Barclays reinstates Bowleven at 'Underweight'

Analysts at Barclays have reinstated a rating on Bowleven at ‘underweight’ and a price target of 34p after the termination of the oil and gas company’s brief strategic review, while it said there also needs to be a monetisation plan for its Cameroon project.

A recent shareholder vote to remove chief executive Kevin Hart and four other directors and the subsequent resignation of the chairman means that the majority of the four-person board are now nominees of the company’s largest shareholder, Crown Ocean Capital, a Monaco-based investor.

Crown Ocean has previously pressed to remove members of the board, including Hart and chairman Billy Allan, as they want to transform Bowleven from an oil and gas explorer into a holding group and return excess cash to shareholders.

Barclays said that the new management team is pursuing a strategy to minimise cash burn while maximising the realised value of the company’s existing assets as well as return any excess cash to shareholders.

However, the bank said that if delivering this strategy was straightforward, there would be a long list of small cap exploration and production companies that have efficiently monetised success and returned the cash to investors, but the reality is that “a clean exit at a full price is rare while scarce equity capital will continue to favour larger, diversified and self-funding businesses”.

It believes that Bowleven’s Etinde project in Cameroon has considerable upside potential but realising significant value from the asset has been, and will remain challenging for the company as a minority partner with a 20% non-operated stake.

Etinde’s operator NewAge and Russian partner Lukoil have higher capital allocation priorities, and the asset appears to lack a commercial solution acceptable to all partners and the Cameroon government, while the $40m payable to Bowleven in 2020, if two appraisal wells are not drilled, will provide 7p per share floor to the bank’s valuation of the asset.

The appeal of returning a large portion of the company’s $95m cash balance is understandable, but Barclays thinks that it can only enhance the outlook for shareholders if it comes with a plan for the monetisation of Etinde.

“Although Bowleven has very limited future commitments, quantifying the capital needed today to monetize Etinde remains challenging regardless of whether it intends to participate in the development or not. A buyback or equivalent process returning significantly more than the $10m proposed last year could weaken Bowleven’s negotiating position for divesting Etinde”, Barclays said.