Bomono deal struck at lower than market expectations. Good for VOG, less good for BLVN.

Companies: Bowleven plc, Victoria Oil & Gas PLC


 

Management at Bowleven is in a tight spot at the moment. A few weeks ago in late January, its largest shareholder Crown Ocean Capital (COC) proposed resolutions at the upcoming General Meeting on the 14th March to remove most of the Board and return excess capital to shareholders. It doesn't appear that the resolutions are gaining much traction with other shareholders with a number coming out in support of Management.


Both cases are put forward here with the COC rationale and the Bowleven response video from Chairman Billy Allen.

 

However, today's announcement confirming the farm-out of the Bomono licence to Victoria Oil & Gas (VOG) has gone down badly with the market. Victoria has farmed into 80% of the equity in exchange for funding the required civil works to install the gas processing plant, which is expected to come in at $6m. Bowleven will also receive £100k worth of VOG equity and a 3.5% royalty from VOG's production share of hydrocarbons from the field.

 

There are a few moving parts and it is not clear exactly how much the 3.5% royalty will be worth. However, if you assume the main consideration paid by Victoria is the $6m of development capex and that bought them 80% of the equity,  that would imply a gross value for the field of under $8m. Edison's research note from 3 weeks ago valued Bomono on an unrisked basis at closer to $80m, and c.$40m on a 50% risked basis.


One point that is worth making, however, is that COC is calling for a cessation of work on Bomono, so although the price is not compelling, at least this is progress being made on a licence that the activist shareholder was willing to drop.

 

The move in share price of both AIM companies tells you the market reaction very clearly. Bowleven shares are down nearly 7% in early trading and Victoria O&G shares are up 14%.

 

Bowleven share price 2016 2017

Victoria Oil & Gas share price 2016 2017


 


The information contained within this post is based on personal experience and opinion and should not be considered as a recommendation to trade nor financial advice.