#BLVN Bowleven catches my attention

Along with my main holding in Xcite Energy, I have a small holding in "PI sister company" Bowleven, bought recently at 56p, more as a short term trade than an investment. It’s a share I watched for ages, seeing it rise and fall, spike on takeover speculation, and since fall back to very low levels. Recently there’s been some significant troll activity calling the price down to 25p, talking about the total lack of assets and the imminent collapse of the share price. This intrigued me so I decided to do some research into Bowleven to get a sense of the real long term value proposition and whether I had missed something.

On investigation, there are some fantastic positives with Bowleven, not least the recent excellent well results and the journey is certainly under way to realise the intrinsic value within. Whilst this value is not yet shown, I’m happy to build, trade and build some more from these levels, as barring some significant change to conditions I don’t see much downside. I can live with falls to the 50’s again if that’s what plays out, but at some point I’m sure this will be a multi-bagger from here. Anyway, for those who want an overview of Bowleven pulled together, I hope the following gives you an idea of the investment case here……

Bowleven’s strategy

Bowleven is focused on Africa. It holds interests onshore and offshore Cameroon and onshore Kenya. It holds a 75% interest in the offshore Cameroon shallow water “Etinde” Permit, where plans for a staged development of the discoveries are advancing. The acreage is located across the Rio del Rey basin and has contingent resources and further significant exploration potential. Bowleven also holds a 100% interest in the onshore Cameroon Bomono Permit, where exploration drilling is planned. Both permits are operated by Bowleven through its 100% subsidiary EurOil Limited. Cameroon has an established oil industry with a history of production from the Rio Del Rey Basin. It borders prolific producing countries such as Nigeria, Equatorial Guinea, Gabon and Congo.

In September 2012 Bowleven entered into a farm-in agreement to acquire a 50% interest in an onshore Kenya exploration block - 11B - where early stage exploration is underway. The block is to the north of the Lokichar Basin where a significant oil discovery (Ngamia-1 well) has been made. Completion of the farm-in is subject to normal approval from Kenyan authorities.

The Bowleven Team

The Group seems to have a strong management team with excellent technical experience and a track record of finding, financing and delivering O&G. Kevin Hart, CEO, was FD at Cairn Energy for over 8 years. He’s been on the Bowleven board since 2006. David Clarkson, Operations Director, previously worked for BP where he held a variety of senior positions including Technical VP, Projects & Engineering. Ed Willet, Exploration Director, joined Cairn in 1989 where he held technical and management roles. Philip Tracy, NED, was previously Operations & Engineering Director at Cairn, and Tim Sulliven, NED, was previously Deputy CEO at Agora O&G, CEO of Revus Energy, and Enterprise Oils Worldwide Exploration Manager. So more than a few years of experience in this game, with good success.

EurOil, Bowleven’s subsidiary, has operated in Cameroon since 1998 and has a great track record drilling exploration and appraisal wells. Since 2007 the current team have drilled 9 wells, all as operator, and all of which have encountered hydrocarbons.


The board hold a number of shares in the company as outlined

	Total shares purchased	Total cost of shares purchased	Shares acquired on vesting LTIPs	Total shares held
J D Brown	143,315	£131,715	156,685	300,000
Cook	135,000	£123,708	-	135,000
R G Hanna	330,135	£342,018	-	330,135
K Hart	2,167,073	£1,602,966	395,291	2,562,364
T Sullivan	146,745	£114,800	-	146,745
Chief Tabetando	1,047,738	£60,345	509,963	1,557,431
P O J Tracy	0	0	-	0
E A F Willett	177,237	£158,623	160,876	338,113
P G Wilson	263,390	£242,144	146,610	410,000

Timeline of Bowleven’s operations to date:

2007: Successful IE-2 appraisal well (MLHP-7) and D1-r exploration well (MLHP-5). 
Bomono Permit PSC awarded by Cameroon government.
2008: Etinde Permit PSC terms (blocks MLHP-5,6 and 7) agreed with Cameroon government. 
First oil discovery on Etinde Permit; IF-1r well tested an average of 3,371 bopd.
2010: Sapele-1 exploration well (MLHP-5) discovers hydrocarbons in Lower & Deep Omicron Miocene intervals.
IE-3 appraisal well (MLHP-7) tested cumulative max rate of c.23kboepd from 5 zones; oil encountered at IE.
Extensive seismic acquired over Cameroon. Significant exploration potential identified in Douala Basin. Farm-out of 25% interest in Etinde completed (Bowleven 75%).
2011: Sapele-3 well (MLHP-5) significantly extended the Deep Omicron fairway. 2 Sapele appraisal wells (Sapele-1ST and Sapele-2; MLHP-5) tested oil from Deep Omicron interval. Extensive deeper prospectivity established at Paleocene and Cretaceous levels; 3D 4C OBC development seismic acquired over the IE and IF fields (MLHP-7).
2012: Formal Etinde Exploitation Authorisation Application (EEAA) submitted to Cameroon authorities. Alliance agreement signed with Petrofac - potential access of up to $500 million towards Stage I development of Etinde and to Petrofac expertise. Farm-in to exploration acreage in Kenya (50% Block 11B). MOU signed with Ferrostaal for feedgas for proposed fertiliser plant in Cameroon. 'Hub and spoke' development plans of Etinde Permit underway.
Independent assessment validates Sapele Deep Omicron in-place fairway volumes (MLHP-5).
2013: IM-5 well (MLHP-7) tested condensate-rich gas from Middle and Intra Isongo intervals confirming commercial production rates and significant liquids content of gas. Combined max flow rate of 60 mmscfd and 7,819 bcpd (total over 17,800 boepd). Significant Intra Isongo discovery (70m net pay) at IM-5 highlights new material exploration / appraisal play. High quality condensate (approximately 43 degree API) produced on test. Updated IM field volumetrics indicate more than sufficient gas volumes to meet fertiliser plant requirements. Gas sales term sheet for proposed fertiliser plant in Cameroon agreed with Ferrostaal. Onshore Bomono Zingana-1 well site prepared pending commencement of exploration drilling operations

Summary of interests:


Etinde & Sapele Permits, Offshore Cameroon (Bowleven 75%, CAMOP 25%)


These lie in shallow water adjacent to the coast. A number of hydrocarbon discoveries including oil, condensate and gas have been made. Net P50 contingent resource is 203mmboe. Considerable upside remains throughout the permit. This includes blocks MLHP-7 and MLHP-5, where discoveries have already been made, and the yet undrilled block MLHP-6. The Cameroon state has the right to back-in for a 20% share of any Etinde development, which would reduce Bowleven’s interest to 60%.

In November 2012 a Strategic Alliance Agreement was signed with Petrofac Group in relation to Stage I of the Etinde development. The alliance provides potential access to up to $500million of investment capital and to Petrofac’s development expertise (see below for further details of this arrangement).

The Douala Basin has lots more potential including at Paleocene and Cretaceous reservoir intervals. In the Rio Del Rey Basin the IM-5 well encountered a potentially significant Intra Isongo reservoir and highlighted additional potential in the greater interval.

The focus now is on bringing the Etinde discoveries into production. A staged ‘hub and spoke’ development of blocks MLHP-7 and MLHP-5 is planned. First production from Stage 1 (fields on MLHP-7) is targeted for 2016. Final investment decision (FID) for Stage 1 will hopefully be made by the end of 2013. Key FID requirements are close to being completed - The formal Etinde Exploration Auth application (EEAA) was submitted last November and is since being updated to integrate the results of the IM-5 well. A gas sales term sheet has already been agreed. Development finance is in place with Petrofac.

The “Hub and Spoke” Development plan:

The concept centres on an onshore processing facility (the hub) linked to offshore unmanned platforms / producing wells (the spokes). More spokes can be added if/as further discoveries are made. Oil, condensate and wet gas will be delivered to the hub where liquid stripping and natural gas liquids extraction will be carried out. The initial focus for development is to supply 70mmscfd of dry gas to a proposed fertiliser plant. The successful test of the IM-5 well in April 2013 confirmed more than sufficient volumes to supply this. Liquids and NGLs will be marketed and sold internationally.

Stage I – focus on block MLHP-7.
Stage II – integration of block MLHP-5 discoveries (Sapele).

In addition to multiple liquids discoveries there are significant volumes of gas present across the Etinde Permit. Identifying an off-take route for the gas is key to maximising this potential. At the time of the successful IM-5 test, Kevin Hart commented

"We are delighted with the overall results from the IM-5 well which have surpassed our expectations. The flow rates that have been achieved on test demonstrate substantial well deliverability from both intervals and further strengthen the foundation for the planned development of Etinde. Due to the high deliverability of the Intra and Middle Isongo reservoirs we are confident we will be able to reduce the number of wells required to supply the planned fertiliser plant. The IM-5 well has not only delivered a substantial increase in estimated hydrocarbon volumes but it has also confirmed the presence of liquids rich hydrocarbons at the Isongo Marine field, a significant value driver for development plans on Etinde. In addition to proving that there are more than sufficient gas volumes present on a P90 basis to meet the 70 mmscfd dry gas requirements of the fertiliser plant, the IM-5 well has derisked considerable further prospectivity with significant volumetric upside on the block”

So there is every reason to feel positive about the Etinde value here in my opinion.


Bomono Permit, Onshore Cameroon (Bowleven 100%)


The Bomono Permit is located in the Douala Basin. The acreage has multiple surface oil seeps but is largely unexplored in recent times. Wells drilled in the 1950s and surface oil seeps prove an active hydrocarbons system exists. Bowleven acquired 500km of 2D seismic and a full set of surface samples for analysis. Evaluation revealed multiple Tertiary and Cretaceous prospects and leads. The commitment is to drill two wells by December 2014. The location for the first well (Zingana-1) has been selected and the site has been prepared. The well is targeting Tertiary reservoir intervals.

Bowleven intends to farm out a proportion of the Bomono prospect but the completion of this has been delayed by the preferred bidder’s protracted approval process. Alternative farm-in partners are being considered in parallel. The Cameroon state has the right to back-in for a 10% share of any Bomono development. There seems to be a question mark hanging over the farm in and I suggest this is one of the downsides to the investment as the 2014 drilling may, in my opinion, be challenging to achieve without progress on a farm in.

Block 11B, Kenya (Bowleven 50%, Adamantine Energy 50% and operator)

In September 2012 Bowleven farmed-in to block 11B, located in an emerging hydrocarbon province at the intersection of the tertiary and cretaceous East African Rift systems. The block is analogous to oil production areas in the Melut and Muglad basins in Sudan and is north of recent oil discoveries in Kenya. It encompasses an area covering the Loeli, Lotikipi, Gatome and South Gatome basins. These basins are part of the East African Rift system to the north of the Lokichar Basin, where significant discoveries have recently been made (Ngamia, Twiga).

With minimal exploration to date on the block the availability of data is limited. Analyses of the existing data acquired by predecessors suggest the basins are of similar form to Lokichar. The current work programme includes the acquisition of an airborne geophysical survey. Planning for the acquisition of 2D seismic is underway, with commencement of field operations targeted for later in 2013

First Oil plc, a privately owned UK company, is now a strategic partner in this area, having acquired a 30% holding in Bowleven’s East African focused subsidiary in return for funding exploration activities. First Oil have committed to fund up to $9 million of initial work (net carry of $6 million), with a further commitment to fund up to $12.5 million (net carry $5 million) of additional contingent work. Separately, the parties have also agreed to co-operate in investigating early entry exploration opportunities across the East African Rift System. As part of this agreement First Oil may contribute up to $3.6 million towards Bowleven's share of funding in any future new investments.

Personally I don’t see share price impact from Kenya at the moment - there needs to be quite a lot of work to get through before the potential will be clearer. Something for the future perhaps, but it’s good to see a strategic partner already involved and potentially moving things along.


Upcoming Future news

By the end of the year / early 2014 there should be several positive updates for shareholders which should see share price action:

1. Etinde Exploration Authority Application & Final Investment Decision. 
Kevin Hart, 23rd May 2013: "The agreement of a gas sales term sheet with Ferrostaal is a key step..... .....and the signing ceremony highlights the importance of this project for Cameroon, Bowleven and all stakeholders. The EEAA is in the process of being updated for the results of the successful IM-5 well and with this, alongside the progress on gas sales, we remain on track for FID and project sanction by the end of 2013."

As the IM-5 well demonstrated significant potential to supply gas in addition to the fertiliser plant, the Cameroon authorities requested that the EEAA be expanded to capture other additional off-take solutions (including GDF Suez and SNH Cameroon LNG initiative) prior to submission. These schemes would be in addition to Stage I of the Etinde development to supply 70mmscfd dry gas to the fertiliser plant. The Cameroon authorities have indicated that an early grant of the Exploitation Authorisation is a priority and the final EEAA submission is planned for late Q3/Q4 2013.

2. Potential for volumetric upgrades and conversion of resources to reserves.
The volumetrics for the Etinde field are being updated, with Bowleven anticipating a substantial increase in volumes. Even before IM-5 results the expectation was that the P90 gas-in-place had been increased by more than 300% to 531bcf. The mean volumetric for the condensate in place was up by 868% to 184 million barrels.

3. Potential for farm in news for onshore Bomono prospect


4. Field operations in Kenya may possibly get underway towards the end of 2013



So, having considered all that, my top 10 positives for Bowleven are as follows:-

1. Petrofac’s $US500m of funding if FID agreed – this should cover first stage development and provide cUS$60m of back costs. Whist the terms may be beneficial for Petrofac, we have the security of funding in place for the vast majority, if not all of the development phase 1.
2. IM5 results well ahead of expectations. This has significantly derisked the development. Significant liquids and gas found, and it will fully meet the supply to the fertiliser plant. Liquids discovery in IM5 gives potential for significant upgrade in resources and raises the COS on surrounding drills.
3. This area is surrounded by industry experts already eg, Addax / Sinopec, which could easily lead to a bid for Bowleven. “Little fish, big pond” springs to mind.
4. Sapele results suggest significant upside for phase 2, with potential for a farm in to unlock and develop value.
5. Opportunity for LNG GDF development and the value of Non Gas Liquids which at present are given nil value.
6. Bomono farm out could unlock significant separate carried exploration in a prospective permit. Some “wildcat” exploration upside, but backed by Etinde production.
7. Kenya a significant exploration play. Next door to big discoveries. But for the medium / long term
8. Share price is significantly disconnected from medium term value IMO. For me this is now much lower risk – resources have been discovered, flow tests have de-risked the development, funding is available and whether this takes a year, 2 or 3 the value will surely come at some point.
9. Cenkos Securities comment “Value so disconnected from any sensible interpretation of value – most buyers would see value at £1”, and yet the share price is below where it was before the IM-5 well was tested.
10. Previous potential takeover interest from Dragon, before this year’s drilling results were known, would suggest this could be on several interested parties radars now. Another rumour and the SP would likely double from here before confirmation. At the very least this gives an outside chance of a fantastic trading opportunity.

My top Bowleven risks:

1. Potential falling through of farm out for Bomono – could mean going back to the drawing board with other parties and push activity out timewise.
2. Potential delays to development plans – bureaucracy, FID delay, rig challenges, etc. Could all push drilling and development plans backwards.
3. Cameroon political or other risk unknown at this time
4. Collapse in gas or oil prices before production up and running.

In conclusion:

As I said I bought recently as the upside seemed too tempting, seeing a quick climb back above 60p. I intended to trade back out, but am holding on now for the development news. Whether I trade or not, I will look to build a larger position here and will certainly look to add to my position on further dips as a medium term play to 2015/16.

There are plenty of PI's jumping from Xcite to Bowleven and back, and I can see why. They are both relatively de-risked prospects with considerable upside potential. At the moment my holdings are very much in Xcite, and I see this as a safer investment than Bowleven, due to the booked reserves and North Sea focus, extended well test, and size of field. To see my comments on Xcite see here . But Bowleven has definitely got my interest and Bowleven will be a home for some of my future funds I am sure.

Just need patience here IMO. Good luck.




Further background information:

Very good presentation from RBC Global Energy Conference : here

Some broker comments from this year, some of which were before the IM-5 results were known:

Barclays : NAV-derived Price Target of 225p and commented....”Rather than lean-gas, the fluid type of this formation can now be described as gas condensate, having a liquid-gas ratio of150bl/MScf, which is comparable to the nearby IE field. The additional liquids encountered in the Middle Isongo could therefore provide further upside to the economics of Bowleven’s development offshore Cameroon. Updated volumetrics will be provided at a later stage. The drilling results of the Intra-Isongo formation, which were pre-announced in January, have also been revised upwards. After interpreting the wire-line log data, Bowleven increased the net pay on the Intra-Isongo to 70m from the previous 52-56m range”

Deutsche: “2013 is likely to be a make or break year in realising Etinde’s value potential. Could it be the year when the MLHP-7 resources transition into reserves? Possibly, in our view, with such an event having a potentially significant impact on valuations and sentiment....... Our model of the IM anchored MLHP-7 gas-to-fertiliser scheme delivers a base case unrisked NPV10 of 136p (US$110/bbl), falling to 108p on US$90. We risk this at a 50% chance of development to reflect the uncertainties on development scope / cost ahead of FID. To this, we add free cash balances of US$50m and planned 2013 Bomono well (assumes BLVN is successful in farming down for a free carry) to deliver a base case RENAV of 92p (76p on US$90 pricing). Average of the two delivers 85p. Key risks – IM-5 drilling results, capital cost for Etinde Stage 1 development, progress on Bomono farm-out". Note this was before IM-5 results which came in ahead of expectations.

Fox Davies: BUY, TP 250p “Liquids at Critical Mass?: Today’s confirmation of gas volumes augurs well for the licence’s (MLHP-7) development in the medium term. The real news from today is that they Company’s latest well (IM-5) intersected a liquids rich horizon, which will improve the asset’s profitability, and potentially now create a situation where the liquids volumes have attained sufficient critical mass to enable their economic development independently of the gas, which serves to improve the Company’s outlook yet further...”

Jeffries: “Intra-Isongo volume potential large: Rough estimate 370mmboe to 2500mmboe potential in place, highly significant compared to existing P50 estimates of c.500mmboe. With 20-30% recovery factor and 50% liquids content this could equate to 37mmboe to 380mmboe of recoverable liquids vs current estimate for IE/IF/IM of c.100mmb. What could it be worth? 1p/sh for every incremental 1mmb liquids…with potential for more than 40mmb liquids, clearly material to our 185p/sh current estimate. Even at the low end of our range, we believe our risked SoP could increase 20%”.

Cenkos, May 2013, “The estimated NPV cost of the Petrofac deal with Bowleven is estimated at c20% of the project value compared to an estimated 50% for a conventional farm in”.


Details of the Petrofac Alliance arrangement: Petrofac (PEDWA) return:

The alliance arrangement provides access to up to $500 million of investment capital towards Bowleven’s share of Etinde development expenditure and also provides access to Petrofac’s expertise, purchasing power and personnel (including engineering, design, project management, procurement and training). Bowleven’s plans will be updated to integrate the IM-5 well results with the aim being to reach a final investment decision on development by the end of 2013. At this point Bowleven will have up to US$60 million of the IM-5 well costs reimbursed by Petrofac. 

A summary of the financial arrangement follows. I’m no accountant, and I’m aware that some commentators suggest that the deal is going to sap the short term value from Bowleven as they pay back out of revenue, but my view is that the finance deal is far preferable to significant dilution or many of the other methods of raising significant funds in this challenging marke for finance. And it’s a huge vote of confidence in the development potential from Petrofac.
Petrofac (PEDWA) shall be entitled to the following return in consideration for the provision of its investment:

• Cost oil/cost gas from the Stage 1 Development: PEDWA is entitled to be paid an amount equal to 80% of Euroil's receipts from sales of cost oil/cost gas produced from the Stage 1 Development, until such time as Petrofac shall have received an amount equal to 1.3 times the investment provided by Petrofac in respect of the Stage 1 Development.
• Profit oil/profit gas from the Stage 1 Development: PEDWA is entitled to be paid a percentage (Y%) of Euroil's receipts from sales of profit oil/profit gas produced from the Stage 1 Development. Y% shall be determined at FID on the basis of the projections in the agreed Investment Case as follows:
• a provisional value for Y% shall be set such that the aggregate receipts by PEDWA of cost oil/cost gas and profit oil/profit gas payments from the Stage 1 Development shall be equal to 2.125 times the investment provided by it;
• if required, that provisional value shall be increased such that PEDWA is projected to receive an IRR of not less than 20%; and
• if the provisional value for Y% as determined in accordance with the preceding two paragraphs would result in Euroil being projected to receive less than 50% of the projected NPV in respect of Euroil's share of the Stage 1 Development, the value for Y% shall be reduced such that Euroil is projected to receive 50% of such value. Y% may be adjusted downwards in certain circumstances, on which please see below.

Profit oil/profit gas from further or additional developments: PEDWA is also entitled to receive Y% of Euroil's receipts from sales of its profit oil/profit gas from:

• fields within the Etinde Permit which were not included in the FDP agreed with PEDWA ("Further Developments"); and additional developments (which were not included in the FDP agreed with PEDWA) of fields that were included in the FDP ("Additional Developments").

PEDWA's entitlement to such payments in respect of any Further Development or Additional Development does not begin until Euroil has received consideration for the sale of its share of cost oil/cost gas and profit oil/profit gas from that Further Development or Additional Development equal to its share of the costs of that Further Development or Additional Development.