Bowleven
Written by
Bowleven |
Awaiting resolution on development solution |
Year-end results |
Oil & gas |
21 November 2016 |
Share price performance
Business description
Next events
Analysts
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Bowleven’s year-end results brought few surprises. The company remains in a very strong cash position, with $99m on the books in October (and a $40m net drilling carry still outstanding). Reductions in G&A mean it should be able to retain this advantaged position for some time until a resolution is reached on the way in which its key Etinde asset will be developed. In the nearer term, Bomono should provide cash flows once bureaucratic delays are resolved. Discussions between the government and the operator (NewAge) are continuing on the best way to exploit the large gas/liquids resources and we believe this continued uncertainty is a key reason for the shares trading below our new core NAV of 50p/share (from 46p/share).
Year |
Revenue |
PBT* |
Operating cash flow ($m) |
Capex |
Net (debt)/ |
06/15 |
0.0 |
(14.1) |
(10.4) |
(35.1) |
144.8 |
06/16 |
0.0 |
(7.0) |
(6.9) |
(48.2) |
88.0 |
06/17e |
0.0 |
(21.7) |
(33.2) |
(7.5) |
75.2 |
06/18e |
6.1 |
(26.7) |
(30.9) |
(42.0) |
37.0 |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Development concept still to be locked down
The government is seeking a ‘domestic-first’ solution, with gas being processed in country before exportation, while NewAge prefers an ‘export-led’ solution, with an objective of floating LNG development. The asset should provide substantial value in either scenario, so we are hopeful that a compromise can be reached to benefit all parties, especially given that successful appraisal drilling of the potentially large Intra Isongo could more than provide for both options. For the moment, we retain our base case of a domestic fertiliser plant with LNG option later.
Etinde appraisal wells may add substantially
The company is keen to get the appraisal wells drilled as soon as possible to provide clarity on the size of the Intra Isongo intervals, which could add materially to the current resources base. The timing of these wells (with a $40m net carry) seems to be dependent on the NewAge/government discussions, but we assume they will happen in 2017, and could be catalysts for the project and Bowleven.
Valuation: Core NAV adjusted to 50p/share
We have made minor adjustments to our valuation, lifting the core NAV to 50p/share (from 46p/share). This is clearly above the current share price, which is roughly equal to the current cash balance. Provided that investors can see a path through to the development of Etinde (we think it is very likely in the fullness of time), there is value in the company, irrespective of whether this is a fertiliser, gas-to-power, LNG or other solution. We would expect the heavy discount to asset value to start to unwind once the concept and timing of the exploitation of Etinde is decided. Additional value at Bomono, together with potential value to be unlocked in the event of an acquisition, could contribute further.
Valuation and sensitivities
We adjust our valuation to account for the year-end cash position, movement in the FX rate and some minor adjustments to field modelling. Our core NAV increases from 46p/share to 50p/share.
Exhibit 1: NAV summary
Asset |
US$/£0.8 |
Recoverable reserves |
|
Net risked value with varying discount rates |
||||||
Diluted WI |
CoS |
Gross |
Net |
NPV |
@12.5% DR |
DR sensitivity (p/share) |
||||
% |
% |
mmboe |
$/boe |
$m |
p/share |
10% |
15% |
20% |
||
Net (debt)/cash - June 2016 A |
100% |
100% |
88 |
22 |
22 |
22 |
22 |
|||
G&A NPV of three years, (includes share payments) |
100% |
100% |
(27) |
(7) |
(7) |
(7) |
(7) |
|||
$25m on FID (assumed early 2018) |
100% |
83% |
21 |
5 |
5 |
5 |
5 |
|||
$15m on appraisal wells (cash now received) |
100% |
100% |
15 |
4 |
4 |
4 |
4 |
|||
Development |
||||||||||
Etinde development |
20% |
50% |
181 |
36 |
5.9 |
106 |
26 |
36 |
19 |
11 |
Core NAV |
|
|
|
|
|
203 |
50 |
59 |
43 |
35 |
Potential development |
||||||||||
CLNG extension |
20% |
20% |
109 |
22 |
6.8 |
29 |
7 |
7 |
7 |
7 |
Bomono - Moambe small scale gas project |
90% |
50% |
11 |
10 |
7.7 |
39 |
10 |
11 |
8 |
7 |
Possible development |
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Bomono - Zingana Power Supply |
90% |
10% |
27 |
24 |
2.1 |
5 |
1 |
2 |
1 |
0 |
Cost of cash shortfall for development |
100% |
10% |
(4) |
(1) |
(1) |
(1) |
(1) |
|||
Possible exploration NAV |
|
|
|
|
|
69 |
17 |
20 |
15 |
13 |
RENAV |
|
|
|
|
|
272 |
67 |
79 |
59 |
48 |
Rough Intra Isongo value |
20% |
10% |
290 |
58 |
2.2 |
13 |
3 |
3 |
3 |
3 |
Source: Edison Investment Research, company accounts
Valuation sensitivities and risks
It is obvious that Etinde is an asset with strong economics; it is the route to (and timing of) monetisation that is currently unclear. Negotiation between the operator (NewAge) and the government towards a solution that is acceptable to all parties is prolonging development delays, but we are hopeful that the economics will win through – a faster development of the gas resource (of any kind) is better for the country and the contractors than indefinite delays. For the moment, we retain our assumption of a fertiliser plant (with added LNG later) as a base case until a development concept is finalised and announced. First gas in 2022 should be achievable if an agreement is reached in the next 12 months, but there is a risk that changes to the development solution means this may be optimistic. With a 12.5% discount rate assumed, there is material value leakage as a result of any delay.
We use a $70/bbl long-term oil assumption, to which the project is highly levered. The Etinde project (on an unrisked basis) would shift by around 15% for each $10/bbl move in oil price. Equally, if we were to apply an increased/decreased discount rate (of 2.5%), the unrisked NAV would decrease/increase by 36/26%.
However, because of the high cash levels and risking of the project, the effect on company core NAV is far more muted, as seen below.
Exhibit 2: Oil price and discount rate sensitivity (for company NAV)
Oil price ($/bbl) |
50 |
60 |
70 |
80 |
|
Discount rate |
7.50% |
19% |
32% |
46% |
59% |
10.0% |
(2%) |
9% |
19% |
29% |
|
12.5% |
(16%) |
(8%) |
0% |
8% |
|
15.0% |
(26%) |
(20%) |
(13%) |
(7%) |
|
17.5% |
(33%) |
(28%) |
(23%) |
(18%) |
Source: Edison Investment Research
The small-scale Bomono project has the potential to provide useful incremental power to the Douala area and meaningful (if relatively modest) cash flows to Bowleven, once up and running. The tests of the exploration wells showed that commercial rates of 4-6mmcfd could be sustained and this should be enough to supply gas to mobile gas power units. Cash flows from the project will help offset the company’s G&A bill and contribute in future to any further development of Bomono (possibly of deeper horizons) or the Etinde development. The faster the delays are resolved, the quicker the company will see returns from its investment.
Financials
Part of Bowleven’s differentiation vs many others is its strong balance sheet. It held $88m as of the end of June, which was bolstered in October by the receipt of $15m (31 October cash balance $99m, and no debt). This leaves it well capitalised to survive the current lower oil price environment, invest in its assets and enables the management to makes judicious acquisitions where appropriate.
Given the net carry of $40m in the appraisal wells, we expect limited capex spend in Etinde in 2017, while Bomono development will depend on approvals and a possible partnering process. Neither project has outstanding work commitments giving the company more control over its near term cash position.
We expect spend to increase in 2018 as Etinde and Bomono are developed.
Exhibit 3: Financial summary
US$000s |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
Year end June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Revenue |
|
|
0 |
0 |
0 |
0 |
0 |
6,124 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
(3,285) |
||
Gross Profit |
0 |
0 |
0 |
0 |
0 |
2,839 |
||
EBITDA |
|
|
(10,592) |
(11,604) |
(11,471) |
(20,246) |
(34,032) |
(31,713) |
Operating Profit (before GW and except.) |
|
|
(11,088) |
(12,025) |
(11,868) |
(20,901) |
(34,672) |
(36,320) |
Exceptionals |
0 |
0 |
(75,959) |
(122,305) |
15,000 |
25,000 |
||
Goodwill and intangible amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(11,088) |
(12,025) |
(87,827) |
(143,206) |
(19,672) |
(11,320) |
||
Net foreign exchange gain/(loss) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
7 |
(1,577) |
(2,192) |
13,937 |
12,955 |
9,586 |
||
Profit Before Tax (norm) |
|
|
(11,081) |
(13,602) |
(14,060) |
(6,964) |
(21,717) |
(26,734) |
Profit Before Tax (FRS 3) |
|
|
(11,081) |
(13,602) |
(90,019) |
(129,269) |
(6,717) |
(1,734) |
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(11,081) |
(13,602) |
(14,060) |
(6,964) |
(21,717) |
(26,734) |
||
Profit After Tax (FRS 3) |
(11,081) |
(13,602) |
(90,019) |
(129,269) |
(6,717) |
(1,734) |
||
Average Number of Shares Outstanding (m) |
295 |
324.3 |
324.3 |
325.0 |
325.0 |
325.0 |
||
EPS - normalised (c) |
|
|
(3.8) |
(4.2) |
(4.3) |
(2.1) |
(6.7) |
(8.2) |
|
|
|
|
|
|
|
|
|
EPS - FRS 3 (c) |
|
|
(3.8) |
(4.2) |
(27.8) |
(39.8) |
(2.1) |
(0.5) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
46% |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
-518% |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
-593% |
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BALANCE SHEET |
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Fixed Assets |
|
|
533,437 |
551,446 |
306,558 |
214,522 |
221,382 |
258,775 |
Intangible Assets |
532,507 |
550,745 |
304,662 |
213,669 |
214,529 |
218,322 |
||
Tangible Assets |
930 |
701 |
1,896 |
853 |
6,853 |
40,453 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
52,150 |
42,351 |
212,029 |
149,819 |
137,042 |
98,755 |
Stocks |
11,023 |
10,404 |
5,370 |
3,650 |
3,650 |
3,650 |
||
Debtors |
16,385 |
6,493 |
6,431 |
2,955 |
2,955 |
2,955 |
||
Cash |
19,742 |
20,454 |
144,751 |
88,026 |
75,249 |
36,962 |
||
Other receivables |
5,000 |
5,000 |
55,477 |
55,188 |
55,188 |
55,188 |
||
Current Liabilities |
|
|
(15,568) |
(6,274) |
(12,695) |
(2,366) |
(2,366) |
(2,366) |
Creditors |
(15,568) |
(6,274) |
(12,695) |
(2,366) |
(2,366) |
(2,366) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
570,019 |
587,523 |
505,892 |
361,975 |
356,058 |
355,163 |
CASH FLOW |
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Operating Cash Flow |
|
|
(8,404) |
(8,576) |
(10,438) |
(6,941) |
(33,232) |
(30,873) |
Net Interest |
556 |
177 |
139 |
450 |
12,955 |
9,586 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(114,381) |
(18,037) |
(35,141) |
(48,171) |
(7,500) |
(42,000) |
||
Acquisitions/disposals |
0 |
0 |
160,688 |
0 |
0 |
0 |
||
Financing |
76 |
20,924 |
71 |
(186) |
0 |
0 |
||
Other |
0 |
4,482 |
9,016 |
0 |
15,000 |
25,000 |
||
Net Cash Flow |
(122,153) |
(1,030) |
124,335 |
(54,848) |
(12,777) |
(38,287) |
||
Opening net debt/(cash) |
|
|
(142,481) |
(19,742) |
(20,454) |
(144,751) |
(88,026) |
(75,249) |
Effect of FX changes |
(586) |
1,742 |
(38) |
(1,877) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
(19,742) |
(20,454) |
(144,751) |
(88,026) |
(75,249) |
(36,962) |
Source: Edison Investment Research, company accounts
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