How Bowleven can be restructured to the benefit of all

As Bowleven’s directors screamed “asset strippers” in today’s unnecessarily dramatic EGM Circular, they failed to address the primary complaint levelled against them. On their watch Bowleven has become no better than a lifestyle company. The cosy board pays itself generously, requires nothing in terms of performance and exhibits little financial discipline. With such a bloated, inefficient management structure it is no wonder the company blows $9.4million a year on its Plc overheads. Bowleven has desperately needed a root and branch restructuring for years. At long last shareholders now have the opportunity to effect such change at their company, to make it fit for purpose.

Kevin Hart and Billy Allen’s costly fantasy of creating a pan-African oil & gas company has been an unmitigated disaster. They have wasted hundreds of millions of dollars and devastated shareholder value in their vain (dare I say it, incompetent) pursuit of this impossible dream. But what of the alternative strategy proposed by Crown Ocean?

Bowleven’s directors have resorted to scare tactics to try and coerce shareholders into supporting them. They’ve decried the apparent lack of oil & gas experience of Crown Ocean’s nominations to the board, without explaining why this matters. What the current board is attempting to pull is a sleight of hand.

Bowleven does not need a board of oil & gas professionals. It needs decent management, who can run a business properly and manage finances correctly.

Crown Ocean has very sensibly not targeted Chief Operating Office David Clarkson in its resolutions for removal of directors. Clarkson will stay and surely has all the technical knowledge Bowleven needs, while it goes through a restructuring process. When Billy Allen disingenuously claimed Crown Ocean’s proposed strategy has no oil & gas experience, was he suggesting his fellow director is not up to his job?

This is ridiculous.

With respect to Crown Ocean’s nominations, Chris Ashworth and Eli Chahin, these are two well-established experts in corporate restructuring. Bowleven is currently a grossly inefficiently run business. It has no use for such a large board of oil & gas makeweights. What it requires is a more tightly run operating model, which preserves shareholder funds, while Etinde is developed.

Despite the current board’s pompous claims to the contrary, Bowleven is just along for the ride at Etinde. It is a minority 20% holder in the project. It has no say over any operating decisions and is free carried through the next expensive phase of development (up to $40million on two appraisal wells). Once the Final Investment Decision is made at Etinde, Bowleven will be due another $25million cash payment. Numerous funding options would then open up for the company to enable it cover its share of the costs of commercialising Etinde.

To have any chance of getting to that point, Bowleven has to stop the rot caused by the current directors. The company needs to abandon its doomed plan of becoming a pan-African oil & gas company and reform itself to become a well-run, cost-efficient holding company. This is all that is needed to realise substantial shareholder value.

The first issue a new board would have to contend with would be to slash the G&A costs. It is obscene that Bowleven wastes as many millions of dollars as it does on its Plc overhead. Billy Allen has allowed Bowleven’s executive directors to have gold plated service contracts, including 12-month notice periods. Whether or not the terms of these agreements would be legally enforceable remains to be seen, but thanks to the appalling manner in which Bowleven has been run there will probably be a significant cost incurred in cutting the fat.

However, once Bowleven’s basic operating costs are brought under control it should be possible to run the company on less than £1million a year. This is all that should be necessary for Bowleven to function as a holding company, while the serious players at Etinde advance that project.

The new board would then be faced with a decision about what to do with Bowleven’s residual cash balance. A sizeable cash return has to be the most probable outcome. Bowleven’s current board claims this would be damaging to the company, but this argument is contradictory. At the recent AGM the directors sought approval to buy back 15% of its stock. They cannot have it both ways. If Crown Ocean’s plan is potentially so harmful to the company, why did the board advocate one of its core aims only 2 months ago?

Of course it is farcical to suggest that Crown Ocean would advocate a plan, which would be detrimental to delivering shareholder value. Crown Ocean has bought over 15% of Bowleven’s equity. Its interests have to be aligned with other shareholders in wanting to see a substantial return on investment. This will only be possible once the current board has been removed.