Bowleven gets presidential sign off as it closes in on US$250 million Etinde farm-out

By Amy McLellan

News that the President of Cameroon has at last inked a transformational farm-out of the Etinde permit in Cameroon means shareholders in Bowleven will be able to breathe a little easier. It has been an anxious wait for the President to sign-off on this document, which transfers a 50 per cent slug of equity in the project to Russian oil producer LUKOIL and privately-owned NewAge.

The US$250 million deal was announced in Summer 2014 but there were a number of conditions attached before the funds would be unlocked and Bowleven could hand over operatorship to its existing partner NewAge.

The AIM-quoted company made swift progress on some of the conditions. In July Edinburgh-based Bowleven agreed to pay US$9 million to Petrofac to terminate their long-term strategic alliance agreement and the following month an Exploitation Authorisation for the Etinde permit, which the company applied for in January 2014, was granted, giving it an initial 20 years, plus ten-year renewal option, to develop and produce from the fields.

But then came the anxious wait for President Paul Biya to find his pen and sign the formal decree. The longstop date by which all conditions had to be satisfied has been extended several times, creating sweaty palms for anxious shareholders worried that the Russian oil giant would get cold feet as oil prices continued their fall over the second half of 2014.

Finally, at the end of last week, the state oil company SNH advised Bowleven this had now been signed, a major milestone for the company which not just awaits formal written notification and the subsequent gazetting of the decree.

The deal is truly transformational for Bowleven, which has come in for much criticism over the past eight years for the time and money spent on the Etinde permit against a back drop of dilutive equity raises, sinking share prices, Dragon Oil’s aborted interest in 2012 and grumbles about executive remuneration, including the recent generous long-term incentive plan for directors. Yet those grumbles may be silenced if the farm-out delivers on its promise.

There is no doubt a serious resource has been unearthed at Etinde, with a P50 net contingent resource of 263 million boe, along with a phased development plan to monetise the gas, including sales to a planned fertiliser plant and further ahead to a GdF-led CLNG scheme, to realise value for shareholders and for Cameroon.

And £103 million market cap Bowleven is going to be in the happy position of being cash rich at a time when cash is king. As a result of the farm-out, Bowleven’s equity in the project will reduce from 75 per cent to 25 per cent in return for a consideration of roughly US$250 million, of which US$170 million will be upfront cash.

Some US$40 million will be a net carry through two appraisal wells to test the exciting potential of the extensive Isongo reservoir interval found in the IM-5 well, while another US$25 million will be paid at Etinde IM field FID and US$15 million on completion of appraisal drilling.

This will significantly strengthen the Bowleven balance sheet, giving it a sizeable cash pot to not only fund its share of the development costs going forward but also to advance its existing exploration projects in Cameroon, Kenya and Zambia and to swoop on new assets in what is currently a buyer’s market.

After some high stress years, this is a good start to what could be a very exciting year for Bowleven. Shares in the company lost around 22 per cent of their value in 2014, a challenging year that saw many of its peers drop much further, but have rallied in the opening weeks of 2015: by Monday lunchtime, the shares were up 1.5 per cent at 32.25 pence.