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7 March 2016
After the completion of the farm-down to Lukoil/NewAge in 2015, the bulk
of Bowleven’s value lies in its 20% interest in the Etinde gas condensate
field and significant cash resources. In the current market, these cash
resources (with no debt or outstanding work commitments) put it in a
strong position as a well-funded developer and mean it has the ability to
screen additional inorganic opportunities, as well as take advantage of
falling service costs to maximise value. We expect the two carried
appraisal wells in the Intra Isongo to be drilled in late 2016/early 2017, with
the potential to more than triple the company’s resource base. As the
project approaches FID in 2017, we would expect investors to attribute
more value to the development but, for now, more than half of our core
NAV of 45p/share is made up of cash. Our RENAV of 60p/share includes an
uplift from the Intra Isongo and a potential development at Bomono.
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 (14.0) (13.2) 27.5 104.2
06/17e 6.3 (13.2) (9.1) 51.5 58.8
Note: *PBT is normalised, excluding intangible amortisation, exceptional items and share-based payments.
Etinde FID delayed…
The final investment decision (FID) has taken longer than we expected at Etinde.
This is a consequence of the new operator, the complications of the fertiliser plant
requiring co-FID and the promise of the appraisal wells on Intra Isongo, which could
add enough to the resource base to enable consideration of alternative/additional
offtake solutions. For the moment, we continue to assume the fertiliser plant
solution (albeit with FID in 2017), which is relatively robust even at lower oil prices.
…which allows a judicious deployment of capital
The current value is dominated by the potential development at Etinde and its cash
resources, which is enough (combined with anticipated debt) to fund the
development of the fertiliser solution. The delay in reaching Etinde FID means
management is free to judiciously deploy some cash in the meantime for positive
returns. This includes the short-term acceleration of a gas-to-power development at
Bomono and screening of other inorganic growth opportunities.
Valuation: Etinde development dominates
The delay in the Etinde development and uncertainty over the full exploitation plan
for the resource causes us to reduce our CoS for the project. This combines with a
reduction in our long-term oil assumptions to reduce our core NAV to 45p/share.
However, 2016 has the potential to be a key year for value creation for the
company as the Intra Isongo wells could potentially more than double resources
(our current risked valuation of existing resources is over 20p, so success at Intra
Isongo could mean a further step change in value). Our RENAV is 60p/share.
Bowleven 2016 outlook
Watch for Intra Isongo
Price 20.75p
Market cap £67.9m
US$1.4/£
Net cash ($m) at end October 2015 120
Shares in issue 324.3m
Free float 93%
Code BLVN
Primary exchange AIM
Secondary exchange N/A
Share price performance
% 1m 3m 12m
Abs 9.2 (15.3) (34.1)
Rel (local) 4.1 (13.1) (27.4)
52-week high/low 33.5p 18.2p
Business description
Bowleven (BLVN) is an AIM-listed, Africa-focused
E&P with assets in Cameroon, Kenya and Zambia.
Its main asset is its 20% net interest in the Etinde
development, which will provide gas to a fertiliser
plant for 20 years.
Next event
Carried appraisal wells at Etinde (to cap of $40m)
Late 2016/early 2017
Analysts
Will Forbes +44 (0)20 3077 5749
Elaine Reynolds +44 (0)20 3077 5713
Ian McLelland +44 (0)20 3077 5756
oilandgas@edisongroup.com
Edison profile page
Bowleven is a research client of
Edison Investment Research
Limited
Oil & gas
Bowleven | 7 March 2016 2
Company description: Appraisal wells could be transformational
In the last year, Bowleven has successfully completed the farm-down of its key asset (Etinde)
leaving it with a still material 20% interest and enough cash resources to fully fund its share of
development costs with some spare to devote to other business development. The gross 2C
contingent resources of 290mmboe are material, which could be further increased with the two
(fully-carried) wells which will appraise the promising horizons previously drilled. Drilling these wells
has the potential to be material to Bowleven, as success could more than triple the existing
resource base.
Since last year, the possibility of unlocking a greater resource (from Intra Isongo) has delayed the
development concept for Etinde. We continue to assume development for Etinde to supply gas to
an onshore fertiliser plant (to be built by Ferrostaal) on a 20-year contract, but this is now one of
four development concepts that could be implemented. Additionally, this has meant a delay and our
initial expectations of project timing were too optimistic (we modelled FID in late 2014, but we now
expect FID to be in mid-to late 2017). If the appraisal of Etinde proves up more significant
resources, we would still model these as flowing to a proposed LNG plant (although we now model
first gas in 2022), but exploitation via another LNG project or an onshore power plant are also
possible.
Elsewhere in the portfolio, the results of the extended well tests of the Bomono wells support plans
to supply around 5-6mmscfd to a small-scale power generation plant, which should link to a sub-
station very close to the wells. We model first gas in early 2017 and a 15-year plateau for now but
expect further information as plans firm up. Longer term, we model a larger (50MW) gas supply
contract, although the eventual size of any project would very much depend on a fuller appreciation
of the full resources at Bomono (and could be much larger).
Valuation: 45p, set to grow; Intra Isongo could add meaningfully
The core NAV of 45p/share is dominated by the company’s cash pile and the value of its share of
the Etinde development (helped by the carry on two appraisal wells). As the Etinde development
progresses and cash balance decreases, we expect the value of the project to grow materially
towards first gas. In addition to this, we add risked, DCF-derived values for Etinde Phase 2 and
exploration in Bomono to get to a RENAV of 60p/share. Further value could be added by the
material appraisal wells planned at Etinde (currently expected to be in 2016) and exploration in
Kenya and Zambia. However, until we receive visibility of the well timing and funding within the next
18 months, we exclude them from our RENAV. To give investors an idea of the impact, we currently
value (risked) resources at more than 20p, so success at Intra Isongo, which could more than triple
the resource base, could add significant value as and when drilled.
Financials: $120m in cash and a partial development carry
In the current investing environment, balance sheet strength is critical for E&Ps. The 31 October
2015 cash on hand of $120m is therefore an enormous asset for Bowleven, which should be
enough to cover its share of development costs for Phase 1 with cash to spare for other projects
should it choose (assuming it can raise debt for some funding). Under the terms of the farm-down
deal, it will receive $15m by September 2016 (or after the appraisal wells are drilled, whichever is
earlier) and a further $25m on FID of the project (most likely in 2017 in our view). Before that,
development of Bomono is likely to be a low-capex phased gas development.
Bowleven | 7 March 2016 3
Sensitivities
We await the appraisal wells at Etinde as a key milestone that could change the profile of
development at Etinde. Should the fertiliser development be chosen, we expect the announcement
of a gas sales agreement (GSA) as the next step before FID. Given the delays seen thus far on the
project, it is understandable that investors are being cautious until FID is taken. Once this happens
(which will require parallel decisions for the upstream and fertiliser developments), we believe
investors will start to price in the value to a greater extent.
Company description: Cameroonian developer
Bowleven is an AIM-listed E&P that owns interests in two permits in Cameroon. It is currently
pursuing development of its Etinde permit, where the company estimates gross 2C P50 contingent
resources as 290mmboe. As a liquids-rich gas field, the company aims to supply the gas to a
fertiliser plant onshore (to be built by Ferrostaal) on a 20-year contract with the liquids sold on the
open market, progressing towards FID in 2017.
The onshore Bomono blocks, NW of Douala, are still in the exploration phase, with Bowleven
drilling two exploration wells. We model gross recoverable resources of 45mmboe in each well.
Finally, the company has interests in two areas in East Africa. Interest in Block 11B onshore Kenya
and exploration acreage in Zambia complete the portfolio.
Etinde
Bowleven holds a 20% interest in the Etinde permit MHLP-7, which contains net contingent P50
resources of 58mmboe (gross contingent resources of 290mmboe). This resource is held entirely
within MHLP-7 and represents a material fall from 2014 year-end estimate of 244mmboe due to the
completion of the farm-down to Lukoil/NewAge (both 30% WI) and the expiration of the PSC on
MHLP-5&6 in December 2014. The block is shallow with maximum water depths of 65m.
The high gas content seen in the discoveries in the region has historically proved an obstacle to the
development. Until recently, Cameroon has not had a big enough economy to absorb large volumes
of gas, meaning small accumulations have ended up being stranded. The advent of the proposed
fertiliser plant solution (one of several possible solutions) means these fields can be consolidated
and exploited.
Development options depend on Intra Isongo results
Development options were affected by the strong rates from the IM-5 well, which tested a combined
maximum flow rate of over 17.8kboed, exceeding “initial expectations, encountering 95 metres of
net pay in the Intra and Middle Isongo reservoir objectives and flowing condensate rich gas at
substantial rates on test from both intervals”.
This has led to a re-examination of the potential from the Etinde licence and the promise of much
larger volumes within this interval. It is this area that will be further appraised by two wells (probably
in 2016) to firm up volumes. We think it was the strength of these tests and the upside potential
identified in the Intra Isongo that gave NewAge/Lukoil the impetus to execute the farm-down,
despite the fall in oil prices before the completion of the transaction.
Upside of net prospective resources could add >200mmboe in time
Analysis of the data has shown further prospects at the same Intra Isongo interval, while the results
of testing at a similar interval at IE-3 tested oil and condensate. Bowleven’s estimates of volumes in
Bowleven | 7 March 2016 4
place are 1-2tcf (167-333mmboe) at P90 confidence. If we assume a 70% recovery factor for gas
this would imply 115-230mmboe. On rough rules of thumb, P50 could be 3x larger than this,
equating to 345-690mmboe. Associated liquids will likely add further. We expect wells to be
spudded in late 2016/early 2017, but timing remains uncertain, given that Bowleven is no longer the
operator and the oil price environment has added material uncertainly. The FID will likely be taken
six to nine months after the appraisal wells, so we expect it to be in mid-/late 2017.
Option one – production offtake to fertiliser plant
We continue to model Bowleven based on options one and two at this time, pending any further
announcements/developments. We gave full detail of the development of the fertiliser plant in our
initiation note, but a quick summary is below.
1. First gas is planned for 30 months from FID.
2. The fields will be tied to a CPF onshore, which will strip out gas (to fertiliser plant) and liquids
(sold separately).
3. The IM-5 well was very positive for the company, with cumulative production of over
17.8mboe/d from tests. This confirmed P90 volumes more than sufficient for the fertiliser plant.
High well rates also mean relatively fewer wells are needed for the full development.
4. It is anticipated to lead to production of 600ktpa of ammonia and 700ktpa of urea over at least
20 years. This corresponds to 70mmscf/d to be supplied by Etinde.
Option two – Cameroon LNG (CLNG)
The contingent resources at Etinde permit exceed those required for the fertiliser plant (around
180mmboe will be produced in for the fertiliser plant, leaving 110mmboe in the contingent resource
base). Unless the fertiliser plant is significantly upsized, another route for the hydrocarbons is
needed to fully exploit the resources. As stated earlier, Cameroon has a number of similarly
stranded gas-heavy assets and the consolidation of these is planned by GDF to export via LNG
(which could be Cameroon LNG or another LNG project BLNG/FLNG).
FEED and due diligence are still being worked through, but the current plan for CLNG is to have an
initial 3.5mtpa train. We model production guided by Bowleven; a 200mmcf/d plateau for around 10
years will give further time for liquids production. This should allow more complete exploitation of
the current resource, but we note that wells at Intra Isongo could add meaningfully to the resource.
Exhibit 1: Gas production rates Exhibit 2: Full development concept
Source: Bowleven Source: Bowleven
Bowleven | 7 March 2016 5
Option three – power
The third option is the supply of a large gas-powered generator for Douala. Cameroon suffers from
a lack of electricity (see section on Bomono in later section) and a larger Etinde gas resource could
supply a large IPP. This would require a joint venture with a power producer (presumably ENEO),
which would be responsible for the downstream electrical plant construction. We would expect the
consortium to supply gas at a price to ensure liquids can be sold.
Option four – Golar LNG
The Perenco/Golar FLNG project at Kribi (FID taken in September 2015) is due to start-up in 2017
and the project has spare capacity (a September press release states that it “is anticipated that the
allocated reserves will be produced at a rate of 1.2 million tons of LNG per annum, representing
approximately 50% of the vessel's nameplate production capacity”). Piping the gas to this project
would be relatively straightforward but over quite a distance (over 90km).
Bomono
Bowleven currently holds a 100% net interest in two onshore blocks, NW of Douala (though the
government continues to hold a 10% back-in right). Bowleven agreed to farm down 20% to Africa
Fortesa, the company that drilled the exploration wells at Bomono, but that arrangement has now
lapsed.
The Bomono permit was drilled 16 times in the 1950s, proving an active Upper Cretaceous-sourced
hydrocarbon system. The company has acquired 500km of 2D and combined re-processed legacy
seismic, which has revealed numerous tertiary structural traps with some Cretaceous stratigraphic
leads. Bowleven progressed two prospects, Zingana and Moambe.
Exhibit 3: Bomono wells targeted four sands Exhibit 4: Moambe and Zingana closures
Source: Bowleven Source: Bowleven
Two wells were drilled in late 2015 at Moambe and Zingana. Both encountered all prognosed
reservoirs and wireline logs were acquired. At Moambe, gas pay was confirmed in the B sand from
sample and logs. The wells were completed for production (negating the need to further near-term
drilling) with results giving management confidence that an initial gas development of 5-6mmscfd
could be supported (the Moambe well reached a maximum sustained rate of 7.3mmscfd, with no
signs of reservoir pressure depletion).
Development concept and monetisation
A key concern of ours was the ease of monetisation. The level of industry development in Douala
has meant gas demand has typically been the limiting factor in the past. Victoria’s Logbaba
Bowleven | 7 March 2016 6
supplies the greater Doula area, and we were concerned that a further gas source, in the form of
Bomono, would not have much market to sell to. However, we are more optimistic for a number of
reasons
stories of power outages abound in Douala, and only 30% of Cameroon’s population have
access to electricity;
as Douala develops, its demand for gas will likely increase, as customers get a more reliable,
cleaner, cheaper source of energy;
in 2014, a majority stake in Sonel was bought by Actis, a UK-based PE firm (44% is retained by
the government) for $220m (since renamed ENEO). Gas pricing is not regulated, allowing fair
market prices to be achieved (though electricity pricing is regulated and will have influence);
an existing player points to a further 50-80MW of demand from ENEO over the next five years;
and
power developments include a 50MW, $2.2bn solar plant being built by GSC Energy.
Although we are optimistic that a larger market for gas should develop, this will not necessarily be a
quick process. Gas-to-power allows the company to take advantage of the existing 'pipeline' of the
power network and allows it to deal with one, large, well-resourced client. Ambition to supply direct
to power generation therefore makes sense.
Moambe and Zingana are over 20km away from central Douala (population 1.9m) and 40km from
the Dibamba power station. The fields are, however, closer to the city of Buea (population 90,000).
In recent months, management has sought to guide the market towards a gas to power solution for
any Bomono discovery. Early monetisation will be based on packaged power units (which could be
bought or more likely leased), to allow associated liquids to be sold to the local refinery at Limbe. It
is likely that small-scale units will be piloted first, with an IPP solution possible once volumes and
production rates are firmed up.
The production completion of the wells means that initial commercial production could be started
quickly at Bomono, providing it with cash flows in short order. An Exploitation Authorisation
Application (EEA) was delivered to the government in December 2015.
Valuation and funding of Bomono
Bowleven currently holds 100% WI of the Bomono permits (although we expect the government to
back in for 10% in time) and the low-capex, phased development concept should allow the
company to retain a significant portion of this WI for full development. Revenues from initial
production could also contribute to the further development costs.
We assume the small-scale gas-to-power will start in 2017 at Bomono, with a 15-year plateau of 5-
6mmcfd. This will require relatively little investment and may lead (subject to resources review after
the wells) to a larger project, of perhaps 50MW or more.
Kenya and Zambia
Bowleven has a 35% net interest in Block 11B onshore Kenya (14,200km2). The block lies in the
NW corner of Kenya, on the border with Ethiopia and South Sudan (and directly north of the
Tullow/Africa Oil Lokichar Basin acreage). The company entered the basin by taking a 50% interest
in the block from Adamantine in 2012. The company then executed a deal, by which First Oil
earned a 30% interest in Bowleven’s share in the block by funding a portion of future expenditure in
Kenya, including $9m of the first $10m of BLVN’s obligations under the first exploration phase.
The company completed a full-tensor gravity airborne survey in 2014 and identified five sub-basins.
A planned seismic survey was not undertaken due to security and logistical issues in 2015. The first
phase of exploration lapsed in May 2015, but the company was granted a one-year extension.
Bowleven | 7 March 2016 7
Even with this extension, drilling is clearly some time away and development even further in the
future (for example FID on TLW/AOI discoveries are only likely to be taken at the end of 2016,
suggesting that first production from any Bowleven discovery is perhaps a decade away). Given
this, the stock market is extremely unlikely to give any value at this stage. For illustration only, we
have modelled a 200mmbbl field, arriving at a value of under $2/boe. The company has no
outstanding work commitments in Kenya.
Exhibit 5: Kenyan acreage close to discoveries Exhibit 6: Zambia a potential extension of the rift play
Source: Bowleven Source: Bowleven
Following the opening up of the rift play in Kenya, a wave of interest has flowed to other prospective
rift plays and Bowleven management believes that Zambia could hold material potential. To this
end, the company has picked 100% interests in three blocks (covering 16,250km2), with approvals
for a further two blocks pending. Given the frontier nature of the basin, Bowleven has only a
minimum commitment of just $500k. Drilling is some way off; we see this as a longer-term option.
Management
William MacDonald Allan (non-executive chairman) has over 20 years’ experience in senior
positions within both the industrial and oil services sectors. Until recently, he was chairman of
ASCO, an international oil support services group, having previously held the position of CEO for 8
years. Before joining ASCO he was divisional managing director at Alfred McAlpine.
Kevin Hart (chief executive officer) was finance director at Cairn Energy for over eight years, a
role that incorporated board responsibility for financial, commercial, legal, risk management and HR
matters. Before this, he was a senior associate director with Deutsche Morgan Grenfell Group,
specialising in oil and gas sector mergers and acquisitions.
David Clarkson (chief operating officer) previously worked for BP where he held a variety of
senior executive positions in the upstream business, including leading major project developments
in frontier locations and as technical vice president for projects and engineering.
Kerry Crawford (finance director) joined Bowleven in 2008 as deputy finance director and head
of IR. She previously worked at Cairn Energy, latterly in the role as deputy finance director and
head of IR. She qualified and first worked as a chartered accountant at Ernst & Young.
Ed Willett (exploration director) has worked in the exploration business for 28 years. He started
his career with Carless Exploration in the mid-1980s, working on UK onshore and UK continental
shelf assets, before joining Cairn Energy, where he held a variety of technical and management
roles across Cairn’s entire portfolio.
Bowleven | 7 March 2016 8
John Martin (non-executive director) has more than 30 years’ experience in international banking
in the oil & gas industry and until recently was a senior managing director in the oil & gas group at
Standard Chartered Bank. He was appointed to Bowleven's board in May 2015.
Philip Tracy (non-executive director) is a chartered engineer with over 40 years of experience in
the international oil and gas industry, including 20 years at board level in both publicly listed and
private companies. He was appointed as a non-executive director in 2011.
Tim Sullivan (non-executive director) has over 40 years’ experience primarily with Conoco, Getty
Oil and Enterprise Oil. Tim co-founded Revus Energy, went on to be deputy CEO of Agora Oil and
Gas and is deputy CEO of Origo Exploration. He was appointed to the board in 2009.
Sensitivities
In contrast to many E&Ps in the sector, the main store of value in Bowleven is a development asset,
though exploration could add meaningfully over time. Bowleven is exposed to the normal
geological/technical risks prevalent in oil/gas. Apart from these, we highlight the following as risks:
■ Development risks: the main development of Etinde is dependent on the parallel development
of the fertiliser plant due to be built, without which a market for the gas is far less certain. The
risks therefore encompass the normal development risks of an oil and gas field but include
those of construction of the fertiliser plant, which is not in management’s control.
■ Delays: the project has experienced notable delays over recent years. In the 2012 annual
report, FID was expected in H213, which was delayed to mid-2014 in AR2013. In our initiation
in mid-2015, we anticipated FID in Q414/Q115. It is currently forecast to be in 2017, three years
later than first thought. Given the new operators and possible re-appraisal of the project
following the appraisal wells targeting Intra Isongo, this could easily slip further.
■ Reservoir risk: development will require many wells. While the IM-5 well showed very strong
productive capacity, the full development will include some smaller fields.
■ Oil/gas pricing: the pricing achieved for the gas sold to the fertiliser plant will be governed by
the GSA, which will likely provide a good return for both parties. However, much of the revenue
(around 75%) will be generated by sales of liquids, the prices of which will float with global
benchmarks. We expect LNG gas realisations to be higher than those from the fertiliser plant.
■ Country risk: there is a chance that instability could affect Bowleven’s assets in Cameroon,
but we see this as a small risk at this time. President Paul Biya has held office since 1982.
■ Counterparty risk: as well as the fertiliser plant, Bowleven is dealing with a number of players
in exploring and developing its assets. Its relationship with NewAge is not without issues (given
legal action taken in 2014) and could be a risk. However, NewAge and Lukoil are unlikely to
have funding issues. Elsewhere, Adamantine Energy (partner in Kenya) is a small private
company while First Oil is the largest private UK-owned company producing in the North Sea.
Valuation
Traditionally, we value companies with an asset-by-asset NAV derived from DCF modelling. Our
valuation includes production, development and contingent resources, while exploration is valued
only if the company has a plan and resources to drill in the next 12-18 months. We apply a risking
to this value, to take account of geological, technical and commercial uncertainties.
For pre-FID development assets, we apply a maximum 65% CoS. However, given the delays in
reaching FID, and the number of options for development, we have reduced the Etinde CoS to
50%. This does not reflect increased uncertainties over the size or quality of resources, but rather
Bowleven | 7 March 2016 9
that in our initiation we had anticipated FID in six months; more than a year on, this is more than a
year away. There is therefore clearly uncertainty in the development approach.
The oil price movement has perhaps also contributed to this risk. For oil, we have reduced our price
assumptions to $70/bbl long term for Brent in real terms (from $80/bbl) after a gradual recovery
from current prices ($40/bbl in 2016, $50/bbl in 2017). We assume gas prices realised for the
fertiliser plant are well below those for LNG, given fertiliser plant gas is effectively an enabler for the
liquids production.
Exhibit 7: NAV summary
Asset Recoverable reserves
Country Diluted WI
CoS/risk Gross Net NPV/boe Net risked value
% % mmboe mmboe $/boe $m /share
Net (debt)/cash (Dec 2015e) 100% 100% 111 24
SG&A (NPV of three years) 100% 100% (35) (8)
$25m on FID (assumed 2017) 100% 83% 21 4
$15m on appraisal wells (assumed Sept 2016) 100% 95% 14 3
Development
Etinde development Cameroon 20% 50% 181 36 5.3 96 21
Core NAV 207 45
Potential development
Cameroon LNG extension Cameroon 20% 20% 109 22 6.7 29 6
Bomono - Moambe small scale gas project Cameroon 90% 50% 11 10 6.7 33 7
Possible exploration/appraisal in next 18 months
Bomono - ZinganaPowerSupply Cameroon 90% 24% 27 24 2.4 14 3
Cost of cash shortfall for development Cameroon 100% 24% (5) (1)
Possible exploration NAV 71 15
RENAV 278 60
Upcoming potential exploration/appraisal
Illustrative Intra Isongo value Cameroon 20% 10% 290 58 2.4 14 3
Source: Edison Investment Research
Given the uncertainty over the development option, especially with possible additional resources at
Intra Isongo potentially being de-risked in 2016, it is difficult to give a value for the Intra Isongo
wells. Should Intra Isongo be successful, this could unlock a further tripling of net resources. This
would therefore be a material event for the shares.
We give an initial estimate of the potential value of Intra Isongo as an illustrative guide for investors.
In this scenario, we assume that it increases gross contingent reserves by 100% (or an additional
58mmboe net to BLVN), with a delay in development to account for further investigation/appraisal
and FEED work. In reality, we know that potential resources added may (in the upside case) be
more than double this estimate. We also note that any development of this greater resource could
push the existing financing resources of BLVN, meaning that external capital will have to be raised.
Following our oil principles, we therefore apply a 50% funding risk element to account for this (on
top of GCoS of 20%). We caveat that these estimates are very much initial thoughts and are
subject to revision as/when the Intra Isongo is drilled/proven up.
Sensitivities
Even though the development of Etinde revolves around its ability to sell gas, the majority of its
value comes from selling the associated liquids (although the low oil price means it makes up a
lower percentage than we had previously anticipated). Therefore, while the gas prices achieved at
the fertiliser plant are important, the upcoming GSA is critical to enable the project to go ahead,
rather than for headline prices.
Oil prices are more critical; we calculate that a change in long-term oil prices from $70/bbl (of +/-
$20/bbl) would see a movement of unrisked Etinde NPV of c 30% However, we caution that this is
not the dynamic sensitivity that would happen in reality. If oil prices remain depressed, we would
Bowleven | 7 March 2016 10
expect to see a fall in costs, partially offsetting the decrease in headline prices. We note that the
value of the shares would be far less sensitive given its cash resources. We also note that the
contribution from a long-term fixed price gas contract (to which we imagine any of the development
options would lead) means that the project economics are far more robust for the partners.
Financials
Following the completion of the farm-out of Etinde, Bowleven received $165m in March 2015. This
was followed by c $5m (working capital adjustment) to make up the full $170m as defined under the
terms of the deal. Bowleven will also benefit from a carry of up to $40m carry for two Etinde
appraisal wells (including testing) – given the fall in costs in recent months, we would expect this
$40m to more than fully carry the wells. Additionally, Bowleven will receive $15m on completion of
appraisal drilling (or September 2016, whichever is earlier) and $25m on Etinde FID (expected in
2017).
These movements mean that at October 2015, Bowleven held $120m in cash and no debt.
Bowleven reported a loss of $90m for the 12 months ended 30 June 2015. This includes a $76m
impairment charge, which was a result of the revised commodity price and planning assumptions
for the development. The group’s current G&A charge is estimated be around $1.1m per month,
($1.5m previously). Further cost-saving initiatives are being implemented to reduce G&A costs. We
forecast a December 2015 cash figure of $111m (with no debt).
Cash flows and funding for the projects
We assume G&A of $14m pa (more than the company guides for conservatism), and capex in
FY15-16 of $28m; this will leave Bowleven with outstanding cash of $104m in June 2016. We
assume the appraisal well bonus of $15m is delivered in September 2016 and FID is taken in H217
(calendar), adding a further $25m.
In our initiation, we stated Bowleven would be well-funded for the Etinde fertiliser development as
we modelled it. We explicitly assume that the company will be able to raise debt based on the long-
term nature of the sales to the fertiliser plant. Bowleven’s estimate of pre-production capex for
Etinde (of c $140m, as modelled), means that Bowleven will have to source external capital for the
project, but we believe the long-term nature of the gas sales agreement at the fertiliser plant should
allow room for debt to be raised, which should be able to fund any shortfall in the company’s cash
position. We note, however, that costs have fallen very materially in the last 18 months, and a full
development should be able to benefit from these reductions.
The course of the Bomono development is still not clear, and while we expect a small, low-cost,
initial development, the company still needs to interpret the full results of the drilling for any larger
follow-on phase. If the small power generation project comes to fruition, it should provide the
company with useful cashflows it can recycle for larger developments in Cameroon.
Bowleven | 7 March 2016 11
Exhibit 8: 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) (14,200) (10,076)
Operating Profit (before GW and except.) (54,922) (16,205) (11,088) (12,025) (11,868) (14,200) (13,344)
Exceptionals 0 0 0 0 (75,959) 0 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) (14,200) 1,656
Net foreign exchange gain/(loss) 0 0 0 0 0 0 0
Net Interest (21,894) 3,132 7 (1,577) (2,192) 167 154
Profit Before Tax (norm) (76,816) (13,073) (11,081) (13,602) (14,060) (14,033) (13,190)
Profit Before Tax (FRS 3) (76,816) (13,073) (11,081) (13,602) (90,019) (14,033) 1,810
Tax 0 0 0 0 0 0 0
Profit After Tax (norm) (76,816) (13,073) (11,081) (13,602) (14,060) (14,033) (13,190)
Profit After Tax (FRS 3) (76,816) (13,073) (11,081) (13,602) (90,019) (14,033) 1,810
Average Number of Shares Outstanding (m) 216 295 295 324.3 324.3 324.3 324.3
EPS - normalised (c) (35.6) (4.4) (3.8) (4.2) (4.3) (4.3) (4.1)
EPS - FRS 3 (c) (35.6) (4.4) (3.8) (4.2) (27.8) (4.3) 0.6
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 -160%
Operating Margin (before GW and except.) (%) N/A N/A N/A N/A N/A N/A -211%
BALANCE SHEET
Fixed Assets 383,063 426,665 533,437 551,446 306,558 334,058 382,291
Intangible Assets 340,637 425,414 532,507 550,745 304,662 318,412 325,445
Tangible Assets 802 1,251 930 701 1,896 15,646 56,846
Investments 41,624 0 0 0 0 0 0
Current Assets 0 0 52,150 42,351 212,029 171,496 126,073
Stocks 0 0 11,023 10,404 5,370 5,370 5,370
Debtors 0 0 16,385 6,493 6,431 6,431 6,431
Cash 0 0 19,742 20,454 144,751 104,218 58,795
Other receivables 0 0 5,000 5,000 55,477 55,477 55,477
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 343,802 418,090 570,019 587,523 505,892 492,859 495,669
CASH FLOW
Operating Cash Flow (11,808) (16,433) (8,404) (8,576) (10,438) (13,200) (9,076)
Net Interest 732 821 556 177 139 167 154
Tax 0 0 0 0 0 0 0
Capex (85,706) (58,721) (114,381) (18,037) (35,141) (27,500) (51,500)
Acquisitions/disposals 0 0 0 0 160,688 0 0
Financing 112,792 122,905 76 20,924 71 0 0
Other 0 (2,672) 0 4,482 9,016 0 15,000
Net Cash Flow 16,010 45,900 (122,153) (1,030) 124,335 (40,533) (45,422)
Opening net debt/(cash) (79,152) (96,621) (142,481) (19,742) (20,454) (144,751) (104,218)
Effect of FX changes 1,511 (92) (586) 1,742 (38) 0 0
Other (52) 52 0 0 0 0 0
Closing net debt/(cash) (96,621) (142,481) (19,742) (20,454) (144,751) (104,218) (58,795)
Source: Edison Investment Research, Bloomberg
Bowleven | 7 March 2016 12
Contact details Revenue by geography
Bowleven The Cube, 45 Leith Street Edinburgh EH1 3AT +44 131 524 5678 www.bowleven.com
N/A
Management team
Chairman: William Allan Chief executive officer: Kevin Hart
William Allan has over 20 years’ experience in senior positions within the industrial and oil services sectors. Until recently William was chairman of ASCO, an international oil support service group, having previously held the position of CEO. Before this he was divisional managing director at Alfred McAlpine. He was appointed non-executive chairman in December 2015.
Kevin Hart was finance director at Cairn Energy for over eight years, a role that incorporated board responsibility for financial, commercial, legal, risk management and HR matters. Prior to this, he was a senior associate director with Deutsche Morgan Grenfell Group, specialising in oil and gas sector mergers and acquisitions.
Chief operating officer : David Clarkson Finance director: Kerry Crawford
David Clarkson was appointed to the Bowleven board in 2013. He previously worked for BP where he held a variety of senior executive positions in the upstream business, including leading major project developments in frontier locations and as technical vice president for projects & engineering. David has a degree in mechanical engineering from the University of Strathclyde and is a chartered engineer and fellow of the Institution of Mechanical Engineers.
Kerry Crawford joined Bowleven in 2008 as deputy finance director and head of IR. She previously worked at Cairn Energy for 10 years, latterly in the role as deputy finance director and head of IR. She qualified and first worked as a chartered accountant at Ernst & Young and is a member of The Institute of Chartered Accountants of Scotland. She is also an associate member of the Institute of Corporate Treasurers.
Principal shareholders (%)
JP Morgan 10.1
Artemis 8.1
Barclays 7.9
TD Waterhouse 7.1
Suttie, I 6.9
Companies named in this report
Gas de France, Cairn, Lukoil, NewAge
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