Bowleven’s (LON:BLVN) farm-out with Victoria Oil and Gas (LON:VOG) is probably the quickest route to market for Bomono gas. While BLVN has had to sacrifice 80% of its interest in the block, the deal allows gas to be sold to Victoria’s existing network of customers at a gas price significantly above that expected from other solutions with very little further capex required in the near future. On our estimates, 7mmscfd of production should bring in around $6-7m in direct revenues and royalties, corresponding to around c $4m in post-tax cash flows, a useful addition to Bowleven’s income. On the assumption that the deal completes, we increase our core NAV from 49p/share to 53p/share to reflect Bomono’s inclusion.
Deal creates near-term revenue opportunity
While the deal sees Bowleven’s working interest fall from 100% to 20%, it gives Bomono gas access to VOG’s existing industrial and power customers, where realised prices achieved are between $9-16/mcf. This is several multiples of the levels we had assumed in our gas to power modelling. Additionally, the deal requires little further capital investment (in the near term) and minimal opex exposure. Upside (estimated at 146 and 263bcf GIIP across the block) may be accessed in the future, although we do not expect further drilling imminently. Subject to completion (which is conditional on government approval and the result of BLVN’s General Meeting on 14 March), we believe the deal should allow Bomono gas to start flowing to customers within nine to 12 months (mostly due to the time required for VOG to build the connecting pipeline infrastructure at its own cost).
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