I’ve watched Bowleven’s share price malaise over the last few weeks with increasing interest. Irrespective of what Bowleven was worth before and how good (or bad?) the proposed deal is in the context of historical expectations, the Etinde farm-out will surely be a game changer for Bowleven’s stock. I am assuming that the farm-out with LUKOIL and NewAge will go through, but after Tuesday’s announcement that Petrofac had agreed to be bought out of its Strategic Alliance Agreement with Bowleven for $9million, this cleared one of the obstacles in the way of the deal completing.
At 38.25p, Bowleven’s market cap is £124.8million. The notional cash value of the Etinde farm-out is c.£146million ($250million). Of course, the value of this in Sterling will vary, as the currency exchange rate goes up and down, but for Bowleven to trade at a c.15% discount to the Etinde cash looks very much like market sentiment behaving irrationally towards this stock. When you consider Bowleven’s existing cash balance and other interests, not least the 25% in Etinde it will retain going forward, then a substantial re-rate in the company’s share price surely has to be on the cards.
One fact about the Etinde project, which appears to have dropped from the popular consciousness, is that under the terms of the farm-out Bowleven will be free-carried through two appraisal wells; not exploration wells, but appraisal wells. I realise this point tends towards “Investing in oil companies 101”, but disappointed investors seem to have forgotten all the hopes and dreams of not so long ago for Etinde. I sympathise that for long term holders it might not be much comfort that Bowleven will “only” retain 25% of whatever appraisal yields, but I feel compelled to make the point again that all that matters now in making an investment decision is how much the company is currently valued at and how much this valuation could rise. As things stand, anyone who buys into Bowleven today essentially gets a free ride on the development potential at Etinde.
About the only barrier to Bowleven’s stock taking a great leap forward which I can see (apart, obviously, from the risk of the Etinde farm-out not going through), is CEO Kevin Hart. Once the Etinde deal completes, this would be the perfect point for Mr Hart to stand down. I plan to return to Mr Hart’s role in the not too distant future, but even if he does cling onto his position this shouldn’t stand in the way of the company’s share price at least staging a modest rally from the current level. In other words, the downside from today’s price looks limited, even with the “Hart Discount”.
Of course, this is Bowleven we are talking about, so I wouldn’t entirely rule out the possibility of the board applying a handy shotgun to its feet. However, a failure
Today's LUKOIL 0.8% of global oil reserves and 2.1% of global oil production 16.3% of Russian oil production and 16.7% of Russian oil refining The 2nd largest non-state publicly traded oil company worldwide by proven reserves of hydrocarbons The 6th largest non-state publicly traded oil company worldwide by production of hydrocarbons
The largest Russian oil business group with sales of over US$139 billion and net income of over US$11 billion
The company with second largest trading volumes among foreign companies traded on the London Stock Exchange (IOB) in 2012 A leader among Russian oil companies for openness and transparency. The first Russian company to receive full listing on the London Stock Exchange The second largest tax payer in oil industry of the Russian Federation. The total amount of taxes paid in 2012 is US$39.3 billion
So a few million for Cameroon can just come out of the petty cash jam jar....
Etinde Farm-out agreement signed with LUKOIL and NewAge
Bowleven, the Africa focused oil and gas exploration group traded on AIM, is pleased to announce that it has delivered its strategic intent to sell part of its interest in the Etinde Permit, offshore Cameroon, by entering into a conditional agreement with LUKOIL and NewAge.
Highlights of the Transaction
· Bowleven will reduce its interest in the Etinde permit from 75% to 25% and receive aggregate consideration of approximately $250 million (subject to final working capital adjustment) comprising:
§ $170 million cash payment at completion;
§ $40 million staged deferred cash payment due at Etinde development project FID and on completion of appraisal drilling; and
§ $40 million (net) carry for two appraisal wells.
· LUKOIL will acquire a 37.5% interest and NewAge will acquire an additional 12.5% interest in the Etinde Permit to increase its group holding from 25% to 37.5%
· Camop (a wholly-owned subsidiary of NewAge) will become Operator of the Etinde Permit following completion, allowing Bowleven to focus on its proven exploration skillset.
· Bowleven will retain a 25% interest in the Etinde Permit, ensuring continued exposure to the considerable resource and future development potential of the acreage.
· The significant cash consideration strengthens the Group's balance sheet providing funding flexibility for Bowleven's pre-production share of Etinde development expenditure and the progression of exploration activities.
· The two acquisitions are interconditional and the principal conditions precedent to completion of the transaction are normal regulatory approval by the Cameroon government and approval by Bowleven shareholders to be sought at a General Meeting.
Poster Arminius earlier stated that Lukoil is the largest privately owned O and G company in the world. Actually it is a public company and the second biggest O & G one after Exxon. Not sure what all this has to do with Bowleven.
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