Why is Bowleven my favourite small oil company for the long term?

Comments

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   Backwoodsman

   12 February 2016, 11:31

   Interesting article Gary. Like you I’ve been invested in Bowleven in the past. In my view there are number of good reasons to avoid this company right now. Firstly the market doesn’t trust the management. With Kevin Hearty Payrise at the helm it won’t be the shareholders benefiting from any success. You say the cost of running the company was ‘quite high at $11.8 million’, I’d say it’s ridiculous for a business that makes no sales. As for the recent Bomono drilling Bowleven released flow rates for the Moambe well, but not Zingana. If you check out the RNS’s you’ll see that when Zingana flow rates were expected by the market Bowleven out out a vague statement that gave figures for Bomono as a whole. These were achievable from the Moambe well alone…so what of Zingana? Do tell Bowleven…That brings me to PR, another big failing of this company who don’t keep investors effectively informed of progress. IMHO not a good investment right now. DYOR

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   wildrides

   12 February 2016, 13:27

   Err ………….. because your Oilys new ramping partner ?

   ( sorry Gary …… but you walked right on in there bud ;-)

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   Gary Newman

   13 February 2016, 09:08

   I would say that it is more that private investors don’t trust Kev Hart than the market/City. Personally i think that the deal that Bowleven got for Etinde looks pretty good to me in light of where oil is now and without that the company would have been screwed now with no cash and having to raise money. Part of the problem with Bowleven is that a lot of the hype was created by PIs in the first place, as it often is with many that are favourites of small investors. It is trading at below cash value (even allowing for what it has spent since the last set of accounts), plus that $15 million payment that will come this year regardless of further drilling will help.
   I do also often wonder whether a lot of PIs are actually that bothered by the progress a company is making, or whether they’d prefer to read ‘pie in the sky’ RNSs of the nature that you see from many!
   I personally don’t have a problem with the BOD here and like the fact that they don’t communicate with PIs or respond to enquiries – I find those BODs/directors who are very proactive on Twitter, meeting investors etc are often the ones that i would avoid at all costs as they’re often great at PR and pumping up the share price, but not so good at actually delivering anything.
   Just my opinion of course and remains to be seen where this will go from here, but i would be very confident that when oil recovers it will be a lot higher than it is now, and at least it has the cash to survive a prolonged period of low oil prices. I would agree that the costs of running the company are comparatively high.

   Wildrides,
   Main difference being i tend to try and cover a company before i buy any (unless it is one I’ve already been holding for a while) – which then means i can’t purchase myself for at least 72 hours even if i wanted to in that timeframe. Means you can’t buy, pump the hell out of it on blogs, Twitter etc whilst you’re selling yourself, as some do seem to do – personally I value integrity more than i do making a few quid by trying to rip off fellow PIs!

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   Backwoodsman

   13 February 2016, 10:22

   Gary – I agree with you that base on the numbers this should be a screaming buy. In my view caution is needed. Another big plus is that Bowleven are also good at exploration, thats what they do well. What they don’t do is make any money. Kevin has pissed away a small fortune over the years, and he’s rewarded himself excessively for it. The drop in the oil price has made a poor deal look like a masterstorke, he got lucky there.

   As for the RNS’s I’m not interested in ‘pie in the sky’ ones, but I don’t like those that try to hide the facts. Zingana is a poor well, I know that because Bowleven won’t tell me the figures. Just give me the numbers Kevin…not prepared to do that…ok, that makes Bowleven uninvestable for me.

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   wildrides

   14 February 2016, 03:37

   Gary,
   it was just a joke Gary …. apple ogies if you thought I was serious .

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   Gary Newman

   14 February 2016, 06:53

   Wildrides,
   Don’t worry knew you wasn’t being serious, and I’ve no intention of buying a castle or calling myself Britain’s new Picnic (or should that be Buffet?)!
   My reply was more a comment on the antics that some do seem to get up to! I know you don’t do Twitter, but don’t think you’d be surprised to see what some get up to, blatantly pumping shares so they themselves can sell into the rise!

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   Drunken Sailor

   15 February 2016, 01:41

   Gary,

   Your piece and the subsequent comments intrigued me enough to check Ben’s previous article and comments and then read the Annual Report. I have been completely ignoring AIM oilers and indeed other than maintaining my holding in BP for the dividend, I have no other interest in oil. However, I have been thinking about which ones to buy when things do turn round. I tend to agree that BLVN is probably the one to go for, as others that survive the current downturn are likely to have so many problems just getting back to a stable cash generative state that even though they may have been priced to go bust and have not, the confetti issue will need to continue for quite some time.

   Clearly the low oil price is the biggest factor driving BLVN down. General sentiment towards the sector is another and sentiment towards the board is another. They do seem to have rather a large board, which is slimming down as handovers occur. I have not fully checked the backgrounds of the new directors, but the mini CVs do seem impressive. Reading the section on director’s remuneration, I was amazed by how transparent they are about how it all gets worked out. We can all debate whether the mechanism arrives at a settlement that is good value or not, but at least we know what the mechanism is in quite some detail. However most did not read that and clearly got mad when they saw the announcement on 23 Dec that a load of shares from 2012 vested. I doubt anyone noticed that there was no bonus for 2015 and then the announcement on 14 Jan where the board got a whole load more unvested shares (which won’t vest unless share price performance criteria are met in 2019) and sold some of what they got on 23 Dec to pay the tax and NI. I can understand why people are angry, and I think the base salary for execs is a bit too high. However, compared to what other boards pay themselves for total value destruction, overall it does not seem that bad to me, having read and understood the mechanism.

   I note Kevin Hart had the largest shareholding at 30 Jun 3.2m – approx. 1%. Some have been freebies, but he has paid for the majority one way or another (yes some was using bonuses paid by the company in the first place and buying shares in the market was one of the conditions of the bonus) and at 30 Jun had an average of 55p, that comes down to 50p when the latest LTIP vesting and shares sold to pay tax are taken into account The fact that he does seem to resist the temptation to spend his whole time ramping the share price is, as you say, good news not bad.

   I also note that they transferred quite a bit of equity share capital to retained earnings, which means that should they start generating decent operating cashflows, they could start paying a healthy dividend quite early, rather than having to wait until they have cleared retained losses.

   Unless some other Oiler jumps out at me, I will do a bit more research on BLVN and then seek the right time to buy. At the moment I am not sure what the catalyst for a re-rating would be. Is it Oil going over a certain price. Would it be finally becoming a producer, albeit not a hugely profitable one at current prices, or would there be some other factor that gets the share price moving up rather than down? I would certainly welcome any opinions anyone has on this.

   The other one that came to my attention is Global Energy Development (GED). I am not sure they can really be described as an oiler these days as they sold their producing assets and have shut down work on their other assets , which never seemed all that great, and are sitting on a cash pile significantly greater than Market Cap. I am not sure how much I trust the management not to spunk the cash away. They have not done much with the cash other than to lend some to a related party and I am not sure exactly how I feel about that. On the one hand getting 12% interest on the cash loaned is good, as long as it gets paid and the principal does come back on 15 Mar and what it is secured on is worth enough, if it does not come back. On the other hand I am always deeply mistrustful of related party transactions like this. However I do have some faith in one of the Non Execs – Zac Philips of SP Angel (Northland are the Nomad & Broker), but I wonder how much influence he would have over the US management team if they did start behaving stupidly / dishonestly. I take the lack of activity over recent months as a good sign and not a bad one, ie they are biding their time to pick up real bargains rather than leaping on the first distressed project that comes available. However the lack of activity has driven the share price and liquidity right down. If anyone has time to delve deeper into this one I would appreciate it.

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   alcira16247

   15 February 2016, 03:59

   Gary

   I’d be in full agreement if the Hart factor was removed and a more viable strategy were in place utilizing monies, not taking punts drilling holes in the ground, but instead, cherry picking producing assets from distressed sellers, thus, at least generate some cash and look forward on recovery, making substantial profits.

   So I’d argue, there’s good reason why this companies shares languish, despite its fortunate good luck….. the market has no faith in the current boards ability to implement and develop a sound successful long term business.

   Explores – ten a penny, jam tomorrow and most going bust!

   N.B.

   Drunken Sailor, you might care to cast your beady over Lekoil (LEK)?

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   Backwoodsman

   15 February 2016, 14:55

   Alcira16247

   I agree. I’d love to buy this one but the cash seems to be burning a hole in Kevins pocket. There doesn’t seem to be a viable strategy to build shareholder value, just a vague notion of becoming an African focussed oil and gas yadda, yadda… Lets not forget the failed Aminex deal, another poor deal is likely just around the corner. Whats the exit plan Kevin?

   Drunken Sailor

   Kevin isn’t very interested in becoming a producer, its exploration that excites him. What are Bow going to produce? The two Bomono wells won’t deliver much and Etinde is out of Bows hands. When will Lukoil decide to move that one forward? It better be soon or the cash will be blown.

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    Drunken Sailor

    16 February 2016, 01:19

    ALCIRA,

    Thanks. Only had a quick look at LEK. At the moment I am not convinced the confetti issuing is over. Could be a good one to back when the oil price does pick up, but if that is still a long way off they could end up in trouble as they have burned through a lot of cash and have a lot of future commitments to meet. One to watch though.

    BACKWOODSMAN thanks. I need to do some more research into all the directors. Kevin is a Finance man with a background in the Oil Industry, The only way he is going to see his shares he has paid for (admittedly out of bonuses etc) worth what was paid is if BLVN does deliver operationally. The key drivers of the operational business would be David Clarkson and Ed Willet. I never trust the glowing Bios on the company website. What did Clarkson really achieve at BP and what did Willet really do for Cairn? those are questions I need to research in more depth.

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    alcira16247

    16 February 2016, 04:20

    Drunken Sailor

    Glad you’ve had a look at LEK, I’m a big fan of the company and believe it has tremendous potential.

    If you’ve had chance to read the RNS dated 3 December 2015 Assets and Operations Update – Analyst & Investor Conference Highlights Lekoil’s Resource Portfolio – you’d have noticed not only the excellent prospects for the Nigerian and Namibian assets but the Otakikpo field is exceeding all expectations……..

    “The production profile for Phase 1 of Otakikpo, comprising production from the four strings at Otakikpo-002 and 003, is now expected to ramp up to approximately 10,000 bopd, rather than the original guidance of 6,000 bopd. Based on identified resources and upside potential, the Company believes that peak production at Otakikpo in Phase 2 could reach 30,000 bopd.” ( full uplift cost according to the company US$17/20 per barrel.)

    With a cash balance of US$33.8 million and brokers forecasts for Y\E 2016 of revenues US$95 million and Nett Profit US$29.9 million. If forecasts achieved this gives a P\E of 3.68. Currently seven analysts rate the shares……..3 Buy…..4 Strong Buy (estimate figures obtained from Stockopedia)

    Of course not without risk, but given this company has a board that delivers on promises, plus its actually producing profitably, stands it head and shoulders above most of the AIM oilers dross.

    Kind regards and all the very best on your investments.

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    Backwoodsman

    16 February 2016, 15:17

    Drunken Sailor

    I don’t feel that Kevin’s main concern is the share price, IMHO its his salary. Last year he took a salary, including bonus, of around $1 million. He currently holds 3,569,994 shares of which he bought 2,692,073 at a cost of £1,777,066. The concern I have is that keeping the show on the road for another ten years, instead of looking to maximise shareholder value and seek an exit strategy, must be tempting for him. I’d be interested to hear your views on that?

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    wildrides

    17 February 2016, 01:56

    Woody

    that salary is obscene ………… inexcusable opposite the performance .

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    Drunken Sailor

    17 February 2016, 03:04

    BACKWOODSMAN

    Re Kevin I had not even heard the name before this article and ensuing discussion. I note comments by those who have met him / spoken to him are more favourable. The Hart factor is definitely part of what has driven the share price down and if he were removed or seen to be not such a bad guy that could drive the price up.

    wrt remuneration as I said in my original comment it is all set by the remuneration committee and they have been very transparent about how that works. Clearly Kevin’s remuneration is going to be the biggest as he is the CEO and clearly that is a part of the Hart factor.

    Personally I prefer CEO’s who have done their journeyman time doing the core function of the business, ie I would prefer to invest in an oil company who’s CEO was involved in finding and producing oil in his earlier career rather than being a finance man who has been involved in financing the oil industry in his earlier career. To use a ship analogy I would feel much safer on a ship where the Master had started as a deck officer, moved up to be chief officer having done navigating officer jobs then moved to being master of larger and larger vessels, rather than being a purser or engineering officer of a large vessel come to drive a smaller one. Actually that is the only way to become master of a commercial vessel, if the purser or engineer wants to drive they have to do the courses and spend the time learning the job. A good master however will know about the engines and the finances, but he has fully qualified people to do that for him.

    Have you ever met Kevin or is your view of him all based on what you read in RNSs and reports?

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    Backwoodsman

    17 February 2016, 14:00

    DRUNKEN SAILOR

    I haven’t met Kevin, my opinion has been informed by my own research, including the RNSs. If you watch him when hes in front of the TV cameras he doesn’t come over well. In my view he lacks passion, charisma and drive. Strangely he does get a little enthusiastic about exploration, but he’s spent a fortune on that so far, without delivering a return to shareholders. Like you I’m also concerned that he’s a finance man, not an oilman. With that in mind the cash that Bowleven have spent to get this far is very concerning. The company costs way to much to run, to be fair cuts have been made, but not big enough or fast enough. The overall strategy and exit plan is too vague for me, that adds to my feeling that Kevin’s not focussed on that. My biggest objection to date is the failure to deliver the flow rate figures for the Zingana well, thats very concerning for me as I think bad news has been disguised. At thr moment, for me, although the cash in the bank is great, I don’t see how Kevin is going to build a business that makes a profit. I hope I’m wrong and things begin to turn around for Bowleven. Good luck if you decide to invest. This is one I will be continuing to watch and I hope I change my mind and buy in the not too distant future.

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    Drunken Sailor

    18 February 2016, 01:17

    Found this while researching Kevin. A bit old, but mentions Ed Willet too. Well worth a read.

    http://www.scotsman.com/business/saturday-profile-kevin-hart-hart-and-soul-is-in-oil-1-1030859

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    Backwoodsman

    19 February 2016, 14:37

    Drunken Sailor

    Thanks for that, interesting article.

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    Drunken Sailor

    20 February 2016, 04:16

    BACKWOODSMAN

    Thanks for all your input. I am just about there with my research. David Clarkson looks to be a safe pair of hands – he certainly handled himself well during the BP GOM crisis.

    The Price of Oil, sentiment towards the sector and the Hart Factor are what makes BLVN potentially cheap. The first 2 will do what they do. The Hart factor could be the decider for whether I buy and when. There is certainly a dichotomy of views on Hart. I am not going to start a Hart fan club, but I see that dichotomy as potentially interesting. Unlike you I am not so fussed about the lack of clear strategy at the moment. At times like these just sitting back conserving cash, whilst progressing the projects you do have in a sensible manner is the best thing to do. If Kevin starts spunking the cash away stupidly then BLVN becomes an instant bargepole. However if he waits, finds the right moment and project to go for then that would be the catalyst I am looking for. BLVN stays on my watch list. I have also put LEK on my watch list, but have not progressed my research very far as I want to be more comfortable that the confetti issue is finished before I do a load more research.

    Did you have any thoughts on the other company I mentioned – GED. I really can’t decide whether to put it on the watch list or not. I hope to be able to meet up with Zac Philips when I get back in May on other matters and that might make my mind up for me. As you can see I used to be indecisive, now I am not so sure. However I have lost too much money in the past believing in dreams.

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    alcira16247

    30 March 2016, 08:50

    Gary

    The boards are filled with comments from indignant outraged disappointed shareholders after the publishing of today’s figures.

    I’m sure readers would value an update regarding your own views on the continuing farce that’s Bowleven.