible). However, we have reduced our valuation very slightly to account for the lower cash balance at end December 2015 and a lower G&A, while making minor changes to capex phasing in Etinde. These adjustments leave the core NAV and RENAVs unchanged (at 45p/share and 60p/share), representing upside to the current share price.

Valuation: Slight tweaks

We have adjusted the NAV after the interims, updating the cash balance and G&A expectations, with small tweaks to modelling Etinde capex phasing. This has resulted in an unchanged NAV of 45p/share (core) and 60p/share (RENAV). We continue to use a 12.5% discount rate but include in the valuation of the assets at 10% and 15% for investors’ information.

We note that the relinquishment of the Zambian assets and the writing down of Kenya (to zero value) do not affect our valuation given their early stages. Given the short time until the next stage of exploration is due in Kenya (May 2016) and the write-down of value to zero carrying costs, we would assume that Kenya is relinquished shortly.

Exhibit 1: NAV summary

Asset

 

 

Recoverable reserves

 

Net risked value

Discount rate sensitivity of p/share value

Diluted WI

CoS

Gross

Net

NPV/boe

@12.5% DR

(%)

(mmboe)

$/boe

$m

/share

10%

15%

Net (Debt) Cash (Dec 2015A)

108

23

23

23

SG&A (NPV of 3 yrs)

(28)

(6)

(6)

(6)

$25m on FID (assumed 2017)

100%

83%

21

4

4

4

$15m on appraisal wells (cash-in assumed Sept 2016, wells drilled early 2017)

100%

95%

14

3

3

3

Development

Etinde development

20%

50%

181

36

5.2

94

20

28

14

Core NAV

 

 

 

 

 

209

45

52

39

Potential development

CLNG extension

20%

20%

109

22

6.7

29

6

6

6

Bomono - Moambe small scale gas project

90%

50%

11

10

6.4

32

7

9

5

Possible exploration

Bomono – Zingana Power Supply

90%

24%

27

24

2.5

15

3

5

2

Cost of cash shortfall for development

100%

24%

(4)

(1)

(1)

(1)

Possible exploration NAV

 

 

 

 

 

72

15

19

12

RENAV

 

 

 

 

 

280

60

72

51

Rough Intra Isongo value

20%

10%

290

58

1.9

11

2

2

2

Source: Edison Investment Research

Financials

In December, Bowleven reported a cash balance of $108m (with no debt or commitments), although this had declined to c $100m at the end of March 2016. The company has made strides in reducing cash burn, which now stands at $800k per month. Under the terms of the farm-out, the company should collect $15m in September whether or not the appraisal wells are drilled, while a further $25m is due when FID is taken.

This balance sheet strength is key for Bowleven in the current times, and gives the management the luxury to look at opportunities. As with the (now abandoned) Tanzanian deal, we expect the company to look at targets with assets with (or close to) production and infrastructure-led exploration potential. Given the state of the market, there are likely a large number of distressed sellers and we expect the company to be disciplined over any deal.

Exhibit 2: Financial summary

US$000s

2011

2012

2013

2014

2015

2016e

2017e

Year end June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Revenue

 

 

0

0

0

0

0

0

6,314

Cost of Sales

0

0

0

0

0

0

(2,190)

Gross Profit

0

0

0

0

0

0

4,124

EBITDA

 

 

(54,460)

(15,705)

(10,592)

(11,604)

(11,471)

(10,196)

(7,376)

Operating Profit (before GW and except.)

 

 

(54,922)

(16,205)

(11,088)

(12,025)

(11,868)

(10,767)

(11,439)

Exceptionals

0

0

0

0

(75,959)

(133,458)

15,000

Goodwill and intangible amortisation

0

0

0

0

0

0

0

Operating Profit

(54,922)

(16,205)

(11,088)

(12,025)

(87,827)

(144,225)

3,561

Net foreign exchange gain/(loss)

0

0

0

0

0

0

0

Net Interest

(21,894)

3,132

7

(1,577)

(2,192)

8,336

3,911

Profit Before Tax (norm)

 

 

(76,816)

(13,073)

(11,081)

(13,602)

(14,060)

(2,431)

(7,528)

Profit Before Tax (FRS 3)

 

 

(76,816)

(13,073)

(11,081)

(13,602)

(90,019)

(135,889)

7,472

Tax

0

0

0

0

0

0

0

Profit After Tax (norm)

(76,816)

(13,073)

(11,081)

(13,602)

(14,060)

(2,431)

(7,528)

Profit After Tax (FRS 3)

(76,816)

(13,073)

(11,081)

(13,602)

(90,019)

(135,889)

7,472

Average Number of Shares Outstanding (m)

216

295

295

324.3

324.3

327.3

327.3

EPS - normalised (c)

 

 

(35.6)

(4.4)

(3.8)

(4.2)

(4.3)

(0.7)

(2.3)

 

 

 

 

 

 

 

 

 

 

EPS - FRS 3 (c)

 

 

(35.6)

(4.4)

(3.8)

(4.2)

(27.8)

(41.5)

2.3

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

65%

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

-117%

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

N/A

N/A

N/A

N/A

N/A

N/A

-181%

BALANCE SHEET

Fixed Assets

 

 

383,063

426,665

533,437

551,446

306,558

207,956

251,893

Intangible Assets

340,637

425,414

532,507

550,745

304,662

205,501

211,038

Tangible Assets

802

1,251

930

701

1,896

2,455

40,855

Investments

41,624

0

0

0

0

0

0

Current Assets

 

 

0

0

52,150

42,351

212,029

169,565

135,000

Stocks

0

0

11,023

10,404

5,370

5,468

5,468

Debtors

0

0

16,385

6,493

6,431

6,178

6,178

Cash

0

0

19,742

20,454

144,751

102,568

68,003

Other receivables

0

0

5,000

5,000

55,477

55,351

55,351

Current Liabilities

 

 

(39,261)

(8,575)

(15,568)

(6,274)

(12,695)

(12,695)

(12,695)

Creditors

(39,261)

(8,575)

(15,568)

(6,274)

(12,695)

(12,695)

(12,695)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

0

0

0

Long term borrowings

0

0

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

0

0

Net Assets

 

 

343,802

418,090

570,019

587,523

505,892

364,826

374,198

CASH FLOW

Operating Cash Flow

 

 

(11,808)

(16,433)

(8,404)

(8,576)

(10,438)

(10,907)

(5,476)

Net Interest

732

821

556

177

139

2,279

3,911

Tax

0

0

0

0

0

0

0

Capex

(85,706)

(58,721)

(114,381)

(18,037)

(35,141)

(33,876)

(48,000)

Acquisitions/disposals

0

0

0

0

160,688

0

0

Financing

112,792

122,905

76

20,924

71

445

0

Other

0

(2,672)

0

4,482

9,016

39

15,000

Net Cash Flow

16,010

45,900

(122,153)

(1,030)

124,335

(42,020)

(34,565)

Opening net debt/(cash)

 

 

(79,152)

(96,621)

(142,481)

(19,742)

(20,454)

(144,751)

(102,568)

Effect of FX changes

1,511

(92)

(586)

1,742

(38)

(163)

0

Other

(52)

52

0

0

0

0

0

Closing net debt/(cash)

 

 

(96,621)

(142,481)

(19,742)

(20,454)

(144,751)

(102,568)

(68,003)

Source: Edison Investment Research, Bowleven accounts. Note: The book value of the assets has been written down following a re-appraisal of value using a $65/bbl long-term oil price at Etinde and $7/mmbtu gas value at Bomono.

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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

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