Net cash totals more than current market valuation ahead of drilling catalysts Tom Sieber
Cameroon-focused oil explorer Bowleven (BLVN) at 30p is trading at an anomalous valuation which does not seem a fair reflection of its prospects or assets.
The firm is now sitting on net cash of $155 million following the completion of a protracted farm-out agreement (with Russian firm Lukoil (LKOH) and private firm Newage) of its offshore Etinde development. Its market cap – measured in dollars – sits at a slight discount to this level at $142.7 million.
This suggests the market believes the windfall will be wasted. Alongside its half-year results (25 Mar) the company laid out its commitment to exercise capital discipline but also highlighted the opportunity of having a ‘strengthened balance sheet’ in a sector where many of its peers are financially distressed.
There is a risk Bowleven allocates funds to the wrong project but we believe now is a good point in the cycle to invest. Drilling costs are falling and assets are likely to be available at knock-down prices.
Project for free
The current share price essentially includes nothing for the Etinde project itself which – despite a commodity price-based impairment of $76 million alongside interims results – seems overly conservative.
Under the terms of the farm-out deal Bowleven retains a 20% interest in Etinde and has a $40 million carry for a forthcoming two well appraisal programme on Etinde – commencing in the second half of 2015 – and will receive another $40 million of cash once this drilling is complete and a final investment decision on the project has been taken.
Shares says: "Trading at a discount to cash, Bowleven warrants closer inspection at 30p."
Prior to the farm-out the plan was to construct an onshore processing facility linked to offshore unmanned platforms and producing wells with gas sold to a fertiliser production plant and liquids and natural gas liquids marketed and sold internationally.
The company expects to have some $140 million in cash once all proceeds from the farm-out are received and its remaining share of the costs on the appraisal and development of Etinde are taken into account. Westhouse estimates G&A (general and administrative) costs ($1.1 million a month) and exploration activity will account for around $50 to $60 million of this total over the next 12 to 18 months.
The company expects to drill two exploration wells on its Bomono permit onshore Cameroon in the near-term with the Zingana and Moambe prospects targeting up to 50 million barrels of oil equivalent each.
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