Bowleven clears final hurdle in US$250 million Cameroon farm-out

By Amy McLellan

The patience of investors in Bowleven has been sorely tested many times over the years but, more than ten years since its IPO, it looks like that patience will soon be rewarded.This week the Cameroon-focused E&P announced that a key milestone has been reached, with the Presidential decree for its Etinde transaction now gazetted, satisfying the final condition of its farm-out of this resource-rich permit to LUKOIL and NewAge.

There are now less than two weeks until the Edinburgh-based company will receive the initial cash payment under that deal – a transformational US$170 million.

Not only will this give AIM-listed Bowleven one of the most enviable balance sheets in the sector – at a time when cash is king – but it also underscores the underlying value of the Etinde permit. Bowleven struck the farm-out in June 2014, before the subsequent slump in oil prices, which will see Russian oil giant LUKOIL acquire a 30 per cent stake and NewAge another 10 per cent in a deal worth US$250 million.

This includes the US$170 million cash sum, plus up to US$40 million net carry on two appraisal wells, another US$15 million in cash on completion of appraisal drilling and a further US$25 million contingent on FID. Bowleven retains a material 20 per cent stake in the liquids and gas development and transfers operatorship to NewAge.

Analysts at SP Angel Corporate Finance welcomed the news, saying the deal “generates real value for the Company’s shareholders, and removes any near term funding issues that have overhung the stock.”
Shares in the company closed up 14 per cent at 33p on news of the gazetting.

Will Forbes, analyst at Edison Investment Research, noted that the current price of around 30p/share implies a market cap of around US$160m, below the cash it should receive in about 15 days’ time. “Once complete, the farm-down transforms the company into a fully funded developer of Etinde with material cash reserves to pursue other opportunities, if sought,” he noted.

Despite the cash injection, however, CEO Kevin Hart, who must be feeling vindicated after several years of heat from aggrieved shareholders, said the company would be cautious in its next steps.

“While our strengthened balance sheet is a real advantage through this volatile period for the sector, we remain determined to exercise discipline in the choice and timing of our capital spending,” said Hart.
An interesting year ahead.