Early Xmas for Bowleven shareholders – Farm in agreement with Petrofac announced

Kevin Hart, CEO

This mornings news from Bowleven management that they have farmed in Petrofac to share the costs of the development of their Cameroon Etinde permit is nothing short of transformational for the company. Whilst the exact share of the farm in is not clear (subject to it seems a maximum 50% share of the Etinde revenues and so in theory a 50% farm in), this news, at a swoop, clears up the uncertainty over the development of the fields that has dogged the shares for months since the aborted bid approach by Dragon Oil. Upto $500m of capital is available for the field development.

The accompanying results show the company holding $120M of net cash and with a potential reserve profile of 1.2 Billion bboe. With a market Cap of £220M the current valuation is nonsense and the deal avoids shareholder dilution – a situation that has bedevilled other oil minnows in recent months.

We have the shares as a Conviction Buy and a consitutuent of our Dream Oil Explorers stock portfolio and stand by our recommendation with todays transformational news. We place a short term price target of 130p on the stock when “Mr Market” digests the news.

Below is the text from the RNS –

Petrofac and Bowleven, the Africa-focused oil and gas company, have agreed a strategic alliance to support the proposed development of the Etinde Permit, offshore Cameroon. 

The alliance represents an opportunity for Petrofac to leverage its extensive capabilities to support Bowleven’s proposed development and builds on the company’s presence in West Africa.                  

Under the terms of the strategic alliance, which is subject to Bowleven shareholder approval, Petrofac will provide engineering capability to Euroil, Bowleven’s Cameroonian subsidiary, to support the delivery of a Field Development Plan (FDP) for the proposed first phase of the development, pending satisfactory completion of Euroil’s appraisal of its asset. Prior to approval of the FDP, Petrofac will be remunerated by Euroil for the provision of its service capability.  

Subject to an agreed FDP and satisfaction of certain other conditions, including co-venturer and government approvals, the strategic alliance’s risk service arrangements envisage that Petrofac will subsequently execute the planned development through the provision of project management, engineering, procurement and construction services, and will invest up to US$500 million as part of Bowleven’s financial commitment to develop the asset. Petrofac’s investment would be remunerated through a share of Bowleven’s production revenue.

Andy Inglis, Chief Executive, Petrofac Integrated Energy Services said:  “We are delighted to be working with Bowleven to help them unlock the value of their Etinde Permit.  Creating this strategic alliance at an early stage of the project offers Petrofac the opportunity to provide integrated services covering, onshore and offshore facilities development, drilling services and training and operations, alongside the deployment of capital.  This is in line with our strategy of providing our exploration-led customers with integrated project delivery services.” 

Kevin Hart, Chief Executive of Bowleven Plc added: “I am very happy that Bowleven, through our subsidiary Euroil, is entering into a proposed strategic alliance with Petrofac in respect of our planned Etinde phased development. This complementary union provides Bowleven with potential access to both investment capital and, just as importantly, Petrofac’s extensive development experience. Petrofac’s excellent track record of service provision, including training, will augment significantly Euroil’s strong local presence and capability. Our alliance with Petrofac will help deliver first production from our Etinde project, and represents a major step towards our goal of converting resources to reserves in Cameroon.”