BowLeven (LSE: BLVN) announced this morning that the Cameroon government had granted approval for the firm to assign 50% of its interest in the Etinde Permit to partners Lukoil and NewAge, in a deal worth $250m to the AIM-listed firm.
On first reading this morning’s news, I assumed this meant that this deal — which was originally scheduled to be completed by 31 August 2014 — could now be completed. However, it turns out that following government approval, Cameroon’s president must now issue a signed decree to formalise the deal. As a result, the deal deadline is being extended again, from 31 October to 31 December 2014.
Patience worthwhile?
Although news of further delay is frustrating for Bowleven shareholders, the Etinde asset is thought to contain in excess of 1,500 billion cubic feet of gas, and I believe patience is worthwhile.
In my view, this deal is almost certain to complete successfully, and will be worth the wait: on completion of the deal, Bowleven will be entitled to a $40m carry on two fast-tracked Etinde appraisal wells, plus an immediate cash payment of $170m, with a further $40m cash payable if certain milestones are reached as the project develops.
Bowleven is working towards a 20-year gas sale agreement to a local fertiliser plant, and towards a joint venture LNG plant for the remainder of the Etinde gas, both of which could provide attractive long-term cash flow to fund future projects.
Other prospects
The $170m cash payment will enable Bowleven to fund its share of Etinde costs and also to focus its attention on some of its other promising exploration assets, most notably the Bomono permit, where Bowleven is currently planning to drill two exploration wells, starting in late 2014.
Bowleven also has early-stage exploration assets in Kenya and Zambia, with more in the pipeline.
Selling at a discount?
Bowleven’s current market capitalisation of £104m is roughly equal to $170m. At the time of its last financial report, Bowleven had $38m in the bank and no debt.
Assuming the Lukoil/NewAge farm-out completes by the end of the year, today’s 32p share price could be below Bowleven’s net cash per share — without attaching any value to its remaining 25% stake in Etinde and to the other assets in its portfolio.
That looks too cheap to me, and I believe that now could be a good time to buy into Bowleven.
