A non-cash impairment charge of $133m (£92m) led to a pre-tax loss of the same order in the six months to end December 2015 and reflects a revaluation of the company's exploration assets. In particular, the Etinde Permit off the coast of Cameroon, in which Bowleven has a 20 per cent non-operated interest and which was farmed out to Lukoil and New Age a year ago, has been revalued down from $229m to $168m (£116m), a valuation that equates to 36p per Bowleven share. This reflects a long-term oil price of $65 a barrel being used in the valuation of a project which has gross 2C contingent reserves of 290m barrels of oil equivalent rather than $80 a barrel previously.
However, the fact remains that Etinde is in the price for free. That's because Bowleven has no bet and its cash pile at the end of this month is $100m, or £69.4m, a sum that matches its own market capitalisation. Moreover, the company is carried up to $40m by its partners Lukoil and New Age for two appraisal drilling wells at Etinde, and is due to receive $15m of deferred consideration by September 2016 irrespective of when the drilling takes place. The fact that drilling of the two wells has been pushed back to next year due to the capital requirements of its partners has no bearing on this deferred consideration, nor does it impact a further $25m payable to Bowleven at the time of the final investment decision being made on the development. The appraisal drilling will be focused on the Intra Isongo formations and still has potential to lift reserves significantly.
The company has also downvalued its 100 per cent equity interest in the Bomono project, offshore Cameroon, by two thirds to $36.6m (£25m). This reflects a gas price of $7 per million cubic standard feet of gas. This asset is also the price for free given that Bowleven share price is matched by net funds on its balance sheet.
Irrespective of whether you believe the end December 2015 net asset value of $367m (£255m) is a fair reflection on the value in the company, clearly LUKOIL and New Age believe there is significant value in Ethinde as they acquired their 40 per cent interests in that project for $250m exactly 12 months ago. Bowleven's intangible exploration assets of $205m are accounted entirely by its investments in Bomono and Ethinde.
Moreover, with Bowleven's net asset value four times its market capitalisation, and cash fully backing the share price, the simple fact is that the value tied up in these exploration assets is in the price for free. Or put it another way, at the current price LUKOIL and New Age could buy 100 per cent of the equity of Bowleven at nil cost and get their hands on the other 20 per cent in Ethinde for free, albeit Bowleven's shareholders would clearly not sanction such a takeover on the cheap.
I would also point out that the company's monthly overheads have been cut by 20 per cent to $800,000, and the board are looking at more savings too. The bottom line is that I continue to feel that Bowleven's shares will reward investors over time as the value from its interests is realised, and the supply-demand imbalance in the oil market that has led to the dramatic fall in crude oil prices corrects itself.
On a bid-offer spread of 21.25p to 21.5p, I continue to rate Bowleven's shares a buy.
Please note that I have published two columns today and 26 in total since mid-March, all of which are listed below.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies recently:
■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 Mar 2016)
■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 Mar 2016)
■ 32Red: Run profits at 150p ('32Red in the money, 15 Mar 2016)
■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 Mar 2016)
■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 Mar 2016)
■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 Mar 2016)
■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 Mar 2016)
■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 Mar 2016)
■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 Mar 2016)
■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 Mar 2016)
■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 Mar 2016)
■ Miton: Buy at 30.5p, new target 38p ('Riding earnings upgrades', 22 Mar 2016)
■ Inland: Run profits at 86p, new target 95p ('Valuation surge boosts Inland', 22 Mar 2016)
■ Pittards: Crystallise loss at 71p ('Subdued demand hits Pittards', 22 Mar 2016)
■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 Mar 2016)
■ Safestyle: Run profits at 276p ('Exploiting a window of opportunity', 23 Mar 2016)
■ PV Crystalox: Speculative buy at 10p ('Lights start to glow at PV Crystalox', 23 Mar 2016)
■ Arbuthnot Banking Group: Buy at 1340p ('Banking on a banking duo',23 Mar 2016)
■ Cenkos Securities: Sell at 130p ('Cenkos profits slide', 23 Mar 2016)
■ Burford Capital: Run profits at 256p ('Legal eagle flying high', 24 Mar 2016)
■ 1pm: Buy at 62p, target 82p ('1pm's smart bolt-on buy', 24 Mar 2016)
■ Bilby: Buy at 128p, target 175p; AB Dynamics: Run profits at 390p ('British success stories', 29 March 2016)
■ IS Solutions: Run profits at 157p, new target price 175p ('Big data, big rating', 30 March 2016)
■ GLI Finance: Recovery buy at 32.5p, initial target 40.75p ('High yielding recovery buy', 30 March 2016)
■ Bowleven: Buy at 21.5p ('Investors overreact to Bowleven's write-downs', 31 March 2016)
■ Manx Telecom: Run profits at 215p ('A jewel in the Irish Sea', 31 March 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
