I am still sitting on my shares in AIM-listed Bowleven (BLVN) which I picked up during the corporate handbags as the old management was given the boot. For a short while I looked very clever indeed as the shares headed north, allowing me to top-slice and last year a special dividend of 15p per share added to my returns. But things haven’t quite worked out as I had hoped…
For a start, the drilling programme subsequent to the arrival of the new board was a disappointment as hoped-for new reserves didn’t materialise. And the Final Investment Decision (FID) to give the Etinde project the go-ahead (and trigger a $25 million payment from Bowleven’s partners) is still pending. Oh, and a reappraisal of the asset saw its book value chopped handsomely. And of course, now we have had a huge sell-off in the oil and gas sector. On the plus side, between top-slicing and the dividend, I’ve got all my cash back and have a free holding left over. At the current price it is not worth very much, but it is a profit – or at least will be if and when I come to sell. I guess that validates my strategy of top-slicing as a safety measure, although I wonder how pleased I would have been if everything had worked out as I had hoped. My view of the current market squalls is that shares will be knocked too far at the bottom: it always happens, just as at the top things go too high. And the same applies to the oil and gas prices: as Tom Winnifrith pointed out in bearcast, the invisible hand of the market will move to even things out in the longer term as low prices knock out weaker plays and supply/demand balance is restored. I guess that doesn’t read well for the US fracking industry but one would assume that OPEC and friends will eventually start to talk to each other again. And of course the coronavirus fears will eventually play out and a solution found. Eventually. So my view is that Bowleven’s latest share price drop will reverse in the end, but should I buy more?
We were told that the FID had been delayed to later this year as work to plan the eventual production facility etc progressed. With hydrocarbons prices hit, I fear that this will be delayed yet again. And there is the matter of the expiry of the Etinde license in 2021 to worry about: Bowleven’s FY19 results told us that in essence it thought there was nothing to worry about, but until a new deal gets everyone’s signature there remains the possibility of an unwelcome surprise, however much it might appear to some that the Cameroonian government is shooting itself in the foot. So that is a serious risk….until it is not! And whilst we are given to understand that everyone is keen on agreeing a FID, again until it actually happens that is a risk too. My view is that no FID could mean no license extension: perhaps that might focus a few minds and get it over the line – in which case that’ll be a $25 million bonus cheque to Bowleven. There have been a few steps forward recently, such as the appointment of TechnipFMC plc with a contract as lead Front End Engineering Designers to bring Etinde into production. And whilst a Letter of Intent is a long way from a signed and sealed deal, AIM-listed Victoria Oil and Gas (VOG) has taken a potential 20-year supply….if a FID is agreed. Of course, Victoria has a few problems of its own right now so maybe the letter of intent could prove utterly worthless, but a gas supply would appear to offer at least a (very) partial way out for it and it therefore appears that there is a willing buyer. So as far as I can see, whilst Bowleven is still working to achieve the long-awaited FID later this year and it could still happen, though my gut feeling is that more patience will be required.
As for Bowleven’s shares, at 3.9p the market cap is just £12.2 million. At the last count (to the end of June 2019) it had net current assets of around $18 million – call that just under £14 million. Knock off last year’s admin expenses of $5 million - call that £3.8 million - for the year to June 2020 and the net current assets are not far off the current market cap. In other words the market offers no upside for a win. That tells you that there is some scepticism over Bowleven’s ability to deliver, but also that the market is discounting a total disaster amongst oil and gas plays. Yet the Etinde prospect has been revalued to take latest drilling and production plans at $150 million to Bowleven (around £115 million – almost ten times the current market cap), and a Final Investment Decision would see $25 million in cash arriving pronto – call that £20 million. My view, therefore, is that whilst the patience of a saint may be needed from here, the shares are priced for the cash on the balance sheet and no upside at all from Etinde. That seems ludicrous. No guarantees, but Bowleven is surely at least very strong hold – and I may be tempted to buy more if the slump continues.
Filed under: Bowleven, Finablr, FirstGroup, Dignity, Quilter, Dart Group, TomWinnifrith.com
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