Bowleven Plc: assessing the investment case
I first came across Bowleven (LON:BLVN) , as a potentially interesting investment, at the Oilbarrel Conference in Sep 2010. [ref] Oilbarrel Presentation http://www.oilbarrel.com/fileadmin/content/pdfs/oilbarrel/9th_September/Bowl.pdf [/ref] What made it interesting to me at that time was:
- A strong management team, with key players being ex-Cairn [ref] Kevin Hart http://www.bowleven.com/Kevin-Hart.asp [/ref] [ref] Ed Willet http://www.bowleven.com/Ed-Willett.asp [/ref] and ex-BG [ref] John Morrow http://www.bowleven.com/John-Morrow.asp [/ref]
- A decent cash position & sound, tested assets [see "Assets"]
- Partnership with a big player, in the shape of Vitol [see "Vitol Agreement" below]
- Lots of potential upside from drilling, with the major Sapele-1 well due to spud shortly
Against that, I had to balance the political risk of operating in Cameroon and risks associated with commercialising existing discoveries, meaning that they can currently only be classed as "contingent resources", as opposed to 2P reserves. Anyhoo... I decided to take a punt in October 2010 when, despite Sapele-1 having already spudded and initial results being expected soon, the share price had remained remarkably subdued. That proved a good decision with my original punt having now double-bagged.
Long story short, I believe that the market has misunderstood the company's latest RNS concerning the Sapele-1 well and that there may be considerable excitement to come - hence I have topped up today (Wednesday 9th Feb), with the SP well off its recent peak. AIUI one rig is standing by, waiting for government approval to sidetrack Sapele-1, in order to appraise a Tertiary oil discovery made in the original well and another, more capable rig, is on its way. That rig will drill a step-out well into deeper, more "challenging" Cretaceous prospects.
Lots more drilling is expected over the course of 2011 with those rigs, and Bowleven has the cash to fund it.
I will start by discussing the Sapele-1 well and then come back to discuss already tested assets that (at least to some extent) underpin Bowleven's current market cap. of £716m, irrespective of Sapele-1 results.
Sapele-1
Well/News Timeline
Sapele-1 is the second well drilled by Bowlen in its shallow-water MLHP-5 Block offshore Cameroon (75% equity interest). The first, D-1r well in 2007 made a gas-condensate discovery, flowing 25mmscf/d + 1,400bopd condensate in the Tertiary horizon. Following 3D seismic acquired during 2010, Sapele-1 is designed to intersect multiple prospects in both Tertiary and Cretaceous strata. It was spudded on 14th September 2010 [ref] Sapele spud announcement http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns//100915blvn000771.htm?title=bowleven-plc-the-start-of-drilling-on-sapele-1-exploration-well [/ref] .
- On 9th November, Bowleven announced two Tertiary discoveries [ref] Tertiary Discoveries http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/101109blvn001398.htm/?title=bowleven-plc-sapele-1-drilling-update [/ref] .
- On 25th November, an increase to the discovered Tertiary net pay was announced [ref] Additional Tertiary net pay http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/101125blvn000801.htm/?title=bowleven-plc-sapele-1-exploration-well-update [/ref] .
- Following a strong SP rise, Bowleven placed 22m shares @ 327p (11% dilution) raising ~US$110m and securing ample funding for the 2011 explo programme on 26th November [ref] Placing http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/101126blvn002237.htm/?title=bowleven-plc-pricing [/ref] . Shrewd move. ;0)
- On 10th January, Sapele-1 reached a TD of 4,529m in the Cretaceous. A gas-condensate discovery in the Cretaceous and a STOIIP estimate for the previously intersected Deep Omicron Tertiary target of P90 65mmbbls - P10 430mmbbls were announced [ref] Cretaceous reached http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/110110blvn000313.htm/?title=bowleven-plc-further-drilling-success-with [/ref] .
During this period, the SP rose fairly steadily from a base of around 160p, peaking at over 400p. It appears that there was some disappointment with the last announcement, probably due to the relatively thin pay in the "Cross-cut" objective and the Cretaceous (so far) only yielding gas-condensate and not oil, and the SP has subsequently declined.
Then, this Monday 7th February, Bowleven released the following announcement [ref] Sapele halt http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/110207blvn7696a.htm/?title=drilling-update-sapele-1-di [/ref] :
Bowleven, the West Africa focused oil and gas exploration group traded on AIM, announces that the Sapele-1 exploration well drilling in the Douala Basin, offshore Cameroon has been drilled to a total depth (TD) of 4,733 metres. Drilling was halted due to technical limitations after encountering a high pressure gas reservoir in the Cretaceous. The bottom hole section has been cemented and is now being abandoned in advance of planned appraisal drilling.
Update
· Oil, condensate and gas confirmed as present in the Cretaceous and the well may now have encountered a significant hydrocarbon column at TD.
· Proposed forward plan includes appraisal drilling and well testing to further evaluate Tertiary discoveries.
· Additional rig secured for drilling up to four wells on the Etinde Permit; expected on contract towards end February 2011.
Drilling update
The Sapele-1 well location was selected to intersect multiple independent exploration targets from the proven Tertiary fairway down to the deeper Cretaceous fairway from a single location.
On 10 January 2011, Bowleven advised that further Cretaceous targets had been identified beneath the original planned target depth of the well (4,450 metres) and the plan was to deepen the well. The well was drilled to a TD of 4,733 metres before drilling was halted due to a rapid influx of very high pressure gas. Consequently, logging of the interval was not possible and the bottom hole section is being abandoned. Based on an initial analysis of the major step change in pressure encountered and the interpretation of the seismic, it is considered that the well may have encountered a significant hydrocarbon column in the Cretaceous.
Further analysis of mudlogging and wireline data, together with gas chromatograph ratio analysis, has confirmed oil shows were encountered within thin sands in the upper part of the Cretaceous Epsilon Complex.
Further interpretation and calibration of the well and seismic data is required to assess fully the implications for Cretaceous volumetrics...
The market didn't seem to like this much at all, and the SP has continued declining since, now standing at around 333p.
It is possible, however, that the market has got it wrong. Firstly, judging by comment I have read, including those by some analysts, "high pressure gas influx" has been widely interpreted as meaning that the well has just found gas in this deeper Cretaceous section. However, as those of us that followed the sad Macondo saga know, a high pressure gas influx doesn't necessarily mean that there isn't oil there too!
Considerably more detail/information is contained in a presentation [ref] Credit Suisse Energy Summit Presentation http://www.bowleven.com/uploads/Credit%20Suisse%20Energy%20Summit%20Vail%20Feb%202011%20PPT%20FINAL.pdf [/ref] that Bowleven gave at a Credit Suisse energy conference, the same day as the announcement. This includes diagrams that help to understand the well context and sequence. However, the most interesting information was in an analyst/investor conference call that Bowleven held and which I highlighted here.
Analyst/Investor Teleconference
I took the following notes from the telecon:
- All targets confirmed hydrocarbon bearing
- Tertiary “unequivocal”
- Lower Omicron gas-condensate 20m net pay 290bcf GIIP
- Deep Omicron oil 20m net pay 21% porosity 217mmbbls OIIP P50 estimated
- Gas condensate in base of Cretaceous Epsilon Complex 4m net pay 13% porosity
- Deeper potential – intended to drill on
- Since established (from logs) that there was oil in thin sands in upper Cretaceous Epsilon Complex, more work needed (encouraging)
- Beneath Epsilon, cemented liner, drilled on in 6” hole to 15,529’ – extreme pressure found resulting in kick. Bottom hole pressure calculated as 15,180psi, step change of 4,500psi from previous value – extreme HPHT.
- V pleased with outcome to date but unable to log bottom section properly
- Major cement needed downhole to control well after this, so impossible to perforate Deep Omicron. Significant flow expected from Deep Omicron, given quality of logged reservoir sands.
- Intend to sidetrack to location 2km from current well to appraise Omicron with current rig. In talks with Cameroon govt at present to agree this.
- Intend to test Cretaceous downdip, 7-8km step-out, with new, more capable, rig as its first task.
- Sidetrack will take 50days from start (once govt agrees & ops restart)
- Cretaceous step-out expected to be 60 day well.
- Believe acreage may be a fairway - need to demonstrate connectivity. "May have a tiger by the tail."
- Considerable interpretation work to be done to determine further drilling locations.
- Will be expecting extension to licence beyond 2011 to allow for appraisal period.
My key "takeaways" from this are:
- We have an excellent discovery in the Deep Omicron target, maybe ITRO 100mmbbls recoverable, plus a "bonus" gas volume in the shallower target.
- In this well, thin oil-bearing sands were discovered in the Epsilon Complex. If MLHP-5 contains a "play fairway", as hypothesised, they may be thicker at a different location
- The 4,500psi step change indicates something very serious going on in the deep Cretaceous (below Epsilon Complex). There were clearly serious well control problems, given the need for emergency cementing to kill the well.
- Given that the deeper Cretaceous section couldn't be logged properly (due to the well control issues), we don't know what hydrocarbons are present there.
- A 7-8km step-out downdip is a very interesting prospect. I presume that by going downdip, they are more likely to encounter oil (or water!), as gas/condensate will tend to migrate updip? Moreover, if they DO find oil 7-8km away it adds strong weight to the connectivity/play fairway theory and we'll have a very exciting discovery on our hands.
- If the "fairway" theory is correct, Bowleven may have acreage holding prospects much larger than analysts are currently gving credit for.
- Exciting drilling should start and be announced soon: the sidetrack to flow test the Omicron targets is just awaiting government approval, so could be announced any time. The other rig seems likely to arrive and spud the stepout well next month (but I think 60 days drilling time is optimistic, given the HPHT issues - hope it doesn't turn into another TGD!).
So, for the traders amongst us ;0), we should have drilling resumption/spudding news soon that may reinvigorate the SP. The upside here, if these wells are successful, is potentially very large: a recent Evolution note puts the upside at around 800p/share (i.e. over 1150p overall SP). From the presentation, drilling in MLHP-5 is planned throughout 2011 (5 wells, including the Sapele-1 sidetrack), so Bowleven have a good chance of finding/delineating whatever oil/gas there is in the block.
Assets
As I've said, the upside is potentially very large. What about the downside protection?
Cash
For a start, we have ~$190m in cash as at 31st December (88p/share) - but, of course, this will be eaten into heavily by the intensive 2011 drilling programme.
EOV
From the annual report (dated 8th November 2010):
Gabon – EOV Permit
Following the initialling of an SPA last year for the
disposal of the Group’s entire interest in the EOV
Permit, offshore Gabon, the focus for the current year
has been engaging with the various authorities in Gabon
to formalise the disposal. Progress has been made and
completion is anticipated within the next six months.
Proceeds expected include a cash consideration of
$35 million and a working capital adjustment from
the effective date of the transaction.
So, that should be another 16p/share.
Etinde Permit
This comprises blocks MLHP-5, -6 and -7, all shallow water offshore Cameroon.
Bowleven has already made several discoveries in MLHP-7 (see slide 15 of the Credit Suisse presentation). These total 959bcf of GIIP, 119mmbbls of NGLs (condensate) IIP and 232mmbbls of STOIIP. These are subject to appraisal, scheduled to begin in Q2 of this year. The slide also shows unrisked potential upside in that block of a further 2Tcf of gas and 91mmbbls of condensate IIP.
The annual report claims Pmean contingent recoverable resources of 494bcf of gas, 30mmbbls of condensate and 72mmbbls of oil (net of Vitol's interest - see below). These resources remain contingent until a clear route to commercialisation is established. Clearly, the more hydrocarbons Bowleven find at Etinde, the stronger the chances of commercialisation. Bowleven's appraisal effort, in conjunction with Vitol, is designed to establish commerciality. Note that GdF is studying LNG feasibility for other existing Cameroon gas discoveries.
Given the contingent nature of the resource and the impact of political risk in Cameroon, I would put a low figure of $8/bbl on the value of oil & condensate - and, for simplicity let's disregard the gas entirely. Any views/comment on my choice of that figure welcome! That still yields $816m of current value - but with risk attached in the (not very likely, IMO) event that commerciality is not proven.
In addition to this, the Sapele-1 Deep Omicron discovery alone could add a mean recoverable resource of around 60mmbbls of oil (using 30% recovery factor), subject to forthcoming appraisal - maybe another $480m.
So, a successful appraisal of these discoveries would lead to around $1.3bn of value = 376p/share.
Bomono Permit
This comprises two blocks onshore Cameroon, with a 100% W.I. Evaluation and further 2D seismic acquisition is ongoing. Drilling is planned for 2012. I'm not assigning any core value here.
Epaemeno Permit
This comprises two blocks onshore Gabon, with a 50% W.I. - the other 50% having been farmed out to Addax (now owned by Sinopec). Drlling is planned for 2012. No core value assigned.
Summary
Subject to successful appraisal and commercialisation negotiations, ISTM that the current SP is pretty well underpinned by discoveries already made.
Vitol Agreement
Vitol is one of world's largest energy trading companies ($143bn revenues in 2009). In June 2010 Bowleven successfully completed a farm-out agreement with Vitol over the Etinde permit [ref] Vitol agreement http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/100617blvn000441.htm/?title=bowleven-plc-transaction-with-vitol-completes [/ref] .
Bowleven, the West Africa focused oil and gas exploration group listed on AIM,
is pleased to announce that the Etinde Permit (Etinde) farm-out transaction
entered into with Vitol E&P Limited (Vitol) has completed.
The farm-out transaction announced on 12 August 2009 comprises the acquisition
by Vitol of an initial 25 percent interest in Etinde in return for funding a
$100 million gross work programme. Vitol also has an option (exercisable on or
before 30 September 2010) to acquire a further 25 percent interest in Etinde in
return for funding a further $100 million gross work programme and paying $25
million in cash to Bowleven to progress Etinde activities.
Clearly, Vitol's interest is a substantial indication of interest in Etinde - though it coud be taken as implying a value of only $300m for Bowleven's interest - but that was before the Sapele-1 well confirmed the prospectivity of block .MLHP-5.
On 1st October, Bowleven made the following self-explanatory announcement [ref] Vitol Revised Option http://www.stockopedia.com/share-prices/bowleven-LON:BLVN/news/rns/101001blvn000855.htm/?title=bowleven-plc-bowleven-vitol-option-update [/ref] regarding the option mentioned above:
Bowleven, the West Africa focused oil and gas exploration group listed on AIM,
is pleased to announce that it has entered into a revised option agreement with
Vitol E&P Limited (Vitol) in respect of the Etinde Permit (Etinde), offshore
Cameroon.
Under the agreement, which replaces the previous option arrangement, Vitol have
an option to acquire a 10 percent participating interest in block MLHP-7,
Etinde, in return for funding an agreed $50 million gross appraisal work
programme. The option expires on the earlier of (i) the spud date of the next
appraisal well on block MLHP-7 or (ii) 31 March 2011. The option arrangement
excludes blocks MLHP-5 and MLHP-6, Etinde, where the Sapele-1 exploration well
is currently being drilled. Bowleven will retain operatorship of all three
blocks.
The nature of the option and its applicability to only block MLHP-7 reflects
Vitol's primary focus on appraisal and development activities and the
understandable requirement for further technical work to be completed prior to a
firm future development and appraisal plan being agreed on the IE and IF field
areas. In this regard, work is ongoing integrating the results of the recent
IE-3 appraisal well and on the processing and interpretation of the newly
acquired 3D seismic over the IF field area.
Bowleven and Vitol currently have participating interests of 75 percent and 25
percent respectively in the Etinde Permit. In the event of option exercise,
Bowleven's participating interest in block MLHP-7 would be 65 percent with
effect from the date of exercise, with its participating interest in blocks
MLHP-5 and MLHP-6 remaining at 75 percent. All participating interests are
expressed prior to the exercise of any state back-in rights...
Note that the option only offers additional rights in block MLHP-7, not MLHP-5 where Sapele-1 was drilled.
Political Risk
I have to say that IMO the poltical risk is considerable. Cameroon ranks as #146 out of 178 countries in Transparency International's Corruption Perceptions Index [ref] Corruption Perceptions Index http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results [/ref] , the same ranking as Haiti, Libya and Iran (amongst others). The current "authoritarian" regime has been in power under President Paul Biya since 1982. He is now 78 years old. ISTM that in the event of "regime change" there is a risk of PSAs being ruled invalid. However, there is no reason to expect imminent regime change. So, I am pleased to see Bowleven aiming to prove up their licences ASAP. I would not want to hang around as an investor during a lengthier development phase.
Conclusions and Summary
Bowleven has an exciting imminent (if you'll excuse my use of that word!) exploration programme. Results could be well in excess of current analyst expectations (Evo, for example, puts the unrisked upside in MLHP-5 at 336mmboe, gross resource, which I think is low - potentially). Geological and political risks remain, however, so IMO it would not be wise to "farm bet" this one, even though there is some decent asset underpinning, but a modest holding could be highly rewarding.
Readers will note that I have not attempted a full risked EV for Bowleven - I'll leave that to the professional analysts. This is not simply laziness but also because such analyses can appear to give a spurious accuracy to highly inaccurate numbers. CoS is a highly inexact science - and when you add in commerciality risks (which include judgement on politics and future commodity prices) things can really get silly. Senior oil industry executives that I've spoken to and respect highly (I'd better not mention names, as I wouldn't want to upset their relationships with the analyst community ;0) - but I am not talking about Bowleven's executives) are very scathing about the validity of such analyses.
The bottom line is that you have to make your own judgement of risk vs reward.
Regards,
Mark
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112 comments
Is anyone still here?! If so, do the recent resource upgrade at MHLP-5 and payment for the EOV permit go very far towards repairing trust in management? I note Vitol recently declined their additional 10% option.
sxit. out all day doing some filming with my mistress. ballbusting then a damn good caning. came hope to take a 30%loss. in@135 this morning. all looked so nice at 10am at 150. anyhow. least i missed the pleasure of seeing 80. will figure it out tommorow. notover exposed(just a probe buy) so for me all to play for.
looked in the mirror at my welts and lashings and at the screen at my dreams. ouch! gla still looks on the 5 yr chart that im buying the bottom so that will do. probably just hold and add. dont mind waiting 9 months. gla
funny sold bzm this morning 30.79 sold 35.79 and made abit. this was 147 when i went out. and with this hit think im still just up on the day hehe
alot of me other stocks are absolutley flying so just another crazy day in AIM could do 120 and 20p in about 20 secs flat anything can happen! just another crazy day in AIM...gla. yeeeha!
Hi Marben,
Fantastic, thorough write up! Thanks!
I had hoped to go when I saw the date published but it transpired I was busy on the day.
Given what you've said about the political risk during the development phases, would you looking to exit if a takeover is not forthcoming before then? Were the board confident that, although time consuming, the dots and crosses would be made?
On a portfolio level, the number of resource stocks I have which will/may require big funding is becoming a sore issue. I fear that I should have seen it coming and resultantly I am likely to stay on the sidelines here until the funding picture becomes clearer. There comes a price where assets just look TOO cheap, but then, too many prior decisions like that have seen my portfolio get to the state it's in! :o)
Thanks again for providing such a clear and thorough write up on sharesoc.
Best,
JS123
Thanks for your kind words, JS123.
Concerning the second point, first - well, you'd hardly expect them to be anything other than confident! I certainly have the impression that they feel geological risk is low, bearing in mind that a reasonable number of wells have now been drilled in MLHP-5 and -7 and extensive 3D and 4COBC (4 component, ocean bottom cable) seismic data has been obatined. Market/financing risk is unquantifiable - impossible to judge, but I'm a bit worried there that Vitol may be the only interested partner, and without a proper competitive process, Bowleven will not have a strong negotiating position. Unless market conditions and Bowleven's share price improve, the market cap. will look pretty small against the amount of capital required to develop these discoveries.
Though there has been a significant increase in contingent resource over the last year, I am very disappointed that progress has been so slow and especially that there is no clear timeline for proving that the MLHP-5 (Sapele) discoveries are commercial (by the extended flow test that is necessary).
Coming back to your first question: I said in my conclusions:
Following the AGM (and the track record over the last year), I do not have that confidence, so I am looking for an early exit. Reluctant to do so at such a depressed SP - but I have been buying Soco over the last few weeks (adding some more yesterday) and Soco's share price won't have to fall much lower before I feel that the likely upside vs risk on that significantly outweighs that for Bowleven (IMO the upside for the latter is potentially higher but the risk is very much higher), so I'd then prefer to dump Bowleven in favour of more Soco. Obviously that is entirely a personal opinion - and probably biased due to the very disappointing share price performance this year, despite my best efforts to remain objective.
Unfortunately, just as with Aminex, the much lower share price triggers a vicious circle, where the company's market cap. looks small against the costs necessary to explore and develop its assets and dilution risk becomes high.
Incidentally, a key signal for anyone hanging on (including me) will be whether Vitol take up their additonal 10% option. If they do not, it suggests to me that they are not overly impressed by the 3D4COBC results/interpretation.
Best,
Mark
I attended Bowleven's AGM in Edinburgh last Wednesday and have posted a detailed AGM report on ShareSoc's member network here: http://sharesoc.ning.com/xn/detail/6389471:Comment:15019
Access to the member network is only open to ShareSoc members but, if you're not already a member, you can join free of charge, here: http://www.sharesoc.org/free_membership.html The report includes sensitive details that I do not feel are suitable for publication on a public BB.
Here are my conclusions, from the report:
The company has spent a great deal of investors money over the last several years* and will be spending considerably more over the coming year, but it is still not at the point where an independently verified project development plan can be put to investors, nor reserves booked. Therefore, the investor will have to have great confidence in the validity of management estimates and views and in their ability to turn the company’s discoveries into a profitable enterprise.
It appears to me that there are considerable risks at this point:
Against these risks we have to take into account that the market cap. now stands at under £200m, with cash of ~$130m and contingent resources exceeding 200mmboe.
The investor must judge whether the likely reward outweighs the risks.
*The Group’s balance sheet shows called up share capital and share premium of US$657m raised from shareholders (before the most recent fund raising).
Regards,
Mark
http://www.investegate.co.uk/article.aspx?id=201112131719469087T&fe=1
A tad generous if you ask me, especially given the dire three year share price performance.
I take it adding value on the share price front wasn't one of the parameters by which these entitlements were deemed to have fulfilled their performance conditions...
Hi fangorn,
Couldn't agree more with your "generous" comment.. LTIP performance criteria are based on 3-year TSR vs a comparator group of small/midcap oilies. The full award is granted if upper quartile performance is achieved.
The award just vested relates to the period from 11 December 2008 to 10 December 2011. As it happens, the SP stood at around 35p in December 2008 - so even today's lowly 63p SP looks good against that. The 2009-12 award will be based on a start price closer to 90p.
IMO these LTIPs are a nonsense. It's not as though the CEO's base salary of $572K is exactly miserly (with cash bonuses + perks taking it to nearly $1m last year - more than that the previous year). Through owning a decent number of shares, his interests should already be aligned with those of shareholders, so I don't think that argument for LTIPs holds either.
Cheers,
Mark
PS that's another good reason for anyone that's not already a member of ShareSoc to join us. We're campaigning for committees dominated by shareholders to set director remuneration, not for other directors appointed by company boards to do so. We need your support!
I haven't looked at the details of this particular LTIP, but I strongly suspect that you are being economical with the report of its terms. Other LTIPs I have looked at all have absolutely zero vesting UNLESS the total return to shareholders has at least matched the median return from the comparator group over a multi-year period. I'd certainly say that on the face of it a top quartile performance triggering a full award is on the generous end (other schemes might require a top 10% performance) but the basic principle of LTIPs is surely sound - which is that awards are only received if the shareholder returns have been significantly better than with other comparable companies. If the shareholders have received a "better than average" return, then why shouldn't management share in the success that they have helped to create, as part of their overall package?
On a technical point, though, it is worth looking closely at the make-up of the comparator group. I've seen examples where inappropriate comparators have been selected.
I make no comment, though, about the total comp.
ee
Hi ee,
Yes, AIUI that is correct in Bowleven's case too. But all that means is that directors don't get an award unless they do better than average. I'd hardly expect them to get one if they didn't at least achieve that.
There you and I disagree. If the only "incentive" (on top of basic salary) were an LTIP, that might be reasonable. In many cases I've seen including Bowleven's), recent awards have comprised:
Together, these often amount to a potentially substantial multiple of basic salary. What difference are awards of this magnitude likely to make to executive performance? Very little, I suggest (and Jerome van der Veer, former Royal Dutch CEO agrees). Why is it felt that highly paid executives need these sort of massive incentives, whereas ordinary employees do not?
Further details of the view of ShareSoc's Board (which I strongly agree with) can be found in our response to the BIS consultation on executive pay, here: http://www.sharesoc.org/ShareSoc%20executive-remuneration%20response.pdf
Rather than a complex LTIP and cash bonuses, why not award the executives a reasonable number of straightforward share options, with a strike price no lower than the share price on the date they are awarded, and with carefully chosen performance conditions before vesting? That would fully align executives' interests with those of shareholders, even if they can't afford to buy significant numbers of shares themselves. The usual condition of remaining in employment for a certain period in order to retain the options would also help with retention of such staff.
On request, the chairman did show me that after the AGM, in confidence. I am very aware of the issue you raise (cf Dana ;0)). I was satisfied that the comparator group chosen for Bowleven's scheme was a representative set of small/midcap oilers.
Best,
Mark
Mark,
With respect you are tilting at the wrong target! Your complaint seems to be one of excessive compensation in aggregate NOT the LTIP itself (which we agree is only worth anything at all if the TSR has actually outperformed a peer group). I cannot disagree with the idea that some companies appear to pay excessively generously (though have no view in this case, as I don't know the details).
I would point out though that the different compensation elements usually have a completely different function from each other, as follows:
1) Salary and benefits .....sometimes controlled/limited by the Board in aggregate. Aimed at providing a competitive retention package.
2) Discretionary annual bonus - usually awarded only in recognition of the achievement of a particular set of annual objectives (IMO these should be very much an exception rather than a rule!)
3) LTIP or other option scheme - a scheme clearly designed to align rewards for management with the rewards they have achieved for shareholders over a multi-year period.
Each of these elements has a clear function IMO. And, in exceptional years for both the business and shareholders, they might be quite substantial. But the key point is that, in aggregate, they shouldn't be excessive year in and year out - unless shareholder returns have been similarly excessive!
The answer to that is very simple. It is sometimes the case that share prices go up and down due to factors that are completely and utterly outside management control. For example, if the oil price was $90 and Iran suddenly closed the Straits of Hormuz and withdrew all supplies, then one might expect oil prices to rise to $200+. Similarly, some technical innovation that destroyed demand for oil might cause the price to plummet. In the first case the options would be worth a massive amount - and in the second case they would be worth nothing at all......and management would be rewarded according, whether they had done an outstanding job or whether they had done an appalling one!
That said, most smaller companies take the pragmatic view that straightforward "old-fashioned" options are adminstratively much easier.....but I for one don't labour under the illusion that they are actually "better" than a properly-constructed LTIP (like SOCO International (LON:SIA) 's).
ee
ps...yes you are right - I was thinking of Dana, where you may recall my criticisms in open forum at the last AGM.
By the way, there was an interesting article on the topic of executive pay yesterday in the FT:
Amongst other good points, it makes the point I made above in defence of the principle of an LTIP
Controllability is key! One shouldn't reward management for being in the right place at the right time simply because a sector is in fashion - and one shouldn't under-compensate them if a sector is out of fashion either (assuming they have transferable skills).
They also comment:
Indeed it IS very much clearer in sport. But an LTIP at least is a help in identifying whether a particular management team has done a better job for shareholders than the managements of a comparator group of companies!
As someone who sits on a Remuneration Committee, I must say that I worry every bit as much about retaining key employees in small companies! This is NOT a one-sided debate in which the only game in town is cost-control.....one also needs a management team that can produce growth and add to shareholder wealth! As the FT article points out, stoking anti-management rhetoric comes with its own very relevant dangers!
ee
http://www.ft.com/cms/s/0/8eb96584-1aa3-11e1-bc34-00144feabdc0.html
November 29, 2011 8:13 pm
Small caps: Bowleven climbs amid takeover talk
By Neil Hume
Bowleven was in focus on Tuesday. Its shares climbed 12.7 per cent to 73¼p on takeover speculation. Some traders reckon recent share price weakness has left the Cameroon-focused explorer vulnerable to a bid. “Bowleven is trading close to two times net cash, making it one of the most attractively valued exploration and production companies in the African space, on our numbers,” said Canaccord Genuity in a recent note
Indeed, your first decent call this year :)
Only joking.Nice play. Was tempted,but, seeing as I'm in Devon helping my aunty I'm not really playing at all in the market. More's the pity as there are some nice opportunities out there.
Up 12% so far today, that chart is beautiful...... :-)
Breaking out...
In for some more at 62p, is that price for real?
Don't know why you're getting the negative recs, Isaac. I for one, appreciate seeing the varrious broker views (which i had not previously seen).
FWIW, whilst I understand Evolution's comment, I think they're being a little harsh.... as is the market! The RNS does appear to confirm Bowleven's view of a very extensive play fairway. I guess the question everyone wants answered is: does it flow oil at commercial rates? Besides general market conditions, perhaps the concern is that the comapny has developed a nasty habit of producing equivocal drilling results and hence a bit of a "jam tomorrow" tendency - that disinclines me from putting any more money in yet. Have been picking up some Soco (amongst quite a few other things!) in recent days.
Another factor affecting market sentiment might be preceived lack of newsflow for some time. However, there is this in the RNS:
I guess we should get that some time before the 2012 drilling programme begins.
In relation to perceived lack of newsflow, I read & hear lots of guff about this being a traders market and that value oriented strategies aren't working (e.g. Bill Miller's recent resignaton). IMO, that's a load of guff. It's only true if you take a short term view - and unfortunately for fund managers like Bill Miller, many of their clients tend to do just that. I have been happily tucking away what I consider to be quality companies at good prices, many paying good dividends, in the last few days. Released some cash too today by selling my December FTSE5300 put warrants, so I'm still @ 11% cash - exactly my target level. As the puts have soared from the end of October price I bought them at, and expiry approaches, they've become more of a speculation now rather than an insurance policy, which was the purpose of buying them.
Cheers,
Mark
We're not having a competition Isaac!
I merely linked the story I happened to see for everyone's benefit. Blvn is on my watchlist so I've no real axe to grind with pessimistic links in case that's what you were wondering.
24 Nov BowLeven PLC BLVN Westhouse Securities Buy Target price 304.00 Reiterates
http://investing.thisismoney.co.uk/broker-views/
24-11-11 Barclays Capital Overweight/Positive Recommendation - Target Price 305
Upside 316.4%
http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=5159414
Evolution Securities has downgraded its rating on West Africa-focused oil and gas exploration group BowLeven from buy to neutral, saying that the latest results from Sapele-3 well "leaves more questions than answers".
Well that is certainly a better entry price than the recent placing Isaac but looking elsewhere the lack of a flow test and the lack of imminent news flow seems to explain the muted sp reaction.
I'm in - worth the risk reward here.
Nice release this morning...
http://www.investegate.co.uk/Article.aspx?id=201111240700206731S
a) I had expected there to be something on permit renewal, but there's not much on that
Well they did remind us that the explo permit had been extended to December 2012. What other than this did you expect? Is it not the case that, barring the possibility of allowing a few additional months to complete the agreed explo/appraisal drilling programme, there is little or no scope to extend any further? IIRC, they've already had a couple of extensions? Surely, the next stage permit-wise is to declare commerciality and establish a development licence, or do you have a different understanding ?
b) there's an auditors emphasis of matter on going concern (I can't see why it's necessary past 7 Nov)
I imagine that's pure protocol related to timing of the regulatory notice period where forward placing dates were uncertain vs the fixed prelims announcement date?
Funny things, markets. To me today's results are slightly negative, since
a) I had expected there to be something on permit renewal, but there's not much on that, and
b) there's an auditors emphasis of matter on going concern (I can't see why it's necessary past 7 Nov)
but yet the shares are up. These shares do move oddly. What positive new news can anyone see in these results?
There's not a lot that's new to me in today's results. I'm not sure I remember the Cretaceous Epsilon Complex at Sapele-1 containing oil and condensate, but of course that could refer to uncommercially small quantities.
I'd like to hear clarity on issues such as:
1) Vitol didn't participate in Sapele-3, so how are whatever HCs discovered in future across MLHP-5 to be split with them?
2) What's happening on the Etinde permit renewal, things seem to have gone a bit quiet on that given that expiry is close? The comments that Bowleven "is currently reviewing the timing and content of a submission to the Cameroon authorities on further appraisal and development of the Permit as a whole" are vague.
3) When will wells be drilled on the (allegedly more prospective??) MLHP-6 area?
4) When will the $35m EOV proceeds be received?
5) If the auditor's emphasis of matter going concern issue relates only the 7 Nov shareholder approval, why not just delay the release of results until after that date?
6) "it is recognised that identifying a route for the gas is key to optimising future development plans for the liquids"
Do GdFSuez really intend to build their LNG facility at Limbe? There have been media reports it is to be located further south at Kribi.
http://news.cameroon-today.com/gdf-suez-gaz-de-france-and-snh-set-for-cameroon-liquefied-natural-gas-project/1968/
Bowleven, the West Africa focused oil and gas exploration group traded on AIM, today announces its preliminary results for the year ended 30 June 2011.
http://www.investegate.co.uk/article.aspx?id=201111030700304029R&fe=1
Why is today's news taken negatively by the market (currently off ~6%)? Isn't the decision to drill on into the Cretaceous good news? Is the market assuming that the lack of results from the Deep Omicron means bad news will eventually emerge from the latter interval? I keep on being puzzled by the movements of this share price.
Sir L,
The announcement of 14th October said:
Today's announcement, however, says nothing about any further resevoir in the remaining one third of the Deep Omicron interval that has now been drilled. Maybe investors were hoping for a bit more? Secondly, today's announcement says nothing about testing. Again, perhaps the market was expecting some test results to be announced today? Further, whilst drilling the Cretacious seems worthwhile, whilst we've got a capable rig, it is clearly risky and could make further testing of the Tertiary impossble (as happened in Sapele-1). I'm sure I don't need to tell you that in general, the market dislikes changes to plans. Finally in today's climate, the market cares little about asset value. ;0) Happy to have some FTSE put warrants and stock-speific shorts in place for hedging.
I have just put in a call to the company to clarify their forward plans for testing the Deep Omicron in Sapele-3 and am awaiting their response.
Best,
Mark
Mark
Did you receive a reply from the company?
Quite a sell off since the placing, even for these markets.
Tiswas,
No - I've been too busy to chase.
SirL
It's good that you've turned positive on this so seamlessly and quickly. Your numbers in post 76 seem very conservative and low end, being a core value only without significant risked explo, which is just as you say. It does seem a little odd now that you so objected to what I wrote further up this thread.
You’re confusing objection with forensic examination. My original less than enthusiastic appraisal of the company was superceded since by the initial successful Sapele-3 announcement and subsequent placing. You’ll recall also my earlier comment about the disappointing 10% to 30% recovery factor accompanying the Sapele-2 RNS. Note that announcement made no reference to reservoir quality whatsoever whereas Sapele-3 made reference to having good to excellent quality sands several times. Those news items put together made a substantial difference to my assessment. Hence, the recently learnt real potential of higher flow test/recovery factor/volumetrics from Sapele-3. It does seem a little odd that you failed to spot the difference!
As to my conservative core value, that’s because downside risks remain significant imo. Risked explo based on P10, particularly in respect of stratigraphic plays is a complete mugs game but Sapele-3 will hopefully give us some meaningful P50 numbers to materially upgrade core.
davjo,
It's good that you've turned positive on this so seamlessly and quickly. Your numbers in post 76 seem very conservative and low end, being a core value only without significant risked explo, which is just as you say. It does seem a little odd now that you so objected to what I wrote further up this thread.
I should also add that in the event of final Sapele-3 result proving positive, Vitol's ownership of any increased volumetrics comes into question. My assumption is that none of this will be attributed to them. Is this right though? Since this could well be transformational in its own right, an extra 25% would be a lot of extra icing on the cake!
Have reviewed the details a bit more carefully. First MLHP-7 IE and IF. From reported STOIIP figures and low end recovery factors focusing on liquids only, I reckon gross 2P recoverables amount to 97mmbbls. Assuming state back-in of 20% (pro rata Vitol), Bowleven’s interest = 60% i.e, 58mmbbls. At $8/bbl and poste placing 293m shares out, that’s worth £1/sh. Two appraisals planned on these structures. Oil prone IF probably carries more risk since only one well previously drilled on the structure. Say risk both at average 80% = 80p/sh.
MLHP-5 pre Sapele-3. 2P STOIIP 171mmbbls at mid 15% reported recovery rate = 26m gross = 15m net @ $8 = 26p/sh. So, ignoring the other stuff, I arrive at a core NAV estimate of £1.06/sh @ $8/bbl. I choose $8 rather than $10 simply because of potential costly gas development complications.
As to the upside, clearly Sapele holds the key with flagged significant volumetrics upgrade. Final Sapele-3 results will be a massive pointer one way or the other as to whether it’s a company maker or not. For those who haven’t seen it, the company version of the 14 October announcement is well worth looking at in respect of the mini presentation slides shown at the foot :-
http://www.bowleven.com/uploads/Sapele%203%20TD%20announcement%20FINAL%20with%20maps%20for%20email%2014.10.2011.pdf
If that green shaded deep Omicron illustration proves to be full of oil flowing at decent rates, we’ll be in clover!
All the above is written with my conservative hat on and takes no account of the value for any gas. At the end of the day if the assets are sold, of course some gas value will be attributed but imo it’s impossible for PIs to put a price on at this stage and is best ignored from our investment pov…other than hold in the back of one’s mind as a plus factor.
There's a licence expiry in play on MLHP-5 as well, though the company has indicated that isn't seen as a problem issue. It wouldn't surprise me if Bowleven is no longer independent by Dec 2012.
My understanding of the volumetric estimates is that they are for 100% of the discoveries, and I reduce them in my calcs by the WI %age, so the former would not be affected by the 20% state back-in which I agree exists.
SirL
In my view the downside is limited by the IE and IF discoveries
Well yes, but it appears they have until December 2012 (permit expiry) to drill a couple of appraisals and issue a declaration of commerciality...in theory anyway. Will they need more than one well on each though? They sure have an awful lot of work to undertake before expiry...another uncertainty I meant to mention. It's also unclear to me whether Vitol participates further. Since BLVN sole risked Sapele-3, I imagine PSC commitments had already been fulfilled, allowing Vitol an opt out. Question is, is that the case on MLHP-7? Probably is I should think, so Vitol may decline again but where it would leave them re ownership I've no idea....ditto MLHP-5.
Incidentally, I note that Cameroon's SNH has 20% back-in rights. I suspect BLVN's volumetric estimates take no account of this.
davjo,
It's good to hear you're onboard, though I'm surprised that an event as predictable as the placing has that result. In my view the downside is limited by the IE and IF discoveries. There is political risk, of course, but that is less in the undeveloped non-producing state that IMO management will look to sell the company in within a couple of years. Provided they act rationally, local politicians will know that if they try to increase their potential take [like UK politicians have been doing] before production starts, there'll be little chance any international oil company develops the fields anytime soon.
I wonder whether davjo and I are looking at the same company
Perhaps I've been airing underlying concerns as expressed through the SP in the wider market?
That aside, the placing was indeed well timed/priced in the circumstances and makes a big difference to prospects going forward. Accordingly, now that they have the cash, I think they are worth a punt, if you'll excuse the expression, and have had a nibble today. If they manage to actually work towards meaningful booked reserves, I may add along the way.
However, whilst the upside is very clearly there, downside risk is not insignificant imo. Why? As said before, the nature of stratigraphic reservoir provides for much uncertainty until a good few wells are drilled. Low oil productivity coupled with initial low recovery factors isn't encouraging. Also high gas:oil ratio could be expensive to develop and prove problematic with gas which potentially cannot be sold. Add in political risk and further dilution through either additional fund raise/farmout to complete the explo/appraisal job (show me a company in these circumstances who raises enough cash to cover all eventualities) compounds the uncertainties. Nonetheless, there's plenty of scope for the shares to advance over the next year as the chances of the odd well result provides exuberance as seen with Sapele-3. On those grounds it's a good punting opportunity knowing there's another well down the road and always the possibility of a humdinger result.
I expect you can tell I've had a trader's punting hat for my birthday ;-)
macrus,
I'm not at all sure about BAML or BarCap having hedging positions in advance that need to be unwound. Are you suggesting this is more of a block trade than an agency book-build? I'm not sure whether it has been underwritten in advance, and if it had been then usually such an issue would be sub-underwritten with leading existing shareholders to pass on the bulk of the risk (ie leaving the IBs with manageable residual positions). I defer to anyone who knows more than I do on such matters, but that doesn't quite ring true to me.
Mechanically this has been a complicated one to participate in, and I haven't achieved the level of participation that I had originally wanted this morning. My broker has struggled today, sadly.
SirL - to what extent will the turnover be unwinding of hedging positions by BAML and BarCap. I know very little on what gets reported but know that they will have hedging positions in place.
It's quite sensible for placees to sell some of their existing shares at 110p or so before refilling at 103p, but now, with the inevitable dilution a done deal, the shares will no longer be overhung by the equity raising.
NB on a day like this, I'm not sure who the natural buyers are in the market today at 110p or so. There are shares to be had at 103p, so in what circumstances would anyone (who has access to the placing) buy at 110p or so? Turnover of 38m shares so far today is huge, by Bowleven usual standards, so are all the 19m so far of shares bought today, bought by people who don't have access to the placing? Is it unlikely there are small non-placing-access buyers for that many shares?
RNS out re the placing pricing.
77.5m new shares at 103p, raises c£80m or $124m.
In case anyone didn't notice, in post 49 I risked the Sapele-1 and -2 50mmbbls recoverable (ie exactly the 171/337mmbbls STOIIP on p11 of the Sept 2011 presentation) at 70% risk, which IMO is reasonable for the fact it is as yet just contingent resources.
I wonder whether davjo and I are looking at the same company. In a full risked NAV, I'd include:
(a) 100mmbbls recoverable at 40% risk for the fraction of the 746mmbbls P10 area on the same presentation page which is not included in the above paragraph (ie about 500mmbbls STOIIP at 20% recovery),
(b) roughly the same risked amount for oil in the area NW of Sapele-1 and -2, around Sapele-3.
I won't calculate per share amounts since todays placing announcement obviously substantially changes the numbers of shares in issue, but each of (a) and (b) is in the region of 80p/old share, total 160p/old share, getting the total risked NAV for oil and NGLs to about 400p/old share. I'm thinking of far more oil than just 10-20mmbbls recoverable.
I think getting on with the placing is a good idea, as it's becoming too big an issue and dominating the outlook for the shares. I'm not sure what happened to the >$60m cash said to be remaining at this point. My broker is trying to arrange for me to participate in the placing, and I'm confident that'll happen.
The Stockopedia site doesn't appear to me to have been working well in recent days.
Somewhat more clarity on market conditions this morning, with a trading update showing just $15m of cash left and a placing via accelerated bookbuild for $120m to fund the 2012 work programme being announced.
Prelims, including updated estimate of contingent resources (which will not include Sapele-3), out on 3rd November.
Cheers,
Mark
I think you're passing on the opportunity when looking a gift horse in the mouth
Quite possibly but some gift horses have Seven Heads and can Tiof with many a Chinguettian bite causing much Allegheny leaving investors Morpeth at the consequences.
See Ramco, various Mauritanian partners and British Borneo....amongst many others!
Good luck anyway, we all need a slice of that :-)
I interpret that the 10-20m is not in any sense being offered as an estimate of what actually has been discovered, it is offered as a minimum required for a commercial development.
Of course more appraisal wells are required, no-one is disputing that. Yes, there will be dilution, but IMO there's so much upside from the current SP to the broker total risked NAVs that a bit of dilution isn't going to be too painful. Your comments might IMO be appropriate at a lesser SP discount to NAV, but for a SP so discounted below fundamental value I think you're passing on the opportunity when looking a gift horse in the mouth.
As always I work in P50/mean numbers, not P90s. If you work in P90 numbers, please do the same for all companies.
I'm working neither in P90s or P50s. I'm merely quoting from the above RNS which states quite clearly that the P50 STOIIP 171mmbbls relates to "fairway upside". Quite how you interpret that as indisputably in the bag I don't know, especially since that same RNS quotes the CEO saying :-
The Sapele discoveries provide a foundation to Bowleven's strategy of moving resources to reserves on block MLHP-5 and the preparation of an appraisal plan for the area is already underway
As to :-
I think you and I are interpreting this 10-20m statement in quite different ways. I read it to state that the minimum discovery that justifies development is 10-20m [and since Sapele is quite a bit larger than that based on P50/mean numbers, commercialisation is a no-brainer], whilst you seem to interpret it as them stating that 10-20m recoverable is all they have. Time will show who's correct
Actually, my interpretation is that commercialisation to the P50 extent is anything but a no brainer because they apparently haven't undertaken sufficient appraisal work as yet...the 10-20m being offered as a bottom line figure in case it doesn't work out as hoped/expected.
IMO the end game for Bowleven the entire plc is to prove up as much explo as they reasonably can, and then sell the entire plc including all the MLHPs pre-development to Korean/Chinese interests.
Agree that is very likely their objective. However, to get any worthwhile value they need booked reserves. Contingent resources won't do. How many appraisal/explo wells required? At what cost? Funded by? (currently $60m cash including yet to be received $35m EOV payment?). I see they have mentioned the possibility of farming out some interest. If they take that route, how much dilution will that entail I wonder?
"In fact that 171mmbbls STOIIP P50 figure is quoted in the Sapele-2 results announcement as "fairway upside". Sapele Deep Omicron STOIIP P90 figure is 62mmbbls"
As always I work in P50/mean numbers, not P90s. If you work in P90 numbers, please do the same for all companies.
P50 is the 36 sq km area shown in the Sept2011 presentation page 11, and I think of the 171mmbbl or 337mmbbl recovery-factored down as indisputably in the bag now, which is the "say 50mmbbls recoverable oil" I refer to in post 49.
I don't think I've used the words "fairway upside" recently on this thread, but in post 52 I refer to "the entire fairway at say 40% risk", by which I mean roughly the 180 sq km P10 area to the north east, which we agree isn't proven now at all but IMO another well or two to the north east would prove + probable most of it up at around IMO 40% risk. Remember every recent well on MLHP-5 has encountered oil.
The additional "something x a risk for Sapele-3" I refer to in post 52 refers to the Sapele-3 pale green area to the north west shown on page3 of the 14 Oct 2011 presentation on the website, which looks thick and connected to Sapele-1. There is nothing to the north west of Sapele 1 or 2 in the 171/337mmbbl P50/mean numbers.
Further away from being proven, there is oil and gas prospectivity in the lower Cretaceous as stated in the 7 Feb 2011 RNS. p16 of the Sept 2011 presentation refers to "suggests an extensive hydrocarbon column" in the Cretaceous, though this hasn't been drilled since the kick at 4733m in Sapele-1 (presumably because a higher-cost higher-rated rig would be required?) (and it may well be gas)
"Oil recovery factors are initially estimated to range between 10% and 30%."
As always. This discovery resembles most others in this recovery range, though perhaps a little lower as stratigraphic.
"Based on preliminary development screening 10 to 20 million barrels of recoverable oil at current oil prices could potentially justify a commercial development."
I think you and I are interpreting this 10-20m statement in quite different ways. I read it to state that the minimum discovery that justifies development is 10-20m [and since Sapele is quite a bit larger than that based on P50/mean numbers, commercialisation is a no-brainer], whilst you seem to interpret it as them stating that 10-20m recoverable is all they have. Time will show who's correct.
"the whole concept of commercialisation of the assets is portrayed as wishy-washy. Stratigraphic plays are always the most difficult to pin down and it seems to me that by focusing their latest efforts on Sapele rather than IE + IF elements of your 160p NAV assessment, they're sending a message that these resources aren't easily commercialised. If I've read that wrongly, then they've stuffed up their PR"
IMO the end game for Bowleven the entire plc is to prove up as much explo as they reasonably can, and then sell the entire plc including all the MLHPs pre-development to Korean/Chinese interests. That strategy suits me fine, as I wouldn't much want to be around for the development phase (after which more political risk), so leaving IE and IF dormant isn't a sign that they are difficult to develop, but rather that Bowleven don't intend at all to develop them themselves so yes they are wishy washy on that. I think the PR is pretty clear in heading to a destination that seems IMO the right one.
ee,
I'm struggling with you writing that your concern with this one is where the outer is, when in post 41 on this thread you point out the M&A possibilities!! Bowleven is focused in one area and has operatorship and majority ownership shares of its licences, so seems a better M&A candidate than most other E&Ps. Perhaps a more obvious M&A candidate than Soco?
I have the full RIchard Slape Evo note from Feb 2011, when his total risked NAV is 417p. As I see it, the news since then that there is oil in MLHP-5 and the success of Sapele-3 potentially increasing the reservoir area have substantially improved fundamentals since Feb, so his NAV should be higher, not lower. Him cutting a Feb NAV now seems like chasing the SP down. Not impressive.
I can't remember much discussion at all of Bowleven on bulletin boards. Must be before my time.
Actually what I wrote was:
"In short I guess my concern would be "where is the outer?". That is increasingly an important question with E&Ps it seems - and increasingly the answer seems to be M&A."
So I'm struggling with your comment!!!
I look forward to the identification of any other outers you can see.
If you actually bother to read my post before fulminating about the analyst, you will see I referred to Richard Griffith, not Richard Slape (who is at Canaccord). If you meant to write Griffith, I see we agree about the quality of the work.
Quite possibly - though IIRC WShak had quite a bit to say on the topic in recent years.
ee
who drives the SP's?
Often it is retail punters, particularly at times of general downwards market movement since when retail punters' capital in their spreadbetting accounts gets burnt through they just have to sell everything in those accounts whatever the price. In the case of Bowleven, though, I'm impressed that the investor relations is clearly targeted at a City professional audience, so possibly it is the latter who are more significant for Bowleven than is usual for companies of this size. Reading the bulletin boards, Bowleven isn't a popular company for discussion - hardly mentioned on the Fool and this thread isn't exactly full of action.
To suggest that fund managers in general are seriously knowledgable and with decades of experience of the oil sector is overegging it a lot, but I expect you wrote that tongue in cheek. Few E&Ps are large enough to be followed by the industry specialists in large cap teams in big investment houses, and the small cap teams aren't specialised by industry.
I think that a lot of observers of Bowleven are simply forgetting that over and above however the MLHP-5 Sapele situation stands, there's 160p/sh of core oil 2P resources in block MLHP-7, ie the point I was making a few posts up.
Bowleven had an extremely deep institutional shareholder base at the time it was floated - and indeed became a total "City darling" the following year (2005), when it spiked to £8 (when several bulge-bracket houses were strongly pushing it). It seems to me to have been surprisingly volatile for a stock of its size and has both been down to c 30p and up to £4 since it reached £4 on the oil price highs in 2008....FWIW I have the impression that it is subject more than most to herding by fund managers.
Historically it has also been "discussed to death" on discussion boards but I think retail has largely got bored (as with many other E&Ps). Institutions may well be swayed by Vitol's recent apparent apathy (though I would wonder whether Vitol might have been in a close period and unable to deal re BLVN - but haven't checked timelines and details?)
I also see that Richard Griffith of Evolution has nearly halved his target price today (from 400p to 225p) on funding questions and reservoir quality at Sapele (though I have an EXTREMELY low regard for his work on other companies!)
In short I guess my concern would be "where is the outer?". That is increasingly an important question with E&Ps it seems - and increasingly the answer seems to be M&A.
ee
Using your numbers and not the company's which would require me to variously risk oil and gas. Currently valuing just the liquids as the Contingent part of Contingent gas is not yet visible.
I agree with your take on investors however; it has been my experience on wondering around the City that when drilling a 15% COS well that the pre-drill volumes suddenly become P1, whereas reserves which are contingent on FID suddenly get hit with all sorts of geo-political/partner risk. Go figure.
More seriously and entirely OT; who drives the SP's? Seriously knowledgeable fund managers with decades of experience and knowledge and in house g&g capabilities or the momentum investors (which in general includes retail - with apologies to the few). I suspect that it is the momentum guys with the specialists making fewer mistakes.
By "the reserve numbers" in post 54, are you referring to my numbers in post 49, or Bowleven's booked P50 resource numbers, the latter being greater in respect of gas? IMO my numbers in post 49 are deliberately v conservative. I understand you to be making a point about the difference between resources and reserves, but that's a distinction that the equity market is relaxed about IMO (a lot of equity investors hardly know the difference). I reckon there's a lot of hydrocarbons in MLHP-5 which aren't in either my or the officially booked numbers.
SirL,
I read your post differently and viewed the reserve numbers as qualitatively at the low-end of 2P or high-end of Contingent Resources and hence my application of discounts to pre-FID reserves.
Notwithstanding, I entirely agree with your bemusement and remain a significant holder (albeit not very profitably).
macrus,
Yes, I agree equity values across the sector are at a significant discount to total NAVs - perhaps in the region of 50% or 60% of total risked NAVs. However, the figures I quoted a couple of posts above this are just core booked 2P oil and NGL NAV, to which a substantial amount could be added for:
(a) additional core NAV for currently proven gas in MLHP-7 [local gas market problematic, but there's discussion of a regional gas processing hub at Limbe nearby]
(b) risked explo in MLHP-5 [numbers debatable, but something could certainly be included for the entire fairway at say 40% risk, plus something x a risk for Sapele-3]. I tried to keep my numbers a couple of posts above this at the indisputable booked 2P level, but clearly there's a good deal more in the fuzzy judgemental risked explo area.
(c) arguably MLHP-6 is the most prospective block, as the migration focus for hydrocarbons. Drilling there in 2012?
I think the MLHP-5 story became a lot more interesting in (?)June 2011 when oil started to be observed in the well results - of course gas around there is much more awkward.
IMO it's not comparing like with like to say that across the sector shares are trading at 60% of total risked NAV so Bowleven should trade at 60% of my core oil and NGL NAV. Bemused is a good description of how I feel about the market's valuation of these shares. Final results to June 2011 are due soon, last year they were on 9 Nov, and it'll be interesting to see how the cash situation is then.
SirL
Final results to June 2011 are due soon, last year they were on 9 Nov, and it'll be interesting to see how the cash situation is then.
The website suggests 8th Nov. As to cash, the UBS Presentation on 27 Sep 2011 says :-
Forecast group cash balance post Sapele-3 well >$60m (includes $35m EOV proceeds)
SirL - using a combination of SWAG and trying to connect the dots by hand I think that equity valuations of your risk across the sector (hence entirely incompatible risks, geological, political, tax etc) would indicate contingent resources trading at 60% of NAV - which would indicate mkt value of GBP1.38 (I am intentionally layering risk upon risk as I am trying to build a picture of the fluctuating E&P equity risk over time) plus upside.
But this is a glass half empty market so no upside and ADHD attention span probably means that the risks are to the upside but aren't massive to the downside (after a 60% 1 day rise).
I cannot understand what's going on in the Bowleven valuation. I am clearly misunderstanding the current situation. Could someone explain to me please?
There's plenty of debate about the Sapele MLHP-5 discoveries, but before Sapele was drilled, on the P50 basis there were 225mmbbls STOIIP oil at IF and 95mmbbls NGLs at IE, which represent recoverable contingent resources of 67mmbbls oil and 27mmbbls NGLs. At 65% WI, 90% risk, $10/bbl and over 216m shares thats about 160p/sh core value. In addition to that there are 69mmboe gas resources on MLHP-7, which we can ignore for now as it's gas.
The Sapele-1ST and Sapele-2 Deep Omicron discoveries total 171mmbbls STOIIP P50 oil before today, ie say 50mmbbls recoverable oil which at 65% WI, 70% risk, $10/bbl and 216m shares is about 70p/sh. In addition there's some condensate at D-1R and lots of gas. Whilst flow rates haven't been fast, this is in only 40m water depth so drilling lots of producing wells is cheapish. The company has pointed out that the Sapele-2 flows were from "compromised well bore conditions" and "formation damage in Sapele-2 DST1 readily apparent". Are the flow rates from the Sapele wells a glass half-empty thing in that bulls think 'formation damage so flow rates not a problem' and bears think 'this is a useless discovery, ignore it'?
Today's oil discovery at Sapele-3 represents more oil, perhaps in the region of 50mmbbls, though this isn't at all clear. Bulls might hope that some of the Sapele discoveries are connected, but let's pass on that for now. All four Sapele wells have encountered oil in the Deep Omicron interval.
All up there's about 160p + 70p = say 230p/sh core value of proven oil here, plus plenty of gas and condensates not included in that figure and today's Sapele-3 discovery. Admittedly there's some funding required in 2012, but an attractive exploration story, institutional IR and big institutions on board mean that shouldn't be too painful. I haven't even mentioned M&A interest. Why are the shares only about 110p?
FWIW, SirL, I share your bemusement - to some extent.
IMO there are two factors that have caused Bowleven to be sold off hard:
1. The story changed. The drilling programme was expected to continue after Sapele-3 but, unexpectedly, after Sapele-2 management stated that they were suspending drilling operations, pending seismic reprocessing. Checking back to the March interims presentation, 4 wells after Sapele-2 were expected this year whereas only one has been drilled. Changing stories (especially in this market) raise suspicion.
2. It became clear that extensive further drilling was required to turn resources into reserves (no surprirse there) - and Bowleven appeared short of cash to do that. I note that there is no mention of cash/balance sheet in the latest UBS presentation.
These factors created considerable uncertainty, which meant that bulls like fangorn and I were reluctant to pick up stock, despite an apparent "crazy" market valuation - until the company provided further clarity on its forward plan.
We still need:
a) To get the next round of fund raising out of the way
b) To get more clarity on the 2012/13 plan
One small matter I note: US$35m were expected by now from the EOV disposal. I have seen nothing to indicate that Bowleven has yet received this cash.
I have no reason to believe anything is fundamentally "wrong", just that there is considerable uncertainty over a number of important matters.
Regards,
Mark
SirL
The Sapele-1ST and Sapele-2 Deep Omicron discoveries total 171mmbbls STOIIP P50 oil before today, ie say 50mmbbls recoverable oil which at 65% WI, 70% risk, $10/bbl and 216m shares is about 70p/sh.
In fact that 171mmbbls STOIIP P50 figure is quoted in the Sapele-2 results announcement as "fairway upside". Sapele Deep Omicron STOIIP P90 figure is 62mmbbls :-
http://www.investegate.co.uk/Article.aspx?id=201108010700124407L
That RNS also states that :-
Oil recovery factors are initially estimated to range between 10% and 30%.
and
Based on preliminary development screening 10 to 20 million barrels of recoverable oil at current oil prices could potentially justify a commercial development.
Neither of which sets the pulse racing!
All up there's about 160p + 70p = say 230p/sh core value of proven oil here
Proven oil?? Only in the sense it's there. For me, when I looked at BLVN last week, the whole concept of commercialisation of the assets is portrayed as wishy-washy. Stratigraphic plays are always the most difficult to pin down and it seems to me that by focusing their latest efforts on Sapele rather than IE + IF elements of your 160p NAV assessment, they're sending a message that these resources aren't easily commercialised. If I've read that wrongly, then they've stuffed up their PR.
Essentially, there's no doubt lots of hydrocarbons on the blocks but there is a massive question in my mind as to whether BLVN will be able to prove up commerciality other than a tiddly development. Given the challenges of present market conditions, they are going to find it difficult to press on to do what they need to do, i.e. drill without more funding. EE is absolutely correct imo that the potential outer is M&A. Trouble is, that could easily be from a distressed position, hence they ain't a buy for me...albeit I would have liked to be a buyer in different climes!
FWIW - I have had a number of encounters with Vitol's W. Africa team. Nice guys; but no better than a mid-size E&P with its own technical team and probably worse than a focussed explorer like BLVN. Think of them as a small/mid-cap explorer with a very connected trader on the front end.
I commented some time ago that the E&P team is increasingly cash strapped. Vitol's last big W. Africa deal was buying Shell's retail arm across a number of countries. Arguably plays to their strengths better than E&P.
Well there's a surprise. An anti vitol factor to watch in future?
Mark, you may want to edit your post encountered isn't quite spelt correctly and is being ####'d. ;-)
NB I see that that new UBS presentatio n, which I had not seen previously contains an interesting interpretation of Sapele-1, -1ST and -2 results, suggesting that -1ST and -2 missed channel sandstones that were en####ered in -1. That would explain the need for further seismic re-interpretation to determine further drilling targets to appraise/validate the geological concept.
Some comments on this morning's announcement... my recollection of the last conference call is that the D1-r interval was the primary target. Bowleven wanted to test the theory that that interval was an extension of Noble Energy's discovery in Equatorial Guinea territory that adjoins MLHP-5 (see slides 7 and 8 of recent UBS conference presentation)
ISTM that the D1-r Miocene interval was disappointing, so Bowleven decided to deepend the well and have a poke into the Tertiary, with quite pleasing results. However, it is still to be determined whether the Deep Omicron discovery in the Tertiary is oil bearning or merely contains reesidiaul hydrocarbons.
Could add significantly to extent of previous discoveries.
Mark
Just seen the above comments. I'd intended to write something following Bowleven's last telecon, but didn't get round to it.
My impression was that the Sapele prospects remain entirely viable (but not proven commercial yet). This latest well targets a separate prospect.
The probelm is that after this well, Bowleven have decided to suspend their drilling programme until some time into 2012, whilst they reprocess seismic based on results to date. Results were inconclusive on whether Sapele-1 and -2 were interconnected and hence how compartmentalised the find(s) are - which will have a significant impact on development costs. Moreover, it seems highly likely that further fund raising will be required to execute the next round of drilling... and as we know, in current market conditions, a need to raise funds is regarded as toxic.
I haven't sold any shares (since I trimmed for portfolio balance at over 320p ;0)), and last added in the low 120p's . However, I am not inclined to add further at present either, whilst the situation is so unclear. I'm happy to wait and see.
Cheers,
Mark
http://moneyam.uk-wire.com/cgi-bin/articles/201110131721251646Q.html
Blvn notification
Have been thinking of nibbling here myself but am taking a wait and see attitude.
Any thoughts on BLVN's prospects right now? The SP has obviously been decimated since the Sapele-2 results (probably not helped by the 10 to 20 mmbbls potentially commercial comment) coinciding with Vitol choosing not to take up their option but have the shares fallen too far...even in this market?
I'm uncertain. The Sapele-3 result seems a little overdue but is targeting 50mmboe, albeit gas/condensate. Their latest presentation suggests cash of $60m poste this well so they've got the means to press on with another couple of wells I guess. From what I can judge though, the first two well results didn't look all that special to me and I suppose the market reaction to Vitol's decision not to commit additional funds could be read as confirming that. However, a good Sapele-3 result could provide a decent bounce, more especially if it firms up commerciality hopes which would also underpin assurance for recovery of lumpy past costs, a valuable consideration.
I'm looking at this purely as a short term punt. I normally like such punts to offer something in reserve, in case it doesn't deliver and I have the option to hold for the longer term if I so choose. BLVN at first sight ticks that box......except that in current market conditions a Sapele-3 duster will likely savage the price and potentially undermine the company's future ability to further appraise and develop the seemingly weak marginal contingent reserves on the back of $60m cash, a proportion of which may need to be devoted to commitment wells.
I think I'm talking myself out of having a punt on these....unless someone out there can show that I'm suffering from muddled thinking.
Nurse!! Nurse!!!!!!! Another scotch please ;-)
DJ
Vitol have a very poor record for upstream investment so I wouldnt judge any company according to what Vitol do. You could almost argue that its a contra invesment flag - fo the opposite of what they do when it comes to investment in upstream licences.... so maybe BLVN is good value now ;-)
Dont get me wrong, Im certainly not saying Vitol are a bad company, they are the 600lb Gorilla in the rest of the E&P space - as Glencore is in mining, just they arent that good at upstream.
On the matter of punts, Id say that there are probably better (and a lot lower risk) plays around at the moment.
Cheers
D - not a Scotch but an Armagnac for me - or a good vodak (in preparation fora two day "wealth Manager's retreat starting tomorrow. Didnt get back to my room till 7.30 am after the last one.......
dj,
As you will recall, a few days ago there were rumours touting Bowleven as a bid candidate. There is still evidence of this via Google News:
I find it rather curious that this piece only appeared in The Scotsman - and The Scotsman has since removed that article from their website, though it is still in Google's cache.
Just sayin'.....curious
Also curious is the passing mention of KNOC, who a few days ago announced their intention to make further overseas acquisitions. As you may recall, I conjectured at the time of the Dana bid that they could be aiming to establish and EMEA E&P hub in Aberdeen - and Bowleven would appear a decent addition to Dana's West African assets? I wonder if Mr Synn is known to Bowleven?
As dj says of course, there is a high risk element....but....?
For the avoidance of doubt, I'm not doing anything myself - preferring my bid candidates to be more clearly underpinned (SIA) ;-)
ee
(I'm not sure the links work as they may be browser-specific - you may need to repeat the Google News search yourself [Bowleven bid])
Morning ee, djp
Yes, I had seen those 'curious' points but having skipped through the company details didn't think the story had much legs since KNOC's principle objective was to acquire flowing barrels and with BLVN it's far from certain they'll achieve that, imo!
As to Darron's comment, certainly 'contra' signals can work to one's advantage on occasion but in this case, since Vitol have already invested $100m, I'd have thought if needed, they'd have paid for top dollar expert advice on considering whether to exercise their option. Then again, they probably paid top dollar when they gained entry ;-)
Yep, a good result and removes fears over commerciality.
Strats like this are always tricky so lots more work reuired to firm it all up but £blvn looks cheap down here.
Encouraging result from Sapele-1ST flow test:
Most importantly, the similarity of GOR, oil quality and pressure suggests to me that Sapele-1 and Sapele-1ST are part of the same accumulation.
Cheers,
Mark
I think this is very good news.
If I remember rightly, it has not been confirmed before today that block 5 contained flowing oil - this was just thought to be likely. A good flow of oil from this well is a good step forward.
The wording is diplomatic, but it is suggested that this well and Sapele-1 are in pressure communication and so form one accumulation, which again is another step forward. It is suggested that Sapele-1 would have flowed at about this rate if it had been tested in this interval.
If the imminent test results of Sapele-2 were of flowing oil (35m net pay has already been discovered) , and S-2 was in pressure communication with S-1 and S-1ST, we'd be off to the races here.
Deeper potential remains, but this is the first confirmation that block 5 contains a commercial oilfield.
I'm away from home, visiting my official residence, so I don't have my notes with me so perhaps need correction on some of the above.
Very good points, SirL. Your recollection is correct. Must admit, amongst all the melee, I had forgotten that we had not so far had a flow test from Sapele so, as you say, the result is highly significant.
Here are bullet points I noted from the conf. call (25 mins altogether):
PA = Personal Account.
ie stock they hold in their own ISA's, SIPP's or stockbroking accounts
I understand that the PA positions at various financial institutions around the City is quite substantial - everyone admits to having some and usually "more than is logical"
Not that I would suggest that there might be insider trading etc
Hi Macrus,
Can you tell me what you mean by "PA"
Thanks,
Dons
Thought I may as well put up the results of the Sapele-2 well since Mark seems to be having a lie in!! ;-)
Okay, not the full results since we need to have testing done but looks good thus far.
Extract:
Sapele-1ST is currently undergoing testing so Sapele-2 will be tested thereafter with results in 3 or 4 weeks.
My take is its positive news for BLVN the only problem being that this is a strat play so will need more work to firm up volumes etc but the shares look good value (odd that they rose quite storngly yday wasnt it?)/
Lie in? Pah! Despite being up until 2am last night considering announcements from Extract, CGNPC and Kalahari Minerals (LON:KAH) , I was off out (having read Bowleven's announcement) to Kalahari's AGM this morning. Have spent a couple of hours Skyping some Australians this afternoon. ;0) [I've posted quite a bit about a very interesting AGM over on Aussie BB ShareScene.]
Sorry, folks, that I didn't have time to post on this but was happy to just sit back and let the SP look after itself. :0) I may make a post, once I've listened to the conference call - anyone that hasn't done so may wish to do so themselves. Replay is available on +44 (0)207 111 1244 , code 4137621# until 18th May 2011 only.
As mentioned in the RNS, given that this step-out is some 5km from Sapele-1, and that both have found substantial oil columns , I think we can safely say that the Douala Basin looks highly promising. What we need to know now is whether there is pressure communication between the discoveries, meaning there is one f-off huge reservoir there, or whether what we have is a series of discrete fault blocks with separate reservoirs. Either way, it sounds good to me! (though the former case may "take us to the moon" whereas the latter one is merely "nice" :0))
TTFN!
Mark
As per the RNS.... if the sands in Sapele-1 & Sapele-1ST are connected, then it's all eyes on Sapele-2. If not, they've got 2 separate accumulations & it's....errrr......... all eyes on Sapele-2! Either way, the technical bods are doubtless putting in the hours
Initial results from the Sapele-1 sidetrack announced today. Bit of a mixed bag but 23m of net pay is not to be sneezed at. More work to do, starting with a DST on the ST, which should begin shortly. Sapele-2 is expected to reach TD within 15-20 days.
My conclusion: nothing stunningly good so far, but this ST continues the pattern of live hydrocarbons being found in most wells in the Douala Basin. A lot more appraisal work remains to be done to really understand what's there. IMO today's sell-off is quite uncalled for - and I may consider adding at around these prices especially considering the impending newsflow:
The picture should become somewhat clearer after that conference call.
Mark
I own both Encore and Bowleven now, though a greater £value of Bowleven. I've been switching Soco into Bowleven in the last few days - Soco is currently priced at about 35p/share more than Bowleven, and I'm positioned that that price premium will reverse in in the next few months, in the hope that some of Bowleven's explo will succeed.
How about you write about Bowleven on TMF, Mark? Thanks for the Bowleven idea, BTW.
Glad you found the idea useful and hope it works out. I rarely read or post on TMF these days largely because there are only so many hours in the day and I have to limit the number of BBs I monitor. I choose this in preference to TMF because a) TMF does not offer modern formatting facilities, making it impossible to post articles with pictures, links and decently formatted text, like this one; b) I find it essential to easily view all material relevant to a company, which you can't do on TMF but can here and on ADVFN (though ADVFN's signal:noise ratio is pretty awful); c) TMFs over-zealous moderation policy. I was once moderated for posting a link to an article I'd posted here, and on another occasion for posting a substantial but important and interesting (evidenced by a significant # of recs before the post was pulled) extract from an RNS (even though I'd linked to the RNS and made clear it was a quotation).
Regards,
Mark
It'll be interesting to see how 2012 plans to drill MLHP6, the middle block, interface with the licence expiry/extension in Dec 2011.
I've accumulated a sizeable holding of Bowleven now in the 360-380p price area, even though the current fall from ~380p to ~360p is a little worrying, as if someone out there in the market knows something negative about the result of Sapele-1ST, which may well be clear to the guys on the rig by now.
Hmmm... hope you don't turn out to be right on that, though you could be, of course. I also observe that (in contrast) Encore has risen strongly today, on rumours of a positive result at Cladhan. The value of stock traded at each company today is similar, so I wonder whether the fall could be a result of tempoarary switching by short-term traders?
I believe we both hold both stocks, so what we're losing on the swings we're gaining on the roundabouts (perhaps plus some, as Encore is up over 5% vs a 2.5% decline at BLVN).
On the subject of a licence extension, in the recent webcast the company said they were confident that if they had firm plans for drilling beyond the current expiry, they did not see a problem.
1) Can I confirm that no-one's attributing any value to the gas? Noble are reinjecting produced gas at Aseng until "the pressure maintenance phase is completed" http://investors.nobleenergyinc.com/releasedetail.cfm?ReleaseID=398247 How's the "integrated gas monetization project" (is this GdF?) looking these days?
2) What's happening with the expiry/extension of the Etinde licence? The Bowleven website says "A production sharing contract was signed over the Permit in December 2008 incorporating a further three year exploration phase from this date".
Hi SirL,
No, I think some contingent/risked value is attributed to the gas. GdF are currently working on an advanced LNG study for Cameroon, which would consititute the route to commercialisation.
IIRC, the licence extension was discussed in the recent webcast/presentation and was not foreseen to be a problem. Again, IIRC, they expect to have appraisal areas and some reserves defined by the end of this year.
You really need to listen to that webcast - most illuminating!
Regards.
Mark
With absolutely no insight other than guesswork, my assumption is that with a fair wind they would seek to raise the necessary capital (equity and project finance) and keep as much of the upside for themselves as possible.
Though tomorrow's (1 April) announcement that Vitol won't be taking up their option (again just trying to connect various Vitol dots) will obviously have an impact. So sell in to the good news on Sapele 1-ST and buy after the news of a jumbo placing.
If you look at this year's planned drilling campaign & compare with current cash, it's clear the company is comfortably funded. As for the dev projects, they talk of project sanction well into next year. No pressing need to raise cah, imvh
That just about sums up my predictive powers at the moment. Take two pieces of information and add them together to come up with the wrong answer. In my very weak defence, more a plea of mitigation, I understood that Vitol weren't going to exercise the existing Option I just was not doing a good job of seeing beyond the black and white.
Well, the company has issued an update regarding the Vitol Option.
Extract:
How ballsy is Kevin Reed; Aidan ballsy or just ballsy? An analyst "Phil" (this one? http://www.linkedin.com/pub/phil-corbett/17/abb/249) asked about funding at about 3.25 in the Q&A session. The standard answer is we own 75% and can farm down, which is the standard don't rock the market answer.
With absolutely no insight other than guesswork, my assumption is that with a fair wind they would seek to raise the necessary capital (equity and project finance) and keep as much of the upside for themselves as possible.
Though tomorrow's (1 April) announcement that Vitol won't be taking up their option (again just trying to connect various Vitol dots) will obviously have an impact. So sell in to the good news on Sapele 1-ST and buy after the news of a jumbo placing.
Any thoughts?
I agree that the webcast is well worth a listen. In going through the presentation slides I was very much attracted to Block 6 and able to view the initial potential. This looks as if it is charged with the upward migrations and could be one big tank of hydrocarbons. There will be much exploration to come there.
Whilst it will be 2012 before drilling commences in Bomono there are already multiple prospects identified. I favour onshore drilling mainly because it can initiate early production.
Meantime the expected results from the Sapele-1Z sidetrack can be expected in about threee or four weeks. The markets will show a keen interest in those numbers.
Hi Jimmy,
Initial results could be somewhat sooner than that. The spud announcement was 28th February and the well was slated for 40-50days. In the webcast, it was stated that Bowleven had hoped they might be able to release initial results that day - but that "operational delays" had put them back to their original schedule. So we're 31 days in, with another 10-20 days to go. Hopefully we'll get something in a couple of weeks or so.
Cheers,
Mark
Just caught up with the webcast..... required listening, imvh. Block 7 with the 2 Sapele wells currently drilling (1-ST & 2) is rather exciting, but the company also has pretty high hopes for Block 6.....Bonomo looks none too shabby either!
Interesting stuff Mark, I'll have a read. There is a longer initiation note from Fox Davies dated June 2010 on http://www.fox-davies.com/research/oil--gas-.aspx , which of course is a while ago now but might help some people, like me, get going on this company.
The interims are out and there is a presentation for investors and analysts available here.
Id say it was pretty much essential readong for those new to the BLVN story.
A webcast of the presentation is now available. Mmmm 213mmboe net P50 contingent resources - with lots more exciting drilling to come - tasty!
A little surprised this has fallen back to £3.30ish considering it touched £3.70 yesterday following Citigroup note. Perhaps an opportunity for a short term trade, but then again with today there are probably plenty of candidates !
Reo
A Fox-Davies note dated 2nd March (quoting a risked NAV and price target of 550p, H/T to Greenroom78 elsewhere for drawing that note to my attention), said:
The location and target of the step-out well stated by FD is at odds with my notes from the analyst conference call, so I have contacted the company to check and have learned the following:
A final decision on the location of the step out well has not yet been taken but a target 5km from Sapele-1 is now looking more likely than the 8km step-out originally mentioned (though that target is prospective too). Most importantly, I was advised that I had misheard/misinterpreted what was said on the conference call and the well was never intended to target the deep Cretaceous prospect. As FD state, it will be appraising the extent of the Deep Omicron Discovery. Given that the rig that has been hired is new, attacking a difficult HPHT prospect is thought too risky for its first well! Upper Cretaceous horizons may be explored but the Deep Cretaceous will be left for a later well.
Regards,
Mark
Further drlling on MLHP-5 begins, as stated in my OP: http://fool.uk-wire.com/Article.aspx?id=201102280700179303B
Remarkably, the SP is down at present, this morning, so could be an opportunity for those that are interested....
Regards,
Mark
Hi Mark,
You wrote :
I have found nothing regarding any court case relating to Bowleven's Cameroon assets, though there has been a dispute with a former director (going back to pre-AIM days).
This was the matter that I vaguely remembered ! The story is contained in
http://www.independent.co.uk/news/business/analysis-and-feat...
the only (unexpunged) part of an April 2010 TMF thread. There is some speculation that (a) there has been an injunction and that (b) as the claim relates to (now only) 5% or less of BLVN's assets, the co itself doesn't have to report it (if the claim on assets still exists)..
The story may now have died, but I offered it up in case it still had value to an investor (time spent on reconnaissance etc....).
ATB
Hi ex,
Thanks for clarifying.
Yes, that was the story I found. Though a very sad case, it just sounds like an embittered ex-director from pre-flotation days who messed things up badly. Here are some key points:
As far as I can ascertain from the article, though Garnham may have been key to setting up the original company in the 1990s and establishing relations with the Cameroon government, he failed to meet a cash call when required to do so and as a result forfeited his shares. Bowleven's directors could have settled with him for relatively minor compensation - but, on principle, refused to do so. Though harsh, I back them for what is essentially a principled stance: why should Bowleven's current owners bail out someone who lost their interest through their own incompetence?
Since then, Bowleven has raised and expended many millions from other investors. Whilst I have some sympathy with him, it seems unlikely to me that Garnham has a significant claim against the company - though, as mentioned in the article these is some risk that his claim could jeopardise negotiations with partners. However, that issue could be got around by Bowleven indemnifying such partners against such claims. Given that even in the worst case (from Bowleven's POV) the claim would be small relative to Bowleven's market cap. such indemnity should be sufficient to satisfy any prospective partner.
Regards,
Mark
Hi mark, hi dj,
Thanks for the write-up and commentary.
Isn't there some kind of court case in process, questioning BLVN's title to its Cameroonian assets - or has this issue now been resolved ? I vaguely followed BLVN for a while, but was put off at the thought that - if they discovered any value - the dispute would only be exacerbated...
TIA for any info - and apols if I've been asleep at the back of the class !
Hi extrader,
I have found nothing regarding any court case relating to Bowleven's Cameroon assets, though there has been a dispute with a former director (going back to pre-AIM days).
Vitol's involvement suggests to me that they don't see any problem with legal title.
If you have any further information, I would appreciate it.
Regards,
Mark
Just seen that Goldman Sachs has added Bowleven (LON:BLVN) to its conviction buy list but note the cut in price target:
Great write up Mark.
After general weakness, the SP seems to have had a lunchtime boost - I wonder if it is pure speculation or something more.
Reo