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Bowleven Equity Report
1. UNITED KINGDOM
BLVN LN Outperform
Price (at 15:35, 18 Jul 2014 GMT) £0.40
Valuation £ 0.75
- DCF (WACC 10.0%)
12-month target £ 0.70
12-month TSR % +73.9
GICS sector Energy
Market cap £m 130
Market cap US$m 223
30-day avg turnover £m 1.7
Number shares on issue m 324.2
Investment fundamentals
Year end 30 Jun 2013A 2014E 2015E 2016E
Revenue m 0.0 0.0 0.0 0.0
EBIT m -11.1 -15.1 -21.5 -22.4
Adjusted profit m -11.1 -16.3 -21.3 -22.1
Gross cashflow m -7.8 -12.6 -18.3 -19.2
EPS adj US$ -0.04 -0.05 -0.07 -0.07
EPS adj growth % 22.8 -36.0 -28.3 -4.1
Total DPS US$ 0.00 0.00 0.00 0.00
Total div yield % 0.0 0.0 0.0 0.0
Net debt/equity % -3.5 -3.0 -24.2 -20.4
BLVN LN vs FTSE Allshare, & rec
history
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, July 2014
(all figures in USD unless noted, TP in GBP)
Analyst(s)
David Farrell, CFA
+44 20 3037 4465 david.farrell@macquarie.com
Joe Stokeld
+44 20 3037 4457 joe.stokeld@macquarie.com
Kate Sloan
+44 20 303 74453 kate.sloan@macquarie.com
Giacomo Romeo, CFA
+44 20 3037 4445 giacomo.romeo@macquarie.com
22 July 2014
Macquarie Capital (Europe) Limited
Bowleven
Entering a New Age
Event
On 24th June Bowleven farmed down its stake in the Etinde development
offshore Cameroon to New Age and LUKOIL. Although the company is now
largely financed for development, the stock continues to languish at a 22-59%
discount to the read-through valuation of the transaction. In this note we look
at why this may be and in doing so highlight the catalysts for re-rating.
Impact
Read-through valuation supportive: We estimate that post deal completion,
Bowleven will have net cash resources of 33p/sh (US$17m existing cash and
US$161m of net proceeds). Furthermore, on a fully diluted basis, the
US$170m that New Age and LUKOIL paid for a 40% stake in the Etinde
development suggests Bowleven’s residual 20% stake is worth 16p/sh.
Combined this gives a “base” valuation of 49p/sh, which could rise to an
“upside” valuation of 64p/sh if both the deferred payment and appraisal carry
are included. Our asset-by-asset bottom-up valuation is above this at 70p/sh.
Addressing issues key to closing valuation gap: We believe that bringing
in New Age and LUKOIL has de-risked the project. However there are a
number of outstanding questions that need to be answered before the
valuation gap closes, in our view. The major ones concern: commitment of the
Ferrostaal consortium to the fertiliser project; confirmation of New Age's
credentials as operator and its prioritisation of gas supply to the fertiliser plant
over competing solutions; firming up of Etinde development costs, FID timing
and first production; break-down of recoverable resources by field and how
Bowleven's capital structure will look through the development.
The stock may also benefit from near term drilling: Bowleven is entering a
period of elevated activity. By year end, it should have commenced drilling the
Bomono campaign (onshore Cameroon) targeting a net 129mboe (16p/120p).
Any discovery should hopefully be easier and quicker to commercialise than
offshore counterparts. Next year, the Etinde partners will also drill two wells to
appraise the highly prospective Intra Isongo formation, which could deliver a
net 31mmboe of upside (3p / 29p), based on our analysis.
Earnings and target price revision
Our target price falls very modestly to 70p from 71p. 2014 and 2015 (June yr
end) EPS fall 42% and 78% as we also update for 1H14 results.
Price catalyst
12-month price target: £0.70 based on a Sum of Parts methodology.
Catalyst: Signing of Gas Sale Agreement (2H14); Zingana well (10p/76p)
Action and recommendation
Not withstanding the issues above, we believe that the investment case is
more compelling now than at any point since we initiated coverage back in
December 2011 and is certainly worth another look.
Please refer to page 10 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
2. Macquarie Research Bowleven
Current share price is 22- 59% discount to transaction read-through
valuation
Bowleven’s share price has increased only 1% since it announced the deal to bring in New Age
and LUKOIL to the Etinde development on 24th June. In doing so though it circumvented potential
financing problems that would have emerged if Petrofac’s IES division had chosen not to proceed
with the US$500m Strategic Alliance (as was their right at the project’s Final Investment Decision).
Under the terms of 24th June deal, Bowleven will:
Sell down a 40% interest on a fully diluted basis (50% pre government SNH back-in) in the
Etinde development to New Age (10% WI) and LUKOIL (30% WI) for a total US$170m in
cash. Bowleven will be left with 20% WI, while New Age will assume operatorship from
Bowleven with an increased 30% WI.
Receive a further US$40m staged deferred cash payment contingent upon Etinde
development Final Investment Decision (US$25m) and completion of appraisal drilling
(US$15m).
A US$40m (net) carry on two appraisal wells
The lack of movement in the share price is surprising to us given that there was a positive read-through
valuation relative to the stock price on the day of the announcement. As our calculations
below show, our base case read-through valuation is a 22% premium to the current share price
while our upside valuation is at a 59% premium.
Fig 1 Read-through valuation of New Age / LUKOIL farm-out
Cash portion of valuation US$m p/share Comment
Value of existing cash 17 3 June 2014 estimate. Expect results to be released in November
Value of farm-out cash 170 32 Assumes no Capital Gains Tax as per company guidance
Value of Petrofac break fee -9 -2 BLVN had said w orst case could have been US$15m
Total value of cash 178 33
Upside / (dow nside) to current share price (17%)
Asset portion of valuation
Diluted WI acquired in farm-out 40% SNH has 20% back-in rights upon FID. Headline farm-out is 50% WI
Price paid 170
Implied value of 100% licence 425 Our full f ield IM model US$740m (unrisked); US$444m (risked)
Bow leven residual stake 20% Headline residual WI is 25%
Implied value of residual stake 85 16
Base case read through valuation 263 49 No value included for Bomono, Zambia or Kenya exploration
Upside / (dow nside) to current share price 22%
Additional payments upside of valuation
Deferred payment 40 7.5 Contingent upon Etinde FID and appraisal w ell results
Value of appraisal w ell carry 40 7.5 If successful w ells likely suspended as future producers
Implied value of additional payments 80 15
Upside case read through valuation 343 64
Upside / (dow nside) to current share price 59%
Source: Factset, Company data, Macquarie Research, July 2014. Based on 18 July closing price of 40.25p.
22 July 2014 2
3. Macquarie Research Bowleven
The concerns that we believe need addressing for re-rating
Net cash proceeds: Immediately following the transaction, we believe the market worried about
the break fee payable to Petrofac for terminating the Strategic Alliance, with Bowleven saying that
it could be as high US$15m. This amount would have almost fully consumed the company’s
existing cash balance of US$17m (Macq June 2014 estimate). As it was, on 15th July Bowleven
announced a break fee of US$9m and crucially payable only after completion of the farm-out.
The second element to this is that Bowleven have said that no Capital Gains Tax is payable on the
cash proceeds. Given recent African disputes over Capital Gains Tax (Uganda) we believe there
is some lingering doubt as to whether the full US$170m cash consideration will make it into
Bowleven’s bank account. As a reference point, a 30% Capital Gains Tax on the US$170m is
worth 10p/share net to Bowleven’s cash balance. The current timing for the transaction completion
is mid September.
Ferrostaal commitment to / funding of fertiliser plant: Phase 1 of the Etinde development is to
be developed by sending gas from the IM field to a Ferrostaal run fertiliser plant and selling
associated and stripped liquids in the open market. However, as Ferrostaal and its partners are
un-listed the market has limited ongoing line of sight on their commitment to this project and
funding, although German bank KFW is known to be leading the debt financing element. It goes
without saying that unless the fertiliser plant passes FID then the Etinde development cannot. In
our view, we believe that while the formal decree of the Etinde Exploitation Authorisation is
unlikely to have an impact on sentiment towards Bowleven, the final Gas Sales Agreement
between the Etinde partners and the fertiliser consortium would. Bowleven has indicated this will
occur in 2H14 and we understand it is a major milestone towards finalising the debt for the
fertiliser project.
New Age’s credentials as operator: We believe that New Age is a relatively unknown entity to
many in the investment community, certainly at an operator level and its credentials as operator of
the Etinde development will take some time establish in our view. Below we outline some details
on both New Age and LUKOIL:
New Age: Is an African focussed E&P company based in London and run by Steve Lowden,
who is a former President of Marathon International. New Age operates the Khalakan block in
Kurdistan as well as exploration Blocks 7&8 onshore Ethiopia. Other assets include non
operated positions in Congo-Brazzaville, Somaliland and South Africa. The company is
backed (at least partially) by Kerogen Capital, which has US6$1bn invested across the oil and
gas space including investments in AJ Lucas, Buried Hill Energy and HKN.
LUKOIL: Produces 2.1% of global crude oil and holds proved oil reserves of 17.3bn barrels.
Since 2006, the company has established offshore West African footholds in Sierra Leone,
Cote D’Ivoire and Ghana. LUKOIL has an objective of increasing the gas portion of its
hydrocarbon production up to 33% from 2012 levels of 18%.
Potential slippage of fertiliser start-up and development costs: While the fertiliser plant
underpins Phase 1 of any development we believe that New Age and LUKOIL have been as
attracted by the prospective gas resources on the Etinde block (see IM Intra Isongo section later).
The Cameroon government and French company GDF Suez are proposing that additional gas
discoveries be commercialised via a greenfield Cameroon LNG development (“CLNG”). Pre-FEED
work was completed by Foster Wheeler in mid 2011 for a 3.5mtpa facility with gas supplied from
fields operated by Perenco, Noble Energy, Addax and Bowleven’s Etinde Permit. We remain
sceptical on the economic viability single train greenfield LNG development in West Africa.
However, we do see a chance that New Age waits until appraisal drilling on the Intra Isongo is
completed before sanctioning any Etinde development. That is not to say we believe that the
fertiliser plant will be usurped by LNG, but that depending upon the appraisal results an LNG
development might be more fully considered alongside the fertiliser project. Such a course of
action would allow the project to be “right sized” but also result in further slippage of the FID
Even on the Phase I development, though, we see a lack of granularity on the development costs.
Cost estimates having changed over time as the development concept evolved and in the table
below we show this. Firming up the development concept and costs will be items that come out of
the Final Investment Decision, which LUKOIL’ s farm-in press release now says will be a 2015
event . With Bowleven’s most recent guidance being a 30-month construction period between FID
and first production, we believe that mid 2018 is the appropriate time frame to have first production
against the previously implied mid 2017 guidance.
22 July 2014 3
4. Macquarie Research Bowleven
Fig 2 Development cost estimates and scenarios have altered over time
Jun-14 Mar-13 Mar-13 Nov-12 Jan-12 Mar-11
Event Latest presentation Interim results Interim results Prelim results Capital Markets Day Interim results
Development concept IM IM / IE ? IM / IE ? Fields in MLHP-5 Hub and Spoke IE and IF
Capex - Full f ield US$300-600m
Capex - Pre f irst oil US$650-700m US$650-700m
Capex - Stage 1 development US$900m US$900m
Limbe Processing facilities US$275-300m
Each Hub US$75-120m
Pipelines US$1-2m/km
Final Investment Decision 4Q 2014 Mid 2014 4Q 2013 4Q 2013 4Q 2013 N/A
First production Mid 2017 2H 2016 Mid 2016 Mid 2016 Mid 2015 N/A
Source: Company data, Macquarie Research, July 2014.
In our revised modelling of the Etinde development we have made a number of assumptions
which are more conservative than current management guidance:
First production from IM in mid 2018, which is one year later than current guidance
Development costs of IM of US$900m with US$765m spend prior to first production against
current guidance of US$650-700m prior to first production (and very little thereafter)
In our upside case we model production from IE coming on-stream in mid 2021 with an
associated US$500m capex
How recoverable resources are distributed across the permit: Bowleven has historically
talked of a “hub and spoke” development, targeting various offshore fields including IM and IE and
feeding production to a central processing hub in Limbe. However, while the company has
provided recoverable resources at a group level by hydrocarbon type (FY13 net contingent
resources 263mmboe), we have yet to see the breakdown of these recoverable resources on a
field by field basis. Only in place hydrocarbons have been revealed on this basis to date and the
market therefore lacks the detail on quantum of resources attributed to each field. As far as we
know there is no need for Bowleven to publish an Independent 3rd Party verification of resources
(Competent Persons Report) for the Gas Sales Agreement, but we do believe that completion of
one over the IM and IE fields would help alleviate some investor concerns over the resource base.
Fig 3 Etinde Permit to be developed via a “hub and spoke” approach
Source: Bowleven, July 2014. Note: Bowleven also has the IC discovery (77bcf GIIP) and Manyikeni discovery (56bcf
GIIP) in MLHP-5
Will Bowleven need more equity?: As the chart below shows, Bowleven has come to the market
a number of times since 2008, raising a total US$448m in equity. The most recent raises in
October 2011 and November 2013 have been undertaken at the steepest discounts, reflecting
some investor fatigue in our view that discovered resources were not being moved into reserves.
22 July 2014 4
5. Macquarie Research Bowleven
Fig 4 Bowleven’s equity raisings since 2008. Size of bubble reflects size of equity raise
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
-16%
-18%
Raise price (p)
Mar-08; US$78m
0 50 100 150 200 250 300 350 400
Prem / (disc) to previous day (%)
Jun-09; US$114m
Nov-13; US$19m
Oct-11; U$124m
Most recent raises have been done at the steepest discounts
Source: Company data, FactSet, Macquarie Research, July 2014.
Nov-10; US$113m
Given the use of equity markets as a source of funding, we believe that there is some concern that
Bowleven may yet again have to revert to the markets to fund its share of development capex.
However, based on our revised field model assumptions, we believe that Bowleven’s share of
development costs prior to first production are US$153m leading to a financing shortfall of just
US$55m (assuming ongoing G&A of ~US$20mp.a.; US$10m E&A spend p.a. and the US$40m
deferred payment). This shortfall should be manageable from a debt financing position, in our
view, as it equates to a gearing ratio (ND/ND+Equity) of just 10%, with Bowleven already having
indicated that it could pursue conventional debt financing, development financing or some form of
mezzanine debt. Furthermore, if Bowleven is correct in its assumption of capex to first production,
then its financing shortfall declines to just US$42m (8% gearing).
Fig 5 Evolution of Bowleven’s net debt position
17
136
111
28
150
100
50
0
-50
-100
FY14e FY15e FY16e FY17e FY18e
Net cash / (debt) - US$m
Source: Company data, Macquarie Research, July 2014. * Note: relates to Bowleven’s June year end.
-55
22 July 2014 5
6. Macquarie Research Bowleven
Drilling activity that may also close the valuation gap
What potential upside is there at IM Intra Isongo level?: When appraising the Upper and
Middle Intra Isongo sands within the IM structure in 2012/13, Bowleven made a discovery within
the Intra Isongo formation. This interval flow tested at 10.8kboe/d (57% gas; 43% condensate)
from a 29m perforated section of the 70m net pay. Previously believed to be a seismic amplitude
response driven by volcanic rock, this interval can be well mapped across the Etinde permit while
potential immediately above and below the Intra Isongo (“Greater Interval”) has also been
mapped. Overall Bowleven map 1.3tcf of undiscovered gas resources within the play which, in line
with the farm-out agreement, will be appraised during 2015. It is these undiscovered resources
which are notionally earmarked to the Cameroon LNG development.
Fig 6 Mapping of Greater Intra Isongo prospectivity Fig 7 Intra Isongo resources
Discovered Resources
Wet Gas Initially In Place (bcf ) P90 P50 P10 Pmean
Intra Isongo 275 539 1094 626
Condensate Initially in Place (mmb) P90 P50 P10 Pmean
Intra Isongo 44 91 193 107
Prospective Resources
Wet Gas Initially In Place (bcf ) P90 P50 P10 Pmean
Intra Isongo discovery horizon 303 678 1530 822
Greater Interval 296 630 1413 769
Total 599 1308 2943 1591
Condensate Initially in Place (mmb) P90 P50 P10 Pmean
Intra Isongo discovery horizon 48 114 269 141
Greater Interval 47 107 248 132
Total 95 221 517 273
Source: Bowleven, Macquarie Research, July 2014 Source: Company data, Macquarie Research, July 2014
Onshore exploration success might be easier/quicker to commercialise: Bowleven recently
agreed to a farm-out of a 20% WI in its Bomono permit to Africa Fortesa Corp (“AFC”), reducing its
exposure to 80% (72% if SNH were to exercise back in rights at licence exploitation point).
Although Bowleven received no carry towards exploration costs, AFC has access to a suitable
drilling rig, which it has agreed to provide “at cost” to the Bomono partnership. As a consequence,
Bowleven will have to contribute US$13m towards the drilling of two exploration wells rather than
US$26m which would likely be the market rate. The two prospects, to be drilled in 2H14 in line
with the licence work programme commitments, are Zingana-1 and Moambe-1, which Macquarie
estimates at 114mmboe and 65mmboe recoverable each. If successful, we believe discoveries
could potentially be commercialised on a shorter time frame than the mid 2018 Etinde start-up we
model, via local power stations / industry (gas) or via the open market (liquids). Further farm-down
negotiations are also ongoing to further reduce Bowleven’s capital exposure.
Fig 8 Location of Bomono prospects Fig 9 Bomono prospective resources
Zingana-1
Hydrocarbons Initially in
Place
Oil
(mmb)
Associated
Gas (bcf )
Gas
(bcf )
Condensate
(mmb)
Tertiary D&E sands 302 224 339
Tertiary B&C sands 196 7 40
Macq Recovery Factor 20% 75% 75% 20%
Recoverable 60 168 147 1 114
Moambe-1
Hydrocarbons Initially in
Place
Oil
(mmb)
Associated
Gas (bcf )
Gas
(bcf )
Condensate
(mmb)
Tertiary D&E sands 176 80 189
Tertiary B&C sands 153 4 30
Macq Recovery Factor 20% 75% 75% 20%
Recoverable 35 60 115 1 65
Source: Bowleven, Macquarie Research, July 2014 Source: Company data, Macquarie Research, July 2014
Total
(mmboe)
Total
(mmboe)
22 July 2014 6
7. Macquarie Research Bowleven
Valuation: Outperform maintained; TP trimmed very slightly to 70p
We have updated our valuation for Bowleven, removing the impact of the Petrofac Strategic
Alliance on the cash-flows of the Etinde development. Instead these are replaced by more
conventional 20% WI obligation for Bowleven. Furthermore, we have added risked E&A upside
pertaining to the two upcoming exploration wells on the Bomono permit (BLVN 80% WI) and also
the upside that could come from appraising the Intra Isongo now that a two-well appraisal
campaign is funded via the farm-out.
The table below shows the major impacts that this has on our valuation:
Overall our Core NAV falls by 39% to 44p, although clearly this is a firmer Core NAV with 33p
of net cash against just 5p previously. The reason for the decline is i) the reduction in
Bowleven’s Working Interest in the Etinde Permit and ii) with the monetisation route for the IE
field still lacking clarity, we have moved this former component of Core NAV into Risked E&A
upside.
We include IE in Risked E&A upside with a 50% Chance of Success (8p/15p) as well as the
Zingana (10p / 76p) and Maombe (5p /44p) Bomono prospects and 153mmboe Intra Isongo
prospective resources risked at 10% (3p / 29p).
Fig 10 Bowleven’s Core and Total NAV; components of target price highlighted
Bowleven Previous published
Unit Value
(US$/boe)
EMV
(US$m)
Assets (NPV10)
Risked
resources
(mmboe)
Producing Assets 0 na 0 0p 0p 0% 0p
Net Cash/(Net Debt) na 178 33p 28p 537% 5p June 2014 forecast and net farm-out proceeds of US$161m
Undeveloped Assets 13 6.1 81 15p -54p -78% 70p Removal of IE, and IM f irst gas pushed back to mid 2018
Other assets less G&A -25 -5p -1p -34% -4p
Core NAV 13 17.7 234 44p -28p -39% 71p
Option Proceeds 19 3p 0p 8% 3p
Risked E&A upside 38 3.9 151 28p 11p 65% 17p Inclusion of IE discovery
Total NAV 403 75p -16p -18% 92p
Risked E&A upside included in TP 26p 26p nmf 0p IE discovery, IM Intra Isongo upside, Bomono prospects
Unrisked value of above 164p 164p nmf 0p
Target Price 70p -1p -2% 71p
Source: Company data, Macquarie Research, July 2014
Value
(p/sh) Change
Value
(p/sh) Comments
22 July 2014 7
8. Macquarie Research Bowleven
Fig 11 Bowleven’s EMV Breakdown: Components of Risked E&A included in target price highlighted
Country Project/Prospect Licence Gross Res.
Potential
(mmboe)
Producing Assets
0 0 0 0 0
Undeveloped assets
Cameroon Phase 1 - IM MLHP-7 110 20% 0% 60% $6.1 13 81 15 25
110 13 81 15 25
Risked Upside
Cameroon Phase 1 - IE MLHP-7 39 20% 0% 50% $10.6 4 41 8 15
Cameroon Zingana-1 Bomono 114 72% 80% 15% $5.0 12 55 10 76
Cameroon Moambe-1 Bomono 65 72% 80% 15% $5.0 7 29 5 44
Cameroon Intra-Isongo (IM) MLHP-7 153 20% 0% 10% $5.0 3 15 3 29
Cameroon IF MLHP-7 53 20% 60% 5% $0.0 1 0 0 0
Cameroon Lower Omicron MLHP-5 29 20% 75% 15% $1.4 1 0 0 2
Cameroon Deep Omicron MLHP-5 47 20% 75% 15% $4.9 1 0 0 9
Cameroon Epsilon MLHP-5 61 20% 75% 15% $4.9 2 0 0 11
Cameroon Deep Omicron (upside) MLHP-5 120 20% 75% 15% $4.9 4 5 1 22
Cameroon Epsilon (Upside) MLHP-5 30 20% 75% 15% $4.9 1 4 1 6
Kenya Generic prospect 11B 100 20% 100% 15% $3.5 3 0 0 13
811 38 151 28 226
Total Asset Value 921 52 232 43 252
Notes Bowleven outstanding shares (fd) 335
1. C.O.S. - Chances of Success - Includes all risk factors such as geological, political, project delivery, commercial, etc. GBP/USD 1.6
2. Value/boe - Includes proximity to established infrastructure, development capex required, oil quality, discount rate (10%), etc.
3. EMV - Expected Monetary Value - a risk weighted value. EMV = (Reward*C.O.S.) - [Capital at Risk*(1-C.O.S.)]
4. Unrisked Value - Refers to the value that could potentially be realized if success was achieved on prospect and commercial production realized.
Source: Company data, Macquarie Research, July 2014
Working
Interest
(%)
Costs
Paid
(%)
C.O.S.
(%)1
Discounted
Value
(US$/boe)2
Net Risked
(mmboe)
EMV
(US$m)3
Risked
Value
(p/sh)
Unrisked
Value
(p/sh)4
22 July 2014 8
9. Macquarie Research Bowleven
BOWLEVEN (BLVN, Outperform, Target price: 70p)
Price Assumption 2012A 2013A 2014E 2015E 2016E Half-yearly Forecast H2/13A H1/14A H2/14E H1/15E H2/15E
Oil-Brent $/b 112.31 108.86 108.74 114.50 115.00 Oil-Brent $/b 107.96 109.52 107.96 114.00 115.00
Gas-UK p/therm 57.59 63.77 65.82 63.47 65.34 Gas-UK US$/mmbtu 10.2 10.8 9.9 9.9 9.9
Gas-UK US$/mmbtu 9.48 10.00 10.35 10.41 10.66
US$/£ (period average) $ 1.58 1.57 1.61 1.60 1.60
Oil & Liquids kb/d 0.0 0.0 0.0 0.0 0.0
Natural Gas mmcf/d 0.0 0.0 0.0 0.0 0.0
Total Production kboe/d (@ 6:1) 0.0 0.0 0.0 0.0 0.0
Income Statement 2012A 2013A 2014E 2015E 2016E
Oil & Liquids kb/d 0.0 0.0 0.0 0.0 0.0 Revenue (net of hedging & transp.) m 0.0 0.0 0.0 0.0 0.0
Natural Gas mmcf/d 0.0 0.0 0.0 0.0 0.0 EBITDA m (4.8) (5.5) (9.7) (10.7) (10.7)
Total Production kboe/d (@ 6:1) 0.0 0.0 0.0 0.0 0.0 Net Income m (1.7) (6.6) (9.6) (10.7) (10.6)
Gas Production Ratio % na na na na na Adjusted EPS (diluted) cts/sh (0.6) (2.1) (3.0) (3.3) (3.3)
Cash Flow from Operations m (0.0) (4.4) (8.2) (9.2) (9.1)
Production Growth YoY % nmf nmf nmf nmf nmf
Gross Revenue (pre-royalty) m 0 0 0 0 0 Production profile 2012A 2013A 2014E 2015E 2016E
Royalties m 0 0 0 0 0 Gas kboe/d 0.0 0.0 0.0 0.0 0.0
Net Revenue m 0 0 0 0 0 Oil kboe/d 0.0 0.0 0.0 0.0 0.0
Operating Costs m 0 0 0 0 0 Total kboe/d 0.0 0.0 0.0 0.0 0.0
G&A Costs m -8 -9 -13 -19 -20 % gas % 0% 0% 0% 0% 0%
Other operating expenses m -9 -2 -2 -2 -2
EBITDA m -16 -11 -15 -21 -22
DD&A m 0 0 0 0 0
Interest Costs m 3 0 -1 0 0
Taxes m 0 0 0 0 0
Other Non-Cash Costs m 0 0 0 0 0
Net Income m -13 -11 -16 -21 -22
EPS (basic) cts/sh -4.9 -3.8 -5.1 -6.6 -6.8
EPS (diluted) cts/sh -4.9 -3.8 -5.1 -6.6 -6.8
Adjusted EPS (diluted) cts/sh -4.9 -3.8 -5.1 -6.6 -6.8
Revenue per Share Growth YoY % nmf nmf nmf nmf nmf
EBITDA per Share Growth YoY % nmf nmf nmf nmf nmf
Basic Shares (WA / OS) m 266.9 294.7 316.8 324.2 324.2
Diluted Shares (WA / OS) m 277.6 305.3 327.5 334.9 334.9
0.0 0.0 0.0 0.0 0.0 0.0 0.0
2.6
5.1 5.2
100%
80%
60%
40%
20%
0%
kboe/d
6
5
4
3
2
1
0
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Gas Oil % gas
Balance Sheet 2012A 2013A 2014E 2015E 2016E Cashflow Analysis 2012A 2013A 2014E 2015E 2016E
Cash (including Restricted) m 142.5 19.7 17.2 136.5 111.3 Cash Flow from Operations m (10.0) (8.4) (12.3) (18.3) (19.2)
Debt m 0.0 0.0 0.0 0.0 0.0 Chgs in Working Cap m (5.6) 0.5 (0.2) 0.0 0.0
Convertible debt m 0.0 0.0 0.0 0.0 0.0 Net Cash Flow from Operations m (15.6) (7.8) (12.6) (18.3) (19.2)
Net Debt (Cash) m -142.5 -19.7 -17.2 -136.5 -111.3 Cash Flow from Investing m (58.7) (114.4) (15.2) 137.6 (6.0)
Cash Flow from Financing m 120.1 (0.5) 25.3 0.0 0.0
Total Assets m 588.0 585.6 589.2 570.4 550.7 Increase in Cash m 45.8 (122.7) (2.5) 119.3 (25.2)
Total Liabilities m 8.6 15.6 6.3 6.3 6.3
Total S/H Equity m 579.4 570.0 582.8 564.0 544.4 Free Cash Flow1 m (74.3) (117.2) (27.8) 119.3 (25.2)
Debt Adjusted Cash Flow (DACF) m (5.1) (9.4) (12.2) (18.5) (19.5)
Ratios Analysis 2012A 2013A 2014E 2015E 2016E
ROA % -2.4 -1.9 -2.8 -3.7 -3.9 CFPS (diluted) cts/sh (5.6) (2.6) (3.8) (5.5) (5.7)
ROCE % -0.3 -0.4 -0.5 -0.7 -0.7
ROE % -1.8 -1.4 -2.1 -2.7 -2.8 Capital Expenditures & Acquisitions m 58.7 109.4 15.2 -137.6 6.0
Net Debt/Equity % -24.6 -3.5 -3.0 -24.2 -20.4
Net Debt/CF x 9.1 2.5 1.4 7.4 5.8 Capex/Cash Flow x (5.9) (13.1) (1.2) 7.5 (0.3)
Price/Book x 0.3 0.3 0.4 0.4 0.4
Book Value $/sh 2.0 1.9 1.8 1.7 1.7
Valuation 2012A 2013A 2014E 2015E 2016E Per Boe Statistics 2012A 2013A 2014E 2015E 2016E
P/E x nmf nmf nmf nmf nmf Revenue/boe $/boe nmf nmf nmf nmf nmf
P/CF x nmf nmf nmf nmf nmf Royalties/boe $/boe nmf nmf nmf nmf nmf
Dividend Yield % 0.0 0.0 0.0 0.0 0.0 Operating costs/boe $/boe nmf nmf nmf nmf nmf
Enterprise Value m 340 283 273 86 111 Operating Netback/boe $/boe 0.0 0.0 0.0 0.0 0.0
EV/DACF x -66.3 -30.0 -22.3 -4.6 -5.7 G&A/boe $/boe nmf nmf nmf nmf nmf
EV/Reserves2 $/boe nmf Interest/boe $/boe nmf nmf nmf nmf nmf
EV/2P + 2C $/boe 1.2 Cash Tax/boe $/boe nmf nmf nmf nmf nmf
EV/Production $k/boe/d nmf nmf nmf nmf nmf Cash Netback/boe $/boe 0.0 0.0 0.0 0.0 0.0
Reserve/Production (2P) years nmf nmf nmf nmf nmf Depletion and Depreciation/boe $/boe nmf nmf nmf nmf nmf
Stock based compensation/boe $/boe nmf nmf nmf nmf nmf
Core Net Asset Value (PV10AT) 2 p/sh Other Non-cash/boe $/boe nmf nmf nmf nmf nmf
P/CoreNAV x Deferred Taxes/boe $/boe nmf nmf nmf nmf nmf
Core NAV + Risked Resource Upside 3 p/sh Exceptionals/boe $/boe nmf nmf nmf nmf nmf
P/RENAV x Earnings Netback/boe $/boe 0.0 0.0 0.0 0.0 0.0
All figures US$ unless noted and production and reserve figures are gross of royalties
1) Cash flow from Operations (before chg in WC) Less Capex
2) Excludes non-producing assets
3) Risked resource upside based on LT price of US$11.04/mmbtu HH, US$115/b Brent, and GBP/USD 1.6
Source: Company Data, Macquarie Research, July 2014
22 July 2014 9
10. Macquarie Research Bowleven
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return >3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return >3% below benchmark return
Benchmark return is determined by long term nominal
GDP growth plus 12 month forward market dividend
yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie First South - South Africa
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell
3000 index return
Neutral (Hold) – return within 5% of Russell 3000 index
return
Underperform (Sell)– return >5% below Russell 3000
index return
Volatility index definition*
This is calculated from the volatility of historical
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30–40% in a year.
Low–medium – stock should be expected to
move up or down at least 25–30% in a year.
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Asia/Australian/NZ/Canada stocks
only
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendation proportions – For quarter ending 30 June 2014
AU/NZ Asia RSA USA CA EUR
Outperform 51.67% 60.69% 34.67% 42.33% 55.41% 44.84% (for US coverage by MCUSA, 6.76% of stocks followed are investment banking clients)
Neutral 33.00% 23.93% 38.67% 50.92% 38.51% 35.87% (for US coverage by MCUSA, 7.25% of stocks followed are investment banking clients)
Underperform 15.33% 15.38% 26.67% 6.75% 6.08% 19.28% (for US coverage by MCUSA, 0.48% of stocks followed are investment banking clients)
BLVN LN vs FTSE 100, & rec history
(all figures in GBP currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, July 2014
12-month target price methodology
BLVN LN: £0.70 based on a Sum of Parts methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
Date Stock Code (BBG code) Recommendation Target Price
10-Jan-2014 BLVN LN Outperform £.71
19-Jul-2013 BLVN LN Outperform £1.00
21-Mar-2013 BLVN LN Neutral £1.06
06-Dec-2012 BLVN LN Neutral £.89
13-Jul-2012 BLVN LN Neutral £.96
27-Mar-2012 BLVN LN Neutral £1.10
06-Jan-2012 BLVN LN Outperform £1.35
21-Dec-2011 BLVN LN Neutral £1.10
Target price risk disclosures:
BLVN LN: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include
geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global
economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates,
foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to
manage certain of these exposures.
22 July 2014 10
11. Macquarie Research Bowleven
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analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94
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22 July 2014 11
