Bowleven
Written by
Bowleven |
Interim results |
Interim results |
Oil & gas |
6 April 2016 |
Share price performance
Business description
Next events
Analysts
Bowleven is a research client of Edison Investment Research Limited |
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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 |
Revenue |
PBT* |
Operational |
Capex |
Net (debt)/ |
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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