Bowleven – (Bom) Oh no, not another Kevin Hart “farm out”!

Excuse the terrible pun in the title, but today is obviously a day for awful jokes.

This morning Bowleven announced the long awaited “farm out” of Bomono to Victoria Oil & Gas (AIM:VOG). Over the coming weeks, when Kevin Hart sits down to fill in his new CV, he’ll now be able to claim that as CEO of Bowleven he completed not one, but two of these deals. It’s just a shame for shareholders he managed to destroy hundreds of millions of dollars in the process. Bowleven’s current “independent” directors had better not decide that this miserable transaction justifies any bonus payments to the executives under the company’s Long Term Incentive Plan.

The terms of the Bomono “farm out” are wretched. Victoria Oil & Gas will risk next to nothing and repay none of the historical costs Bowleven incurred in developing the project. Remember, Bowleven’s board has spent over $100million on Bomono. By any measure this has been a terrible waste of money and yet another abject strategic failure by Billy Allen’s “high calibre management team”.

The key terms of the Bomono farm out are as follows:

  • Victoria Oil & Gas will not refund Bowleven anything for the $100million it has already spent on Bomono.
  • Bowleven has given away 80% of Bomono for £100,000 worth of Victoria Oil & Gas shares and a 3.5% royalty on revenue (which is capped at $20million). This puts a notional value of $25million on Bomono (and assumes the project even generates any revenue).
  • Bowleven will remain as operator of Bomono, despite only retaining a 20% stake. This makes absolutely no commercial sense.
  • Bizarrely, despite only retaining 20% of Bomono, Bowleven has agreed to underwrite 50% of the first $4million cap-ex to be spent on developing the project, should revenues fall short over the first 3 years.

It is no wonder that Victoria Oil & Gas’ share price went up 16% on this news while Bowleven’s went down 3%. If Bomono is ever commercialised Kevin Hart will have given away $20million of value, having already wasted $100million on pursuing this folly. If it isn’t commercialised all he’ll have to show for the $100million will be £100,000 worth of Victoria Oil & Gas shares. You couldn’t make this stuff up.

But let’s be honest with ourselves. The rush to announce this deal has nothing to do with delivering value to Bowleven. It’s a box-ticking exercise so Hart can insincerely claim he completed two farm outs.