|markliddiard: Like a number of previous people's posts, I'm surprised that with the cash finally hitting the Bowleven accounts that there wasn't a significant increase in the share price..........similarly, that if the business now has cash in its bank (excluding other assets / interests etc) which exceeds its collective value in shares, that the business must be attractive for someone to buy out eg. Lukoil. - does anyone know what this differential amounts to?- failing the above, at least the business / shares appears to be fairly safe place to have ones money.....in comparison to others like AFR, which seems to have no cash and worse still to be saddled with huge debts agreed to when the oil price was over double what it is now!I read in a previous post that there is a BLVN meeting next week on the 25th March (AGM?) - perhaps the business's financial position will be clarified and strategy confirmed - which might have a subsequent positive knock on effect for BLVN share price. Failing the above, I guess any significant uplift in the BLVN share price rests on the success of Bomono........or the oil price doubling and bouncing back to where it was previously......anything else that should be considered? |
Bowleven (BLVN) has announced the completion of the company's farm-out of interests in the Etinde permit and receipt of $165m in cash (an estimated $5m to follow). This is a major step for the company, partly monetising its interest and gaining a significantly strengthened balance sheet. This puts the company in a rare peer group among E&Ps - fully funded for value-accretive development with spare capital to continue exploration - the cash pile should allow the company to be countercyclical in outlook and perhaps able to take advantage of stock market weakness. As we were explicitly expecting the farm-down, our core valuation remains largely unchanged at 73p/share after adjusting for FX moves and oil price forecasts changes, well above the current share price
Looking to FID for Etinde with stronger balance sheet
The farm-down completion means investors can now look to the other major catalysts. The gas sales agreement, completion of FEED and award of EPC contracts need to follow, in parallel with progression of the fertiliser plant project that will take the Etinde gas. FID is currently expected in 2015, with first gas modelled in mid-2018. Importantly, the project can look to take advantage of falling rig and service costs, although a new operator may delay FID.
Exploration and appraisal drilling
In the current environment, we do not expect the market to include value for drilling until discovered. However, BLVN could participate in up to four value-creating wells in 2015/16. Two onshore exploration wells at Bomono will seek 45mmboe each, while two carried appraisal wells offshore could increase resource sizes at Etinde well beyond the current estimate and markedly improve economics for BLVN.
Valuation: 73p/share core NAV suggests upside
We have left our valuation largely unchanged, apart from minor changes due to the strengthening dollar and updates to our macro deck. While we have adjusted near-term oil prices downwards, we do expect a recovery in time to a real $80/bbl(2014). Given the macro environment, costs should fall vs our current modelling. For the moment we have left our modelling unchanged, awaiting confirmation of the quantum of changes. Our core NAV is 73p/share, well above the current share price. Exploration at Bomono and appraisal wells at Etinde could add further in time, but for the moment we do not expect the market to price in exploration value until discovered. Our RENAV is 97p/share.
The closing of BLVN's farm-down to Lukoil and NewAge is a major event for the company and for the Etinde development. BLVN's receipt of $165m in cash (with an estimated $5m to follow for working capital) is in contrast to its market capitalisation, which has been below this level since October 2014 (indeed it fell as low as $126m in January 2015), reflecting the pessimistic nature of the E&P space in recent times.
Under the terms of the farm-down, BLVN will receive:
an immediate $165m cash injection;
around $5m to follow for working capital;
$40m carry (net to BLVN) over two appraisal wells, which we currently expect to be spudded in H215, with results probably in 2016;
$15m after completion of the two appraisal wells; and
$25m cash on FID of the Etinde IM field development.
These are significant benefits, totalling $250m net to BLVN over time, with the appraisal wells potentially opening up further value. We also note that operatorship passes to NewAge, allowing BLVN to concentrate on other activities.
This does not take into account the value attributable to Bowleven's remaining 20% share of the Etinde development, which we currently model to be worth $194m (on a risked basis). In total, we value the company as below, arriving at a core NAV of 73p/share ($364m). This is well above the current share price.
Farm-down allows investors to examine underlying business value
With the closing of the deal, the fog of uncertainty surrounding BLVN has cleared markedly. With the receipt of $165+$5m, BLVN's ability to fund the first phase of Etinde is now assured, as we expect its 20% equity position to require around $110m before first gas (to be conservative, we assume that the two carried appraisal wells do not contribute to Phase I, even if successful). We would expect the company to use part of the $165+$5m cash inflow to fund this position, as well as looking at possible debt provision. Investors can therefore return to examining the underlying value of the project.
In our modelling, we assume first gas in 2018, with a plateau reached in 2020. There are risks that this may be delayed, not least because (i) FID is dependent on a co-FID date with the construction of the fertiliser plant; and (ii) the new operator (NewAge) now has control of the project and Lukoil is a new partner.
The project should extract a total gas volume of 500bcf and c 100mmboe of liquids, with initial production of 70mmscfd and 14-16mboe/d.
Key milestones before FID
Gas sales agreement finalised;
Completion of FEED and finalisation of costs; and
Assignment of contractor.
During this period, we would expect BLVN to finalise the funding structure (at this time, we assume it will come from cash reserves, but the company is looking at options including project debt, development bank financing and mezzanine financing).
We expect further details on timing and greater detail on the development as costs and schedule are further understood.
Other potential catalysts
The company could participate in up to four wells in 2015/16, which may have a material effect on valuation. Two exploration wells are currently being prepared on the Bomono permit and each is targeting around 45mmboe. As we discussed in our initiation note, the market for gas in Cameroon is immature and has latent demand and BLVN points to a number of power plants in the area that could take gas in the fullness of time. However, the travails of Victoria Oil and Gas in finding active customers in Cameroon mean that, in our current expectation at least, discovery of oil-prone reservoirs would be immeasurably better received.
Further appraisal wells on the offshore permit could also have an effect. Should the wells be successful in finding large, more liquids-rich reservoirs, the economics of the fertiliser project would improve as a higher yield of liquids could be extracted for every molecule of gas piped to the fertiliser plant. Furthermore, if these wells are successful, they would effectively reduce the net capex requirement for BLVN as fewer non-carried wells would be required. For conservativism, we do not assume appraisal wells are producers in our core NAV. While drilling could well start in 2015 for Etinde appraisal, completion could move into 2016.
Given the steep discount of BLVN shares to our DCF-derived value, we do not expect the market to credit any value to exploration until a discovery is made.
Our valuation remains broadly unchanged from our December 2014 update note, barring small tweaks due to exchange rate movements and changes to our oil/liquids price deck. The near-term oil price is largely irrelevant to the value of the project, as first gas is due in more than three years, by which time we expect the oil price to have largely returned to our unchanged long-term real price of $80/bbl.
This results in a core NAV of 73p/share and RENAV of 97p/share.
Financial health allows countercyclical spending
The company held around $7m in cash at the end of December 2014, with a $30m bridge finance facility available if required. With the finalisation of the farm-down, the company has received $165m in cash, the estimated $5m is expected soon and receive the extra contingent payments on the completion of appraisal wells ($15m) and FID ($25m). These should see the company as a rare beast among E&Ps - fully funded for development and with notable cash reserves to explore in other regions without the requirement of near-term equity financing. |
|winnet: oh, i thought he meant 'what will happen to BLVN' not 'what will happen to BLVN share price' |
|corrientes: Nobody's buying oilers full stop. With absolutely huge oil inventories everywhere and the price now forecast to go below $40,and looking at the steady BLVN share price, holders are very fortunate indeed ; though no credit to management who have just been lucky. |
|slipanchor3: Disclosure of price-sensitive information – FSA rules
This guide is based on UK law as at 1st February 2010, unless otherwise stated. It is part of a series on the FSA and Securities Regulation . For a stock market to work efficiently and fairly, two...
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This guide is based on UK law as at 1st February 2010, unless otherwise stated. It is part of a series on the FSA and Securities Regulation.
For a stock market to work efficiently and fairly, two principles must apply: companies need to release relevant information as soon as it is available; and all those who want to deal in shares should have access to the same information at the same time.
Rules to that effect are contained in the FSA’s Disclosure and Transparency Rules (DTR) and apply to companies with a full listing on the London Stock Exchange. The fourth of the FSA’s Listing Principles ensures adherence to the spirit as well as the letter of the DTR: a listed company must communicate information to holders and potential holders of its listed equity securities in such a way as to avoid the creation or continuation of a false market.
The core obligation is set out in DTR 2.2.1: a company must notify the market, through an approved Regulatory Information Service (RIS), as soon as possible, of any inside information concerning the company. AIM companies are under a similar obligation, imposed by rule 11 of the AIM rules.
For something to be classed as ‘inside information’, it must:
be of a precise nature;
is not generally available;
relates (whether directly or indirectly) to investments traded on a UK regulated market (such as listed shares on the London Stock Exchange); and
be likely to have a significant effect on the price of the shares if it were generally available.
The information needs to be specific to the company and there needs to be some certainty to it. Imprecise information, and news that is generally applicable, is not announceable; nor are conclusions or facts that can be gleaned from research or analysis, because any investor (in theory) has access to the same material.
Price sensitivity is crucial to the definition of inside information. A company must ask: would a hypothetical ‘reasonable investor’, out to maximise their own economic self-interest, be likely to use the information in making their investment decision? Information that will usually be considered relevant to a reasonable investor’s decisions includes that affecting:
the company’s assets and liabilities;
the performance of the company’s business, or expectations as to that performance;
the company’s financial condition;
the course of the company’s business;
major new developments in the company’s business;
information that has previously been disclosed to the market.
A commonly used rule of thumb is to say that a price movement of 10 per cent either way is ‘significant8217; and so information that is unlikely to move the share price that much is not disclosable. But the FSA is very clear that there is no ‘10 per cent rule’ and that price movements below that threshold can still be significant in particular cases.
Deciding whether information satisfies all these tests and should be announced to the market is often a difficult call for a board to make. The company’s brokers or other financial advisers should always be consulted where there is doubt, particularly when considering the effect on the share price, as they will appreciate the factors likely to influence shareholders. Indeed, the FSA has criticised directors where the brokers’ view has not been sought. Lawyers can help test the assumptions being made and take directors through the relevant definitions.
When an announcement is to be made, a company must take all reasonable care to ensure that any information it releases to the market is not misleading, false or deceptive, and that it does not omit anything that is ‘likely to affect the import’ of the information (DTR 1.3.4). If the decision is made not to announce, the matter should be kept under review and re-assessed as circumstances change.
The FSA monitors large share price movements, and an unexpected rise or fall will commonly result in a ‘please explain’ letter asking for the background circumstances. Professional advice should be taken before replying.
Inside information needs to be released to the market ‘as soon as possible’; a delay of only a few days can be unacceptable (see: Cases on disclosure of price-sensitive information). Where the news is unexpected by the company, such as a natural disaster or a surprise contract loss, a short delay may be permissible to establish the facts. But if, pending the full announcement, there is a risk of a leak of confidential information, a holding announcement should be made, including as much information as is known.
Delay is permitted where public disclosure would prejudice a company’s ‘legitimate interests’. But there are conditions attached to this concession: the company must be sure that it can keep the information confidential and that leaks won’t give some people an unfair advantage over others. Anyone who receives the information in the meantime must be under a duty of confidentiality to the company, whether as an employee, adviser or by specific agreement. And even where confidentiality can be maintained, the lack of an announcement must not be likely to mislead the public.
A company’s legitimate interests will most commonly relate to its financial viability – if it is in negotiations with its banks and fighting for survival, it may be able to hold off announcing that it is having such discussions. But it will still need to disclose the fact that it is in financial difficulty – the exemption only applies to the negotiations, not to the underlying problem.
Where rumours are false or press speculation is groundless, a company is under no obligation to issue denials. Untruths can’t amount to inside information.
But where rumours or speculation are largely correct, the company needs quickly to decide whether it has inside information that should be released. Once news has leaked, delay can no longer be justified, and directors need to ensure that the market is trading on the basis of accurate information that is available to all.
In reaching the decisions described in our Cases on disclosure of price-sensitive information, the FSA has drawn the conclusions below.
In respect of new developments in its sphere of activity, a listed company must first consider objectively the importance of those developments to the business and then, with its advisers (including its corporate brokers), objectively assess whether they may lead to a substantial movement in the company’s share price.
In respect of a change in the performance of the business, a listed company must first consider objectively whether there has been such a change and then, with its advisers, objectively assess the likely price sensitivity of the change.
When looking at any change in its expectations of its performance, a listed company must first assess whether there has been a change in its subjective expectations (given the relevant facts) and then, with its advisers, objectively assess the likely price sensitivity of any change.
In addition, to minimise their exposure to, and the risk of, personal liability, directors need to:
make sure the company has a formal documented process to ensure compliance with its obligations under the DTR and the Listing Rules;
regularly review compliance with those rules and rigorously monitor changes to the company’s financial condition, performance and its expectations of its performance;
ensure the company and the board are aware of the consensus of market expectations regarding the company’s results and that they regularly ask whether the company’s own expectations are in line with that consensus;
keep under review announcements already made and documents already published (such as audited accounts and previous trading statements) and consider whether any later developments may be material in the context of that information;
ensure that executive directors elevate issues to the full board without delay;
make sure that all members of the board, executive and non-executive, receive copies of the monthly management accounts and details of any major developments in the company’s sphere of activity;
seek prompt advice from the company’s corporate brokers, financial and other advisers as to whether any information or matter is pricesensitive.
Personal liability for directors
The FSA’s main target in recent cases where there has been a failure to disclose inside information has been the company. But there is also a risk for directors if the FSA considers they were ‘knowingly concerned’ in the breach – the FSA can fine a director ‘such amount as it considers appropriate’.
The Universal Salvage case in 2002 (see: Cases on disclosure of price-sensitive information) suggested that the ‘guilty’ director did not need to have any intention to mislead the market: knowledge of the facts and some involvement in the breach were enough to result in a fine for the chief executive. In the later case of Pace, however, the directors escaped penalties and censure – the FSA seems to have accepted the idea that to ‘be knowingly concerned’ a director must have some awareness that the company is breaking the rules. (Pace is also described in the cases.)
The safest course will always be to make sure you know the rules and assume that absence of bad faith will not be enough to get you off the hook. In this context, Listing Principles 1 and 2 are very relevant:
a listed company must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors;
a listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
If the FSA cannot pin a breach of a specific listing rule or DTR on a company or its directors, it has the ability to pursue them for a breach of these listing principles. It can be all too easy, after the event, for the regulator to allege that the breach arose because directors did not understand their responsibilities and obligations, and that adequate systems were not in place for compliance. Ignorance of the law is no excuse.
Is it just the chief executive who is at risk of a fine? The short answer is ‘no’. All directors of a listed company should accept full responsibility, collectively and individually, for the company’s compliance with the rules. Although the FSA decided in the Universal Salvage case that the CEO had a particular responsibility, all directors, executive and nonexecutive, are under a duty to ensure the company complies with its obligations and to bring any price-sensitive information to the attention of the full board as soon as possible. And, as all these cases show, the FSA will take a dim view of the board that does not seek prompt advice from the company’s brokers.
The rest of the board should not simply point to the CEO and expect him or her to take the rap in eve |
|winnet: judging the relevent merits of this deal on the daily share price performance is absolutely ludicrous.
If i hear one more person giving 'voice' to the market (or their interpretation thereof) i think my head will pop off. Literally.
Again, i'm not going to go down the road of explaining to you why the share price fell from 4 quid, i suggest you actually do some proper research. Needless to say Kevin can not, and is not, directly accountable for share price performance, or for the falling price of oil, or for the malaise in junior oilers or for the Sapele fiasco. He may well be responsible for the war in sytria, 3rd world debt and child poverty, but the jury is still out on those things...
I'm just not going to enter into a debate about Hart, at a time when we should be chatting about the deal. |
|leoneobull: Shares in Xcite Energy (LSE: XEL) and BowLeven (LSE: BLVN) are both in the red today after the two companies reported disappointing results. In fact, their share prices have slumped by 5% and 6% respectively today and, over the last six months, have declined by 54% and 14% respectively. Clearly, this is a disappointing result for investors in the two companies but, looking ahead, which of the two companies has the most potential to deliver significant share price gains?
Today’s full year results from Xcite Energy showed that it swung from a profit of £9.5m in 2013 to a loss of £5m in 2014, as a failure to repeat the one-off revenue from 2013 impacted on the company’s bottom line. In fact, Xcite Energy also recorded a substantial foreign exchange loss on bonds which made its results seem all the more disappointing.
However, Xcite Energy is making encouraging progress with the Bentley development project and, while further financing appears likely in order to bring the field into production, Xcite Energy’s cash balance of £32.5m should provide investors in the company with a degree of confidence regarding its turnaround potential.
Meanwhile, BowLeven saw its loss widen in the first half of the current year after it recorded a significant impairment charge. In fact, the impairment charge was a whopping $76m and reflects new commodity price and planning expectations for the Etinde development project in Cameroon. As such, the company’s first half pretax loss increased from $6.6m to $81m.
Despite this, BowLeven has a considerable cash balance of $155m which has been built up as a result of the sale of part of its stake in the Etinde project earlier this year. As such, it has considerable financial firepower through which to participate in four exploration and appraisal wells over the next eighteen months, with it also having the financing to continue drilling at the Etinde project, too.
Clearly, both companies are experiencing a challenging period at present, with investor sentiment being hurt by lower energy prices and their progress being hampered somewhat by the uncertainty surrounding the wider sector. As such, both companies remain relatively high risk and are likely to see their share prices continue to be volatile over the short to medium term. And, with neither company having any revenue at present, their share prices are likely to be highly dependent upon news flow, which is difficult to predict.
However, when it comes to longer-term prospects, BowLeven appears to offer the most potential for investors. That’s because it is relatively well financed and has sufficient capital to undertake its major plans over the next couple of years. This could prove crucial – especially if energy prices do weaken further. And, while Xcite Energy could prove to be a sound long term investment, its financial position does not appear to be as strong as that of BowLeven, which makes the latter, rather than the former, the better buy right now. |
|svenice7: Cant work out the share price movement. Few months ago bowleven's share price plummeted. Then as gas prices came down, the share price goes up! We must have hit a lot of gas... |
Just my thoughts on your post.
The EU’s Capital Requirements Directive (“CRD”)of 2011, has been implemented in the UK through the rules
established by the Financial Services Authority (FSA) in its Handbook of Rules and Guidance for
regulated firms. The CRD created a revised regulatory capital framework consisting of three “pillars”;:
• Pillar 1: sets out the minimum capital requirements for credit, market and operational risk;
• Pillar 2: requires regulated firms, and the FSA, to take a view on whether additional capital
should be held against capital risks not covered by Pillar 1; and
• Pillar 3: requires regulated firms to publish certain information on their risk management
objectives and policies and on their capital resources.
These new rules were designed to remove risk of a systemic collapse.
They apply to MM.
It may not be coincidence that since the new Rules in 2011, Aim has been in free fall.
Type 'Pillar3' agains the name of any MM and you will see how little capital they have. Consequently they have tight Value at Risk (VaR) models which they apply daily to limit exposure to Aim shares when market making.
Self evidently the lower the market capital of an Aim company the lower the risk, added to which if an Aim company with assets is trading at a fraction of those assets there is less likely to be a stampede if the market throws its teddy bear out of the cot as it is doing this week over Greece.
But the consequence of all of that is that the MM do not want popular shares to rise towards fair value.
Private investors with serious money to play with and DMA know that if they trade against the MM the MM will short the price.
Some shares, CAKE being one, never fall into this net, nor do many overvalued pharma companies. Dodgy financial companies like QPP and PLUS also seem to be exempted.
But oilers most certainly are front and centre for special punishment.
The description of a share as being liquid has two meanings. It is commonly understood to mean that there is a high volume of shares traded.
But the real meaning and the one ascribed by Carney recently, is the ability to buy and sell a share in significant volumes on a reasonable spread, without moving the price.
By that definition BLVN is liquid.
Will the MM increase their capital to enable them to return to the days of old when they would happily take shares onto their books and hold for an upturn?
I doubt it.
They seem to kind of like closing with flat books every day.
The market maker does not mind how cheap the shares are. In fact cheap shares have wider spreads. Nor in most instances is the MM concerned about the merits of any particular share.
It is bizarre that many NOMAD/Brokers are also MM, for this reason, these brokers put out buy notes for their companies with target prices far far higher than their current share price.
But when these same NOMAD/Brokers are MM they are quite happy to short the price if there is selling of the shares, even though the price is significantly lower than their target price.
What it does mean however, is that share prices on Aim may NEVER recover to the kinds of levels witnessed in 2010 the year before the new Rules.
That is the scary bit. |
|petebo: Thanks Leo. In full below.....
This could prove to be an interesting period for investors in BowLeven (LSE: BLVN), with the West Africa focused oil and gas company set to commence drilling onshore Cameroon for the first time later this month. Previously, of course, it has focused its efforts offshore and, with the transfer of assets as part of its farm-out deal at the Etinde oil and gas permit in Cameroon progressing in line with expectations, investor sentiment could pick up in the short to medium term.
Clearly, BowLeven’s share price is highly correlated to the wider oil price and, as a result, it has been weak in recent months and has fallen by 16% in the last year. However, with the possibility of more positive news flow, as well as a balance sheet that contains around $20m in cash and no debt, BowLeven could prove to be a relatively strong performer moving forward.
Certainly, it remains a high-risk resources play that is likely to deliver high volatility but, looking ahead, it could see sentiment pick up and push its share price higher.
Supply chains solutions provider Wincanton (LSE: WIN) has been a strong performer during the last year, with its share price rising by 21%. While impressive, there could be even better performance to come, since Wincanton continues to offer a potent mix of growth and value.
For example, it is expected to increase its bottom line by 7% next year, followed by 12% the year after. That’s a very respectable rate of growth and shows that, after a period of disappointment, Wincanton looks set to deliver a number of years of upbeat earnings numbers.
Despite this, it continues to trade at a very appealing price level, with Wincanton currently having a price to earnings (P/E) ratio of just 9.9. This highlights that there is considerable upward rerating potential available and, when combined with its above average earnings forecasts, equates to a price to earnings growth (PEG) ratio of just 0.7. This indicates that Wincanton offer growth at a reasonable price and, as a result, could make share price gains moving forward.
In addition, Wincanton is also expected to pay a dividend in financial year 2017 for the first time since 2011. Although it only yields 1.4%, the forecast payment of a dividend shows that Wincanton is becoming financially stronger, which should provide investors in the company with more confidence regarding its long term future. As such, it could be worth buying at the present time. |