Why Bowleven’s board cannot deliver its strategy

When Bowleven Chairman Billy Allen started throwing stones last week, he should perhaps have first opened the windows in his rather large glasshouse. It is a bit rich for any of the current board to accuse others of wishing to turn the company into a personal “cash dispenser”. Crown Ocean defended itself in The Sunday Times yesterday, but I’ll revisit this in the next few days. A more pressing concern for shareholders is whether or not Bowleven today has the leadership skills and capabilities to deliver the strategy of successfully building an “African focussed exploration and production company?”

Bowleven’s board has made little to no attempt to defend its track record. It can’t really. The years of failure and mismanagement are indisputable. The evidence is there for all to see. Kevin Hart’s greatest single achievement has been to survive in charge for as long as he has, despite such abysmal performance. This raises a number of questions about the effectiveness of Bowleven’s corporate governance, which will no doubt become another hot topic over the coming weeks.

Before the mud slinging starts in earnest, shareholders would do well to take an objective look at what Bowleven currently has at its disposal and whether or not this is enough to implement the board’s strategy. Bowleven’s board has set out its stall to defend itself on a “better the Devil you know” basis, but this is hardly a confidence inspiring position.

Building a successful oil exploration and production company is expensive, high risk and requires specific expert skills, especially among the board of directors. A $95million cash balance might sound like a lot of money, but at best the company can survive two more failed, sole-risked drill campaigns before that money disappears. Given the current board’s track record of failure it would be a brave person who bets against this happening, if the directors are allowed to enter into any more capital spending projects.

One of the most troubling indicators that the current board is incapable of delivering its grand pan-African vision is the amount of work it subcontracts out when involved in a drill campaign. This is an obvious admission that the company lacks crucial capabilities to perform in the manner the board would apparently like. That those failed drill campaigns have often ended over budget and in legal disputes suggests there is a dangerous fault line running through the company’s current strategy. Bowleven’s board appears incapable of managing such complex operations and corporate relationships.

Then there is the Plc cash burn to consider. Bowleven’s general administrative overhead was $9.4million in 2016. This is staggering when you consider the company’s reliance on subcontractors. Some might even say it is unforgiveable. It certainly smacks of hubris that the board decided to commit the company to the high-risk exploration play at Bomono, without the support of a more competent, better financed partner. Is it any surprise this resulted in yet more failure and yet another legal battle, with accusations of incompetence flying around?

As for Etinde, Bowleven is just along for the ride. The company is not operator and appears to have little meaningful say in any of the key decisions. Billy Allen has expressed concerns that in sacking most of the board shareholders would risk losing key contacts in Cameroon. This looks like scaremongering.

Realising value at Etinde is out of Bowleven’s hands. The board should have swallowed its pride two years ago and accepted this. It should have streamlined the business and returned capital to shareholders long before its share buyback programme (which was only in response to Crown Ocean’s stake building!). It didn’t and instead has wasted $90million of shareholders’ money proving what the market has known for a long time. This board of directors cannot do the job it is paid so generously to do.

Bowleven desperately needs a radical overhaul if shareholders aren’t going to lose everything, as Kevin Hart and Billy Allen pursue their costly fantasy of building a serious oil & gas company.