Is Now The Time To Invest In BowLeven PLC?

Etinde sign-off draws nearer

Investor confidence in oil explorer BowLeven (LSE: BLVN) received a shot in the arm today when the firm announced its plan to farm out of a 50% stake of its gigantic Etinde project in Cameroon to LUKOIL and NewAge is now in the final stages. Indeed, the company describes the receipt of the Presidential signature as now being “imminent.

The deadline for the $250m deal — which was first announced back in June, and received approval from the African state’s government back in October — has now been pushed back to the end of February, even though BowLeven still believes this could be completed by the close of the 2014.

As well, the enduring enthusiasm of BowLeven’s partners to execute the deal is testament to the potential of the Etinde asset, considering that Brent was trading at $115 per barrel back in June.

Earnings set to remain elusive

Not surprisingly shares in the oil play have leapt in Tuesday trading, and are currently up around 8% on the day. Still, concerns over the state of the oil market have seen BowLeven concede more than a third of its value since the year’s high of 43.75p per share back in January, and prices remain a world away from the record of 398p punched back in 2011.

BowLeven remains locked at the capex-sapping, early exploration stage, and consequently Macquarie does not expect the business to ring in a profit for some time to come. Indeed, the broker expects BowLeven to announce losses of 4 US cents per share through to the year concluding June 2016.

Abundant supply overshadows earnings prospects

And given the tumultuous state of the oil market, there are no guarantees that the business will be in a position to punch any sort of earnings turnaround any time soon. The Brent benchmark dipped to its cheapest below $60 per barrel this week, levels not seen since the summer of 2009, and market consensus suggests that the black gold price is set to continue tanking as we enter the new year.

Worryingly, Saudi oil minister Ali al-Naimi told the Middle East Economic Survey this week that it was “not in the interest of OPEC producers to cut their production,” adding that the oil cartel would stay the course even if prices sink as low as $20 per barrel. And al-Naimi went as far as to suggest that prices could fail to rise back to $100 again.

OPEC is seemingly trying to hammer the market back into shape by putting many producers, particularly those in the US shale sector, out of business. This policy could have a disastrous effect for the likes of Africa-centred BowLeven as projects become increasingly uneconomic to develop.

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Royston Wild 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.