REG - Bowleven plc - Full Year Results
10/11/2023 07:00
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RNS Number : 0146T Bowleven plc 10 November 2023
10 November 2023
Bowleven plc ('Bowleven' or 'the Company')
Full Year Results
Bowleven, the Africa focused oil and gas exploration group with key interest
in Cameroon, today announces its audited full year results for the year ended
30 June 2023. Terms not otherwise defined have the meanings given to them in
the glossary at the end of this announcement.
HIGHLIGHTS
Operational
Etinde, offshore Cameroon
§ In June 2022, New Age announced that it had signed a conditional
agreement to sell operatorship and their 37.5% gross stake in Etinde to
Perenco SA ('Perenco') for an undisclosed sum, subject to the resolution of a
number of conditions precedent, including regulatory approval from SNH. This
transaction has not yet completed.
§ The contractual 'long stop' date of 12 months from signature passed in
July 2023; New Age and Perenco informally agreed to extend this date until
completion is possible. We understand that the conditions precedent have yet
to be met with formal approval of the transaction by the Government of
Cameroon being the most significant issue. We continue to believe that
governmental approval will be forthcoming and the transaction will complete
either in late 2023 or more likely early 2024. However, this has remained
outstanding for a significant period and Bowleven reminds stakeholders that
there can be no guarantee that it will complete, nor as to the timing of
completion.
§ Whilst the New Age/Perenco transaction is awaiting completion, a
limited 'care and maintenance' Etinde Permit work plan and budget for 2023 has
been approved by the JV partners on a quarter-by-quarter basis. New Age have
proposed that the JV partners submit a similar proposal for FY2024 at the next
OCM meeting with SNH.
Financial
§ The loss for the financial year was $2.0 million.
§ Bowleven closed the year with $0.9 million of cash and a financial
investment of $0.6 million giving a total value of available funds of $1.5
million. The cash balance at 31 October 2023 was $1.0 million with the
remaining financial investment having been sold and its value realised
subsequent to the year end.
§ In the current situation, where the Perenco transaction has yet to
be completed and our working capital funds are depleting, Bowleven has
previously communicated a pressing need to raise additional equity to fund our
operations. The Group's cash flow forecasts and projections indicate a
material risk that Bowleven will fully utilise its existing cash resources in
spring/summer 2024 without new investment. This gives rise to a material
uncertainty regarding the going concern status of the Group.
§ The Board has spent considerable time discussing and evaluating future
debt and/or equity fundraising options during 2023, having implemented actions
to reduce our cash burn and preserve the business' cash resources during the
year.
§ The Board has been in discussions with the Company's major
shareholder in relation to the provision of new equity capital and has been
considering an indicative proposal which contemplates it providing equity
capital at a very substantial discount to the current market price of
Bowleven's ordinary shares. The Board considers it appropriate to ensure it
has explored all available options before pursuing this proposal. The
availability of any new equity capital, and the final terms of such an equity
raise, is highly uncertain, as is the timing.
§ Following further discussion with our major shareholder, the Board
has agreed that the Directors will defer the receipt of their emoluments to
the extent there is insufficient liquidity within the business over the course
of the following 12 months. This will prioritise the funding of costs
necessary to retain going concern status whereby the Directors' emoluments
will be accrued until such time the liquidity situation improves or there is a
capital raise. In addition, the major shareholder of the Group has provided a
comfort letter confirming their intention to provide financial support to the
extent that cash resources are not otherwise available for a period of not
less than twelve months from the date the FY2023 financial statements are
authorised or the date the audit report is signed, whichever is later. This
will allow the Group to discharge its liabilities primarily relating to
general and administrative expense and Etinde monthly cash calls. In the
Board's opinion, this should provide sufficient time for it to seek and
formalise new equity investment.
Eli Chahin, Chief Executive Officer of Bowleven plc, said:
"While clearly, we find ourselves in a challenging financial situation,
Bowleven remains on the verge of a significant turning point with a new Etinde
operatorship offering a renewed focus and clearer vision to the monetisation
of the asset. The timing of the completion of Perenco's acquisition of New
Age's interest at Etinde is still not clear and while we stay in somewhat of a
holding pattern, our focus is on the careful management of our balance sheet
so that we remain funded for the foreseeable future. I am still confident that
within a manageable timeframe we will see progress within the Etinde JV and be
in a position to accelerate our timetable towards hydrocarbon production at
Etinde for the benefit of all the JV Partners."
ENQUIRIES
For further information, please contact:
Bowleven plc
Eli Chahin, Chief Executive 00 44 20 3327 0150
Capital Markets Communications Ltd (Camarco)
Owen Roberts 00 44 20 3757 4980
Hugo Liddy
Shore Capital Ltd (NOMAD and Broker)
Robert Finlay 00 44 20 7601 6100
Daniel Bush
Angus Murphy
This announcement may include statements that are, or may be deemed to be
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "projects", "expects", "intends",
"may", "will", "seeks" or "should" or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts. They include
statements regarding the Company's intentions, beliefs or current expectations
concerning, amongst other things, the results of operations, financial
conditions, liquidity, prospects, growth and strategies of the Company and its
direct and indirect subsidiaries (the "Group") and the industry in which the
Group operates. By their nature, forward-looking statements involve risks
and uncertainties because they relate to events and depend on circumstances
that may or may not occur in the future. Forward-looking statements are not
guarantees of future performance. The Group's actual results of operations,
financial conditions and liquidity, and the development of the industry in
which the Group operates, may differ materially from those suggested by the
forward-looking statements contained in the announcement. In addition, even
if the Group's results of operations, financial conditions and liquidity, and
the development of the industry in which the Group operates, are consistent
with the forward-looking statements contained in the announcement, those
results or developments may not be indicative of results or developments in
subsequent periods. In light of those risks, uncertainties and assumptions,
the events described in the forward-looking statements in the announcement may
not occur. Other than in accordance with the Company's obligations under the
AIM Rules for Companies and the Market Abuse Regulations, the Company
undertakes no obligation to update or revise publicly any forward-looking
statement, whether as a result of new information, future events or
otherwise. All written and oral forward-looking statements attributable to
the Company or to persons acting on the Company's behalf are expressly
qualified in their entirety by the cautionary statements referred to above and
contained elsewhere in the announcement.
Notes to Editors:
Bowleven plc is an African focused oil and gas group, based in London and
traded on AIM. It is dedicated to realising material shareholder value from
its asset in Cameroon, whilst maintaining capital discipline and employing a
rigorously selective approach to other value-enhancing opportunities.
Bowleven holds a strategic equity interest in the offshore, shallow water
Etinde permit (currently operated by New Age) in Cameroon.
CEO & CHAIRMAN STATEMENT
Dear shareholders,
FY2023 has been a year of anticipation for both our Etinde joint venture and
indeed for all upstream E&P companies. At Bowleven, our focus has been to
align ourselves with the changing Etinde partnership given the proposed
incoming Operator for Etinde. After many years of false starts we had hoped
the last 12 months would see Etinde emerge energised and well-positioned to
deliver sustainable returns to shareholders going forward.
Since 2017, we have restructured the business to reduce operational and
financial volatility. We have reduced capital spend, aligned our cost base
with our strategic singular exploitation of Etinde, and improved our
stewardship over our assets. Our strategic intention remains, to:
· monetise contingent resource;
· reduce any expenditure, both capital and operational, not consistent
with Etinde's exploitation; and
· focus exclusively on shareholder returns.
As detailed in our Annual Report for 2022 the conditional Sale and Purchase
Agreement for New Age's divestment of its interest to a subsidiary of Perenco
was a turning point for the Etinde Joint Venture. This transaction, whilst
subject to various approvals, was and is expected to close in the coming
months. Notwithstanding the expiration of the long stop date, we have reason
to believe that the intention of all counterparties is to proceed with closing
this transaction. At the time of writing, the customary regulatory approvals
by the Government of Cameroon are yet to be completed.
ETINDE OUTLOOK
The narrative in the mainstream media remains of a sector that is poised for
permanent decline, albeit with natural gas being the key green energy
transition enabler in the medium term. It is said that current high oil and
gas prices are likely to eventually dissipate in the coming years. Indeed, the
most recent projections from the International Energy Agency is that the age
of unbridled growth will come to an end this decade. The turning point is the
subject of much debate as increasingly government policy is geared towards
energy transition and climate change. Together with the slowing growth outlook
for China, the increasing accessibility of electric vehicles and the
structural shifts due to the recent pandemic all suggest that any growth
outlook for oil is waning and that the 'Golden Age of Gas' is being undermined
by the cost and supply of renewable energy alongside the geopolitical risk of
dependency on Russia that Europe is seeking to mitigate. Nonetheless, the
demand for such fuel is not linear. The African region's appetite for both oil
and gas has not subsided despite the structural shift in energy supply that is
underway in more developed economies. The need for significant investment in
oil and gas supply is more pressing than ever given the years of
underinvestment, the role of electricity in Africa's industrialisation and the
predictably fast decline in existing fields.
The associated economic and financial risks with new development are amplified
for many E&P companies. The difference for Bowleven is that we have
historically invested heavily to mitigate much of the exploration risk. We
were extremely disappointed that we were unable to deliver FID for Etinde
during FY2023, but we ended the year having positioned ourselves for the
incoming change of operator. Our Etinde field is moving into a new phase,
where changing stakeholders, given the passage of time, must recalibrate the
assumptions and the consensus process. This has already taken longer than
expected and the Board is of the view it may still take some time given the
pace of progress thus far. Nonetheless, it remains clear that if we are to
monetise Etinde, we must ensure that the share price reflects the Etinde
proposition.
CAPITAL RAISE
Given the current situation, where the Perenco transaction has yet to
complete, and where there is uncertainty as to the likely timing of
completion, if it completes at all, and whilst its working capital funds are
depleting, Bowleven has an urgent need to raise additional equity funding. The
Board's preference would be to recapitalise the business in such a way that
all shareholders are provided with an opportunity to participate whilst
ensuring that Bowleven retains its stake in Etinde whilst our investment
hypothesis is realised. This would allow Bowleven to continue to fund its
ongoing operations and general corporate overheads, as well contribute its
share of the potential expenditure at Etinde in the period between Perenco
becoming Etinde Operator and a FID date (which the Board now expects to be in
late 2024 at the earliest, subject to the New Age/Perenco transaction
completing in late 2023 or early 2024).
The Board has spent considerable time discussing and evaluating future debt
and/or equity fundraising options. It has also taken actions to reduce our
cash burn and preserve the business' cash resources. As part of this process,
the Directors have temporarily reduced UK staff costs and eliminated office
and associated costs. The Company's current expenditure run rate is
approximately $125,000 to $175,000 per month. The Board expects some of these
cost-reduction measures to be temporary until the New Age/Perenco transaction
completes and/or until new finance is raised.
Continuing as a going concern depends on a series of actions, including
seeking fresh capital, controlling costs and catalysing stakeholders towards
the development of Etinde. The Directors had discussions with the Group's
largest shareholder in relation to a potential issue of new shares to increase
the business' cash position to allow it to continue to finance its working
capital needs, as well as to provide for further project expenditure at the
Etinde Permit on the basis of an underwritten open offer to all shareholders
at a small discount to the share price. However, our major shareholder has
since been concerned at the potential high level of risk relating to the
closure of the Perenco acquisition as well as other geopolitical issues and
has subsequently communicated an indicative proposal to provide new equity
capital at a very significant discount to current market price of Bowleven's
shares. As a result, the Board considers it appropriate to ensure it has
explored all available options before pursuing this proposal.
Therefore, currently the Board is also pursuing other options to raise equity
capital. The final form of such an equity raise is unclear, as is the timing,
but the Board would seek to provide an opportunity for existing shareholders
to contribute to an equity raise should they so choose. The Board is also
actively considering measures with the potential to reduce current Bowleven
expenditure levels in order to create more time to find new equity investors.
Following further discussion with our major shareholder, the Board has agreed
that the Directors will defer the receipt of their emoluments to the extent
there is insufficient liquidity within the business over the course of the
following 12 months. This will prioritise the funding of costs necessary to
retain going concern status whereby the Directors emoluments will be accrued
until such time the liquidity situation improves or there is a capital raise.
In addition, the major shareholder of the Group has confirmed in a comfort
letter their intention to provide financial support to the extent that money
is not otherwise available for a period of not less than twelve months from
the date the FY2023 financial statements are authorised or the date the audit
report is signed, whichever is later in order for the Group to discharge its
liabilities, which primarily relate to general and administrative expenses and
Etinde monthly cash calls.
The Board is mindful of our continued fiduciary obligation to all shareholders
to ensure every effort is expended to finance Bowleven towards the receipt of
the FID payment of $25 million. Funding ourselves means ensuring we have
sufficient working capital and the resources to contribute to possible future
development activity.
OPERATIONS
Whilst the New Age/Perenco transaction has been awaiting completion, a limited
'care and maintenance' Etinde Permit work plan and budget for 2023 have been
approved by the JV partners on a quarter-by-quarter basis. New Age intends to
formally submit this to Société Nationale des Hydrocarbures (SNH) for
approval. Monthly expenditure at Etinde remains low as New Age continues to
operate the business on a largely suspended operational basis. New Age's
actual cash calls for the ongoing period (prior to the completion of its sale
of interest to Perenco) have been approximately $50,000 to $100,000 per
month.
However, the Board needs to anticipate and assume that, following completion
of the New Age/Perenco transaction, Perenco will quickly commence
development-planning activity. The Company's Etinde project expenditure going
forward will be determined by this work plan that will be presented by the
incoming Operator, Perenco.
Bowleven considers that Perenco may wish to review the previous JO
partner-agreed Equatorial Guinea based development scheme, propose
alternative(s), and update the front-end engineering design to reflect any
change in the approved development scheme and to reflect current cost
inflation for FID purposes. Any changes will need to be approved by the joint
venture partners as a group as well as SNH, as regulator, before
implementation. Whilst the timing and impact of this remains uncertain, its
impact on current expenditure levels is expected by the Company is likely to
be substantial.
FINANCIAL AND OTHER MATTERS
At 30 June 2023, the Company's balance sheet had cash of $0.9 million and
liquid financial investments of $0.6 million, giving available funds of $1.5
million.
At the time of writing, we have an SNH approved budget to the end of 2022 with
JV partner expenditure levels agreed to the end of 2023 with the outgoing
Operator. New Age have prepared a draft work plan and budget for 2024, on the
current 'care and maintenance' basis adopted for 2023 expenditure. After that,
we expect a substantial increase in monthly expenditure at Etinde based on an
expected update to the current draft work plan to be proposed by the incoming
Operator, Perenco Cameroon S.A.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FOCUS
Building a robust social licence is a fundamental principle of the Company's
objectives. Through our Operator, we engage the support of our host government
and communities. The development of Etinde will enable us to undertake the
technical, infrastructural and logistical work associated with the
exploitation, development and production at Etinde, both onshore and offshore.
Focal areas of engagement with the Limbe region will include stakeholder
engagement, management of community problems, and land/sea access. We intend
to support the new Operator which has a history of Cameroonian stakeholder
engagement in this regard.
MOVING INTO 2024
Earlier this year we had to reset our operating model and restructure working
relationships with team members that were critical to the stewardship of our
business over the recent years. This involved redundancies and we would like
to take the opportunity to thank these people for the support that they have
provided in circumstances that have been challenging for all. Our hope is that
we can secure funding and that FID materialises during 2024, opening up
opportunities for future possible re-engagement.
The Board continues to anticipate that the acquisition of the New Age stake by
Perenco will complete by early 2024 and this represents a catalyst for the
fund-raising effort and the monetisation of Etinde. The pace of development to
date has been unfortunate of course, but we remain of the belief that the
operational credibility and project backing of Perenco for Etinde should be a
positive outcome for all stakeholders that will reset the business into the
coming years.
Eli
Chahin
Jack Arnoff
Chief Executive Officer Chairman
9 November 2022
9 November 2022
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Revenue -
Administrative expenses (2,156) (2,376)
Operating loss (2,156) (2,376)
Finance and other income 136 (108)
Loss before taxation (2,020) (2,484)
Taxation - -
Loss for the year (2,020) (2,484)
Basic and diluted loss per share
($/share) from continuing operations (0.01) (0.01)
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Comprehensive Loss for the year (2,020) (2,484)
GROUP BALANCE SHEET
30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Non-current assets
Intangible exploration assets 155,543 155,433
Property, plant and equipment 3 13
155,546 155,446
Current assets
Financial investments 644 2,251
Inventory 1,180 1,180
Trade and other receivables 1,739 1,858
Cash and cash equivalents 906 1,273
4,469 6,562
Total assets 160,015 162,008
Current liabilities
Trade and other payables (695) (668)
Total liabilities (695) (668)
Net assets 159,320 161,340
Equity
Share capital 56,517 56,517
Share premium 1,599 1,599
Foreign exchange reserve (69,857) (69,857)
Other reserves 2,767 2,767
Retained earnings 168,294 170,314
Total equity 159,320 161,340
COMPANY BALANCE SHEET
30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Non-current assets
Property, plant and equipment 3 12
Investments in Group undertakings 145,099 145,099
145,102 145,111
Current assets
Financial investments 644 2,251
Trade and other receivables 13,765 13,142
Cash and cash equivalents 891 1,264
15,300 16,657
Total assets 160,402 161,768
Current liabilities
Trade and other payables (389) (311)
Total liabilities (389) (311)
Net assets 160,013 161,457
Equity
Share capital 56,517 56,517
Share premium 1,599 1,599
Foreign exchange reserve (147,715) (147,715)
Other reserves (2,470) (2,470)
Retained earnings 252,082 253,526
Total equity 160,013 161,457
The Company has elected to take the exemption under section 408 of the
Companies Act 2006 to not present the individual parent undertaking income
statement. The result for the Company for the year was a loss of $1,444,000
(2022: loss of $1,821,000).
GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Cash flows from operating activities
Loss before tax (2,020) (2,484)
Adjustments to reconcile Group loss before tax to net cash used in operating
activities:
Depreciation of property, plant and equipment 10 18
Finance (income)/costs (136) 108
Equity-settled share based payment transactions - 80
Loss on sale of property, plant and equipment -
Adjusted loss before tax prior to changes in working capital (2,146) (2,278)
Decrease/(Increase) in trade and other receivables 80 (18)
Increase/(Decrease) in trade and other payables 34 (170)
Net cash used in operating activities (2,032) (2,466)
Cash flows used in investing activities
Acquisition of intangible exploration assets (102) (572)
Sale of financial investments 1,584 -
Interest received 9 -
Dividends received 174 220
Net cash from/(used in) investing activities 1,665 (352)
Cash flows used in financing activities
Lease repayments - (3)
Net cash flows used in financing activities - (3)
Net decrease in cash and cash equivalents (367) (2,821)
1,273 4,094
Cash and cash equivalents at the beginning of the year
Net decrease in cash and cash equivalents (367) (2,821)
Cash and cash equivalents at the year end 906 1,273
COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2023
Audited Audited
2023 2022
$000 $000
Cash flows from operating activities
Loss before tax (1,444) (1,821)
Adjustments to reconcile Company loss before tax to net cash used in operating
activities:
Depreciation of property, plant and equipment 10 18
Finance (income)/costs (130) 87
Equity-settled share based payment transactions - 80
Adjusted loss before tax prior to changes in working capital (1,564) (1,636)
Decrease/(Increase) in trade and other receivables 13 (14)
Increase in trade and other payables 89 9
Net cash used in operating activities (1,462) (1,641)
Cash flows used in investing activities
Increase in inter-company funding (678) (1,398)
Sale of financial investments 1,584 -
Interest received 9 -
Dividends received from financial investments 174 220
Net cash used in investing activities 1,089 (2,819)
Cash flows used in financing activities
Lease payments - (3)
Net cash flows used in financing activities - (3)
Net decrease in cash and cash equivalents (373) (2,822)
1,264 4,086
Cash and cash equivalents at the beginning of the year
Net decrease in cash and cash equivalents (373) (2,822)
Cash and cash equivalents at the year end 891 1,264
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2023
Share Share Foreign exchange reserve Other Retained earnings Total equity
capital
premium
reserves
$000
$000 $000
$000 $000 $000
At 1 July 2021 (audited) 56,517 1,599 (69,857) 2,687 172,798 163,744
- - - - (2,484) (2,484)
Loss for the year
Total comprehensive loss for the year - - - - (2,484) (2,484)
Share based payments - - - 80 - 80
At 30 June 2022 (audited) 56,517 1,599 (69,857) 2,767 170,314 161,340
- - - - (2,020) (2,020)
Loss for the year
Total comprehensive loss for the year - - - - (2,020) (2,020)
Share based payments - - - - - -
At 30 June 2023 (audited) 56,517 1,599 (69,857) 2,767 168,294 159,320
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2023
Attributable to owners of Parent Company Share Share Foreign exchange reserve Other reserves Retained earnings Total
capital
premium
$000 $000 $000 equity
$000 $000
$000
At 1 July 2021 (audited) 56,517 1,599 (147,715) (2,550) 255,347 163,198
- - - - (1,821) (1,821)
Loss for the year
Total comprehensive loss for the year - - - - (1,821) (1,821)
Share based payments - - - 80 - 80
At 30 June 2022 (audited) 56,517 1,599 (147,715) (2,470) 253,526 161,457
- - - - (1,444) (1,444)
Loss for the year
Total comprehensive loss for the year - - - - (1,444) (1,444)
Share based payments - - - - - -
At 30 June 2023 (audited) 56,517 1,599 (147,715) (2,470) 252,082 160,013
NOTES TO THE FULL YEAR FINANCIAL STATEMENTS
For the year ended 30 June 2023
(1) Accounting Policies
Basis of preparation
The financial information in the financial statements has been extracted from
the statutory accounts which have been prepared in accordance with UK Adopted
International Accounting Standard (UK IAS) and in conformity with the
requirements of the Companies Act 2006. The Company financial statements have
been prepared in accordance with UK Adopted International Accounting Standard
(UK IAS) as applied in accordance with the provisions of the Companies Act
2006. The financial statements have been prepared under the historical cost
convention. The financial statements comply with those parts of the Companies
Act 2006 applicable to companies reporting under UK Adopted International
Accounting Standard (UK IAS).
The announcement has been prepared on a basis consistent with the accounting
policies applied to the statutory accounts for the year ended 30 June 2023.
The disclosed figures are not statutory accounts in terms of section 434 of
the Companies Act 2006. The statutory accounts give full disclosure of the
Group accounting policies and will be published as soon as they are available.
On the statutory accounts for the year ended 30 June 2023, the auditor gave an
unqualified opinion and did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006. The statutory accounts for the year ended 30
June 2022 have been filed with the Registrar of Companies.
(1) Going concern
Global market conditions have largely recovered from the direct impact of the
COVID-19 (coronavirus) pandemic. However, there remains a range of after
effects, including shortages of raw materials and production delays, which
have combined with cost inflation, the ongoing green energy transition and the
various impacts deriving from the ongoing Russian-Ukraine war and the
international political response to create significant market uncertainty.
These factors have helped create a period of relatively high price inflation.
The resulting political and economic climate is one of considerable volatility
and ongoing uncertainty.
The most significant sources of material uncertainty facing the Bowleven Group
today relate to:
(i) the timing of completion of the transaction between
Perenco Group and New Age relating to the transfer of operatorship of the
Etinde joint operation;
(ii) whether the transaction between Perenco and New Age will
complete at all;
(iii) the level of spending required under the 2024 Etinde WPB,
which is currently an unapproved draft which has yet to be submitted to SNH
for approval;
(iv) the timing of FID and the receipt of the $25 million FID
payment from LUKOIL and New Age (or Perenco in due course); and
(v) the raising of additional finance to fund Bowleven's
ongoing operations.
The draft 2024 work plan and budget has been prepared on a minimal 'care &
maintenance' expenditure basis by New Age, acting as Operator. Preparing a
revised 2024 WPB and agreeing that plan with ourselves, LUKOIL and SNH, should
be the first significant task facing Perenco when they become Operator at
completion of their transaction with New Age. Whilst the timing of completion
of the New Age transaction with Perenco is unknown, our working assumption is
that this will occur by Spring 2024 at the latest and consider that the
existing JO members will not be able to continue with the current impasse for
much longer.
Whatever happens in the immediate future, progress towards FID has remained
much slower than we ever anticipated. Whilst the existing JO members
determined that the Equatorial Guinea (EG) option, was the most likely
economically viable development scenario, there remains uncertainty as to the
development plan which will be adopted. We expect Perenco may reconsider all
options and may well have their own proposal, which will need to be presented
and approved by the JO partners as a whole. In addition, there remain
considerable commercial and regulatory issues which will require resolution
before FID can be attained. The timing of resolution of these formalities
cannot be accurately predicted as many of them are not within the Etinde JO
partners' direct control. Our current expectation is that these will be
resolved no earlier than 31 December 2024, but we recognise that it may happen
at an even later date.
In this uncertain environment, Bowleven's existing working capital resources
will be extinguished, most likely before Summer 2024, although this will
critically depend on the level of activity at Etinde and the point in time at
which the proposed transaction between New Age and Perenco completes.
The Directors have considered a number of different operational scenarios for
the remainder of 2023, 2024 and thereafter in order for us to prepare short
and medium-term cash flow forecasts and projections for the Etinde development
project and hence the Bowleven Group.
Current cash expenditure levels of the Group are around $1.5 million to $1.8
million per annum. On this basis, the minimum amount of new capital required
in the short term is between $0.5 million and $2 million based on the current
level of activity. However, on completion of the Perenco transaction, we
expect a new project team to be put in place and the current or an alternative
development scheme to be fully developed for presentation and then submitted
for approval to SNH and the Government of Cameroon. This is likely to take at
least 12 months to complete. Currently, we are not able to estimate the likely
expenditure levels that might be proposed.
The Directors have taken these and other potential issues into consideration
when determining the scenarios to use in their assessment of the going concern
status of the Group. These scenarios ranged from no FID being achieved in 2024
through to modelling the impact of a number of different development options
on budgeted, forecasted and projected cash flows until December 2025.
We have made our own assessment and used data available based on various
assumptions regarding the steps and actions that Perenco may take and the
speed at which they may progress the development plan towards FID. We have
assumed FID will occur in late 2024 or later for cash flow modelling purposes
in our base scenario.
Our assumption is that Perenco will most probably choose to conduct a new
assessment of Etinde development options and these steps will most likely
include a new FEED process. By their nature, our expenditure projections for
2024 onwards and later are highly uncertain at this point in time. We believe
that we have adopted a more conservative approach to costs and potentially a
more rapid implementation timetable than Perenco may adopt in practice.
A new equity raise is essential to secure the future of Bowleven at this time,
as the current level of capitalisation will fall short of the level needed in
the immediate future. Over the last 12 months, the Board has been considering
a range of financing options. The Directors have had discussions with
Bowleven's largest shareholder in relation to a potential issue of new shares
to increase the business' cash position to allow it to continue to finance our
working capital needs, as well as provide for further project expenditure at
the Etinde Permit, whilst allowing all current shareholders to participate at
the same price. However, the potential high level of risk relating to the
closure of the Perenco acquisition, together with various global geopolitical
risks, has meant that they are minded to make an indicative and non-binding
financing proposal which would be at a very significant discount to the
current market price of Bowleven shares. As a result, the Board considers it
appropriate to ensure it has explored all available options before pursuing
this proposal and accordingly, it has also been seeking other sources of new
equity capital.
The Board is mindful that the majority of shareholders are long-term investors
in Bowleven and the potential of the Etinde asset. The availability of any new
equity capital, and the final terms of such an equity raise is highly
uncertain, as is the timing, but alongside any new equity financing available,
the Board will seek to provide an opportunity for existing shareholders to
contribute should they so choose.
The Board has also been actively evaluating measures to reduce current
Bowleven expenditure levels in order to create more time to identify and
complete an equity raise. Following further discussion with our major
shareholder, the Board has agreed that the Directors will defer the receipt of
their emoluments to the extent there is insufficient liquidity within the
business over the course of the following 12 months. This will prioritise the
funding of costs necessary to retain going concern status, whereby the
Directors' emoluments will be accrued until such time the liquidity situation
improves or there is a capital raise. In addition, the major shareholder of
the Group has provided a comfort letter confirming their intention to
provide financial support to the extent that cash resources are not otherwise
available for a period of not less than twelve months from the date the 30
June 2023 financial statements are authorised or the date the audit report is
signed, whichever is later, in order for the Group to discharge its
liabilities which primarily relate to general and administrative expenses and
Etinde monthly cash calls.
As the timing of progress towards FID is not within the control of the Group,
we have concluded that it is highly likely that Bowleven may need to raise
additional short-term funding to bridge expenditure to FID. The amount of
additional finance that will be required will depend on the status of the
Etinde development and the likely time period to FID as well as any
anticipated risk to this being further delayed beyond our expectation.
At FID, Bowleven is due to receive $25 million from our JO partners under the
terms of the 2015 farm-in agreement. The Directors do not anticipate any
timing issue relating to receipt of these funds when they fall due but note
that any failure to receive these funds promptly may also cause further
funding issues for the Bowleven Group.
The Directors consider the risk of the Government of Cameroon removing the
Etinde PSC contract from the Etinde JO partners is low at the current time,
for the following reasons:
· the issue of the January 2021 licence expiry date has not been raised
as a formal concern by SNH, and SNH has approved all annual work programmes
and budgets up to and including the year ending 31 December 2022 (2023 is
pending action by New Age);
· we will request the Government of Cameroon eliminate this contractual
uncertainty as part of the FID regulatory approval process; and
· the expected addition of Perenco to the JO as Operator, in place of
New Age, is likely to reduce practical risk of the Government of Cameroon
entering default proceedings.
After taking the preceding funding risks into account, the Directors are
satisfied that the Group would be able to secure additional debt and/or equity
funding in order to finance its share of the Etinde development.
The Directors are nevertheless conscious that the issues discussed above
create a material uncertainty that may cast significant doubt over the Group's
ability to continue as a going concern and therefore, that the Group may be
unable to realise its assets and discharge its liabilities in the normal
course of business. Whilst acknowledging this material uncertainty, the
Directors remain confident of raising finance in 2023/24. Accordingly, the
financial statements have been prepared on a going concern basis as the
Directors are of the opinion that the Group has sufficient funds to meet
ongoing working capital and committed capital expenditure requirements.
The financial statements do not include any adjustments that might result if
the Group were unable to continue as a going concern.
(2) Etinde Valuation
In the previous financial year, we considered that the proposed acquisition of
New Age's 37.5% gross share of the Etinde joint operations, by Perenco setting
a potential external valuation of the Etinde asset as a whole, represents a
triggering event as defined under IFRS accounting standards, requiring the
Directors to formally value Bowleven Group's share of the Etinde project. This
was completed in FY2022 and the results are disclosed in that set of financial
statements. No further valuation impairment provision was considered necessary
at that point in time.
We have updated various assumptions made as part of the FY2022 Etinde
valuation assessment as part of our FY2023 accounting close processes and
reassessed the valuation of the Etinde intangible asset.
Etinde Impairment Review in 2022 and 2023
Etinde Impairment Review in 2023
The proposed transaction between New Age and Perenco setting a potential
external valuation of the Etinde asset has not yet completed and there is
considerable uncertainty when this might happen at the current time. This
represents a triggering event as defined under IFRS, requiring the Directors
to update the impairment assessment carried out in 2022. Accordingly, we have
reassessed and updated the 2022 impairment review assumptions in light of the
ongoing situation.
The principle changes in assumptions are:
· Oil price, which has increased;
· Timing of FID and first revenue is now assumed to be the end of 2024
and January 2027 respectively; and
· A cost inflation assumption to update FEED based expenditure
assumptions to current day base line (of 10%)
In addition, we have modelled and assessed scenarios for the main development
options with an additional one and two year delay to FID and first revenue as
sensitivity cases.
Otherwise, our key assumptions, as set out below (and in the 2022 annual
report and accounts), remain unchanged.
Our base line financial modelling demonstrates that the 1 January 2024 value
of Bowleven Group's 20% share of the Etinde development project ranges from
$177 million to over $200 million at $75 Brent, $6 LNG export price and $3
domestic gas price points.
The key sensitivities in our valuation models include:
· Oil price. Increasing oil export price to $80 per bbl has a positive
impact of around $10 million to $15 million increase in NPV, depending on the
development scenario;
· Discount rates. Increasing risk-weighted discount rates from 15% to
17%, reduces NPV by around $20 million to $25 million, depending on the
development scenario; and
· Delaying FID and first revenue to 2028 decreased valuation by around
$25 million.
On this basis, the Board has concluded that the current net book value of the
Etinde intangible asset (at $156 million) is not impaired at the current date.
However, in reaching this conclusion we do note that there are potential
material uncertainties and that we cannot rule out further impairment
triggering events arising in future periods and that a lower valuation may be
estimated at that point.
Impairment charges were previously recognised in both 2015 and 2016 totalling
$136.7 million (2016: $60.7 million; 2015: $76 million).
Etinde Impairment Review in 2022
The discounted cash flow model was used in 2022 to determine our best estimate
of the expected value of the development of the Etinde asset taking into
consideration the following factors and assumptions:
· the macroeconomic environment globally and in Cameroon;
· prevailing market conditions in the oil and gas industry;
· a conservative and phased inclusion of the hydrocarbon resource
available for development;
· the commercial and governmental situation in Cameroon;
· the JO partner approved EG development scenario, plus additional
consideration of potential alternate approaches that Perenco, as incoming
Operator, might propose at a future date;
· that the development will seek to maximise production from the outset
giving due consideration to the potential for supplying gas to both Cameroon
domestic and export supply;
· that condensate can be supplied to either the global or domestic
markets for the same value;
· differential gas and LNG process for the Cameroon domestic and
LNG-based European gas export market;
· infrastructure capital and operating costs estimates are based on
FEED and pre-FEED engineering studies undertaken or assessed between 2019 and
2021, except where pricing data was not available; and
· the Etinde asset is considered to be a single cash-generating unit
and includes historic exploration costs incurred on the Etinde Permit in line
with the treatment of those costs for cost recovery purposes.
Until the JO partners and the Government of Cameroon issue FID and gain the
necessary approvals, any valuation of Etinde will include many uncertainties
and risks. Any financial model that is prepared at this stage of the process,
in the period immediately prior to the point in time that development consent
is given and approvals issued, is inherently uncertain. The most significant
uncertainties impacting the valuation model include:
· reaching commercial agreement with potential off-takers and receiving
governmental approval to export gas;
· agreeing the development solution with joint venture partners and
other stakeholders;
· raising finance to fund development post-FID; and
· any impact arising from FID date and the subsequent governmental
approval of the revised field development plan. The current PSC terminates in
2045, however, failure to complete the initial work programme set out in the
Presidential decree and EEA documentation within the first six years after
approval in January 2015 may be used to provide grounds under which the
Government of Cameroon can proceed to terminate the Etinde development licence
early at their discretion, following the process set out in the Cameroon
Petroleum Code.
We have applied a risk-weighted discount rate of 15% to the projected Etinde
cash flows, based on FID in late 2024, with first revenue projected to occur
after 2026, with the date depending on the development scenario considered.
All capex costs include a project contingency of 20% and allow for EPIC
contract costs of 15% and 5% withholding tax applied on imports under Cameroon
fiscal code. The largest single risk factor included in the discount rate
reflects the risk relating to government approval of the EG development option
and a likely longer period to reach the approval.
We have used a reasonable range of condensate, Cameroon domestic and European
export gas (LNG) pricing taking due account of currently available long-term
oil and gas price forecasts prepared by internationally reputable bodies such
as the IMF, World Bank and US EIA, as well as other oil and gas businesses and
market commentators. We have used a range of recovered oil and gas reserves
from various discovered oil and gas condensate fields based on the latest
reservoir modelling information prepared by New Age on a C2 (P50) resource
basis. Our base line financial modelling demonstrates that the 1 January 2023
value of Bowleven Group's 20% share of the Etinde development project ranges
from $158 million to over $200 million at $65 Brent, $6 LNG export price and
$3 domestic gas price points.
Whilst we have prepared financial forecasts for alternate development
scenarios that Perenco may propose to the JO partners, we note that any such
alternative will require the formal approval of at least LUKOIL as well as SNH
and the Government of Cameroon to become official JO policy. Due to the nature
of these alternate potential developments, our forecasts have a higher degree
of uncertainty as they have not been studied in detail as part of FEED or
pre-FEED activities. In general terms, these scenarios tend to have higher
initial capital development costs (which may be reduced by sale and lease back
arrangements) and higher operating costs, giving rise to a lower calculated
NPV range. Offsetting this, the risk weighting attached to the time/approval
of any Cameroon focused development is materially lower than for the EG
option. Using lower discount rates partially offsets the impact of higher
costs. In any case, the Board of Bowleven remain adamant that we will not
approve any alternate development scenario that provides a significantly lower
economic return to Bowleven's shareholders.
(3) Other Notes
a) The loss attributable to ordinary shares and the number of ordinary
shares for the purpose of calculating the diluted earnings per share are
identical to those used in the basic earnings per share. The exercise of share
options or warrants would have the effect of reducing the loss per share and
consequently are not taken into account. In the prior year, the loss
attributable to ordinary shares and the number of ordinary shares for the
purpose of calculating the diluted earnings per share were identical to those
used in the basic earnings per share.
b) Directors have not recommended a dividend (2022: nil).
c) As at 30 June 2023, a contingent asset of $25 million is disclosed for
the FID consideration relating to the Etinde farm-out and will be credited to
intangible exploration assets once further clarity around Etinde project
sanction/FID is obtained.
(4) 2023 Annual Report and Accounts
Full accounts together with a notice of AGM are scheduled to be posted on [ ]
November 2023 to shareholders who elected to continue to receive a hard copy
report and can be obtained free of charge, at the Company's registered office,
50 Lothian Street, Edinburgh, EH3 9WJ for a period of one month after
publication. For shareholders who opted to receive the annual report
electronically, notification will be provided when the annual report is
available to access from the company website www.bowleven.com
(https://url.avanan.click/v2/___http:/www.bowleven.com___.YXAxZTpzaG9yZWNhcDphOm86ODVhNTkxYTI0MjlmNTRhNTgzMGY4OWEyNDJhZThhOTE6NjpjYWVhOjM3NzU4OGQ2YjI0MzY3MzViOTVmZTgwMjIwMmNmZDBkYzExNTc1NmNjZDk5ZTk2NmNiODMxMDBjODE1MjE5ODc6cDpU)
.
GLOSSARY
AGM annual general meeting
AIM the market of that name operated by the London Stock Exchange
Articles of Association the internal rules by which a company is governed
BBL or bbl barrel of oil
bcf or bscf billion standard cubic feet of gas
Board of Directors the Directors of the Company
boe barrels of oil equivalent
Bomono Permit/Licence the production sharing contract between the Republic of Cameroon and EurOil,
dated 12 December 2007, in respect of the area of approximately 2,328 km2
comprising former blocks OLHP-1 and OLHP-2 onshore Cameroon; or, as the
context may require, the contract area to which that production sharing
contract relates
Bowleven or Bowleven plc Bowleven plc (LSE: BLVN) and/or its subsidiaries as appropriate
CAMOP New Age Cameroon Operating Company
CFA Central African Francs
Companies Act 2006 (the Act) the United Kingdom Companies Act 2006 (as amended)
contingent resources those quantities of hydrocarbons that are estimated to be potentially
recoverable from known accumulations, but which are not currently considered
to be commercially recoverable
EA Exploitation Authorisation
EBT employee benefit trust
EEEA Etinde Exclusive Exploitation Agreement
EG Equatorial Guinea
E& P exploration and production
Etinde Permit the Etinde Exploitation Authorisation (EA) area. The Etinde EA, granted on 29
July 2014, covers an area of approximately 461km2 (formerly block MLHP-7) and
is valid for an initial period of 20 years with an initial six-year period
ending January 2021, by which time development must commence. SNH have
informed the JO of their intention to exercise their right to back into this
licence, but have not signed the Participation Agreement and funded their
share of cash calls in accordance with the requirements set out in the PSC
EurOil EurOil Limited, an indirectly wholly owned subsidiary of Bowleven plc,
incorporated in Cameroon
FEED Front End Engineering Design
FID final investment decision
FLNG Floating liquefied natural gas
G&A general and administration
GIIP gas initially in place
Host Government Government of Cameroon
Group the Company and its direct and indirect subsidiaries
HSSE health, safety, security and environment
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Intra Isongo nomenclature used to describe a sequence of sedimentary rocks in the Etinde
licence area
JO, JV or JV partners an unincorporated joint operation. Joint Venture partners are the financial
investors who jointly own and operate the unincorporated joint operations
km kilometres
km2 square kilometres
LNG liquefied natural gas
LPG liquefied petroleum gas
LTIP long-term incentive plan
LUKOIL LUKOIL Overseas West Project Limited, a subsidiary undertaking of OAO LUKOIL
Macquarie Macquarie Capital (Europe) Limited
mmbbls million barrels
mmboe million barrels of oil equivalent
MMBtu Metric Million British Thermal Unit
mmscf million standard cubic feet of gas
mscf thousand standard cubic feet of gas
New Age New Age (African Global Energy) Limited, a privately held oil and gas company
New Age Group New Age and its subsidiaries
NOMAD nominated advisor
ordinary shares ordinary shares of 10 pence each in the capital of the Company
P10 (3C) 10% probability that volumes will be equal to or greater than stated volumes
P50 (2C) 50% probability that volumes will be equal to or greater than stated volumes
P90 (1C) 90% probability that volumes will be equal to or greater than stated volumes
PSC production sharing contract
Q1, Q2 etc. first quarter, second quarter etc.
scf standard cubic feet.
shareholders means holders of ordinary shares and 'shareholder' means any one of them
SNH Société Nationale des Hydrocarbures, the national oil and gas company of
Cameroon
tcf trillion cubic feet
TCM Technical Committee Meeting
US United States of America
$, US Dollars, USD United States of America Dollars
£, GB Pounds, GBP Great Britain Pounds Sterling
WPB Work plan and budget
Notes:
Prospective resources, contingent resources and reserves shall have the
meanings given to them by the guidance on petroleum resources classification
contained in the 2007.
SPE Petroleum Management System published jointly by the Society of Petroleum
Engineers, The American Association of Petroleum Geologists, the World
Petroleum Council and the Society of Petroleum Evaluation Engineers.
For the purposes of this announcement, 6mscf of gas has been converted to
1boe.
Notes:
Prospective resources, contingent resources and reserves shall have the
meanings given to them by the guidance on petroleum resources classification
contained in the 2007.
SPE Petroleum Management System published jointly by the Society of Petroleum
Engineers, The American Association of Petroleum Geologists, the World
Petroleum Council and the Society of Petroleum Evaluation Engineers.
For the purposes of this announcement, 6mscf of gas has been converted to
1boe.
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