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Is Now The Perfect Time To Buy BowLeven PLC?

2014 has been a very challenging year for oil and gas exploration company BowLeven (LSE: BLVN). Indeed, the falling price of oil and another year of losses have contributed to a weak share price that is down 9% today and 23% lower since the start of 2014.

However, with the company having recently released full year results and today announcing the appointment of Macquarie Capital Limited as NOMAD and Joint Broker, could it be set for stronger share price performance in 2015? Or, could things get worse for investors in BowLeven next year?

Wider Losses

BowLeven’s full year results were rather mixed. On the one hand, the company posted annual losses that were larger than the previous year, with its bottom line falling to a loss of $13.6 million from $11.1 million in 2013. Furthermore, its cash balance has fallen from $25.5 million as of the end of June 2014, to $14 million at the end of October 2014. This shows that the company continues to burn through cash, with $18 million of capital expenditure during last year being almost wholly focused on exploration and appraisal activities – primarily pre-development spend on the Etinde Permit and drilling preparation costs on the Bomono Permit.

However, BowLeven remains relatively well financed. Certainly, its cash position has fallen in recent months, but it has no debt and has available to it a bridge facility of $30 million, which has not yet been drawn. Furthermore, the losses for the year include foreign exchange losses of $1.7 million, which are much higher than currency headwinds last year, when they totalled $0.5 million. In addition, BowLeven made encouraging operational progress over the last year, with the Etinde Exploitation Authorisation (EA) award being a significant step forward for the company and highlighting its longer term potential.

Looking Ahead

Forecasts for the current year show that BowLeven’s loss is due to remain at a similar level as it was last year. This means that it may need to draw down on the previously mentioned credit facility and, although this is unlikely to cause any major problems in the short run, it means that the company’s cash flow could come under pressure over the medium term. In addition, with the oil price still being relatively weak, it does little to encourage improved sentiment in the company and, looking ahead, it would be of little surprise if BowLeven’s share price remained weak over the short to medium term, as sector weakness hits sentiment in the company’s shares.

Despite this, BowLeven has long-term potential. As mentioned, the EA award gives the company (and its joint venture partners) development and exploitation rights over block MLHP-7 for an initial period of twenty years, with the option to renew for a further ten years. And, with the company expecting to participate in four potentially significant exploration and appraisal wells over the next year, much of the disappointment surrounding lower commodity prices could already be priced in.

Therefore, for longer term investors, BowLeven could prove to be a worthwhile, albeit risky, oil and gas exploration play. In the short term, though, its shares could continue to weaken, which means that today may not be the perfect time to buy a slice of the company.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.