Join our community of smart investors

BowLeven's offshore punt

Shares in BowLeven offer a nice short-term punt as the market assesses the prospects of a bonus find in the company's concessions in Cameroon
February 7, 2013

If you're looking to add a speculative element to your portfolio, it's worth re-assessing the merits of BowLeven (BLVN), an oil and gas explorer that's focused on Cameroon and Kenya. The investment case for Aim-traded BowLeven started to firm-up in November after it signed a key deal with oilfield services heavyweight Petrofac, and it was boosted at the end of January thanks to a potentially significant discovery off the coast of Cameroon.

IC TIP: Buy at 71p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Potentially significant discovery
  • Petrofac tie-up
  • Takeover speculation
  • Improved access to rigs
Bear points
  • Likely cost over-runs
  • Dwindling cash pile

BowLeven said that drilling at an appraisal well on its Etinde concession off the Cameroon coast encountered what appeared to be a good quality hydrocarbon reservoir. Drilling at the IM-5 well identified an 80-metre cross section of the previously identified Intra Isongo geological layer. Initial drilling "suggests the presence of liquids rich hydrocarbons". The cross section identified is consistent with earlier seismic surveys carried out at the prospect, although additional evaluation work will be needed to determine the exact type and likely volume of hydrocarbons present. However, this new feature encountered within Intra Isongo might even be a bonus find because the IM-5 well had not reached its primary drilling target.

BOWLEVEN (BLVN)
ORD PRICE:71pMARKET VALUE:£209m
TOUCH:70-71p12-MONTH HIGH:153pLOW: 53p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:124pNET CASH:$142m

Year to 30 JuneTurnover ($m)Net (post-tax) profit ($m)Earnings per share (¢)Dividend per share (¢)
2010nil19.510.1nil
2011nil-76.8-37.0nil
2012nil-13.1-5.0nil
2013*nil-7.9-2.7nil
2014*nil-12.9-4.4nil
% change----

Normal market size: 13,000

Matched bargain trading

Beta: 2.6

*Jefferies forecasts £1 = $1.58

The progress at Etinde comes less than three months after BowLeven made an agreement with FTSE 100 energy services giant Petrofac (PFC). The deal was made primarily to offset future exploration costs at Etinde, though ready access to drilling rigs is a potential benefit of the tie-up. In return for a proportion of cash flows from the Etinde Permit, Petrofac has agreed to invest up to $500m (£316m) to help develop BowLeven's acreage off Cameroon, with the aim of starting gas production sometime in 2016.

The Petrofac deal alleviates some of BowLeven's funding concerns, and the involvement of a FTSE 100 constituent also lends credibility to the project, which could just attract predators around BowLeven, too. From time to time, BowLeven's share price has been buoyed by takeover speculation, particularly when it was linked with an offer by Dragon Oil last year. Confirmation of a good find at IM-5 well could conceivably fuel further speculation.

Later this year, BowLeven will need to decide whether to rubber-stamp the hefty investment required to bring the Etinde permit into production, although this latest find - if verified - could significantly enhance Etinde's commercial potential. However, the drilling work carried out thus far, while yielding positive results, has taken longer than expected, so a year-end cost over-run is possible. The busy drilling campaign also means that BowLeven's cash pile may have dwindled to an estimated $45m by the June year-end But at least by that time there should be a clear idea of Petrofac's initial commitment.