Thanks TBE very good post (see below) from SF in 18/12/2009!
SF that time you valued BOW between $3.50 -6
What has changed now?
############################### HC, here are some of my consolidated thoughts on BOWs past, recent and future achievements. I think things are looking good and I would put an moderate price target of around 3.50 heading towards end 2010. Aggressively at $6.60. GO BOW.
PS: If you enjoy the read, thumb it up so we can put BOW out across HC. I am sick of reading top posts about BCC and MEO that lack the star quality we have in the company BOW Energy :)
30MW station
The announcement of the 30MW station is quite strategic in the scope of acquiring an asset that will generate near term cash flow from their extensive pilot program that is now being run across the whole of Blackwater over two phases and perhaps even more strategic in the scope of supporting pipeline development to Gladstone. Pumping stations to pressurize the gas are required to move it through the pipeline to Gladdy. This station is appropriately sized for this specific operation and construction will be phased just right to conincide with first LNG from CSG. To me the value of this station has just increased tremendously with this possible linkage to pipeline infrastructure that supports an LNG facility. The size and location of the station is analogous to the ones (qty3) Arrow require for their Surat/Glad pipeline. It would make sense to run a pipeline from Moranbah to Blackwater and then to Gladstone with maybe another station along the way to support a Bowen/Glad pipeline. Blackwater is roughly equidistant to both Moranbah and Gladdy. The current Arrow pipeline is expected to run 50km East of Blackwater, however it tracks right over Norwich.
Reserves targets
While it is clear that these have been set at very achievable levels initially and also on yesterdays revision to 45% more 3P by 2010 end, there is risk in this business. The risk is probably quite low considering that we have already achieved around 1340-3P 378-2C reserves in Black water alone (with a total of 1264-3P expected in just the Rangal measures following BW8 drilling). This leaves around 454PJ in the Burngrove (upper FCCM). We should also note that the lower FCCM have been completely excluded from all this, but they may be more continuous and have better (lower) ash contents in the Comet and Norwich areas. Looking back at the I-GIP; 2605PJ for the UpperFCCM/Rangal was estimated and we have net reserves of 1718PJ from that which is an excellent strike for BOW a 65% conversion. The lower FCCM which had a GIP 3170PJ have resulted in absolutely no reserves. I am a little suspicious of this result as BOW choose early on not to go after the lower FCCM because of ash, depth and continuity reasons. Maybe later in the fields life they will be looked at again for additional production potential.
The 2P program is only targeting the Rangal measures at this point in time. I would be hopeful of an estimate of around 500PJ-2P results from the extended 2P program by end of 2010 and about 150PJ 2P by mid 2010 following the results from the initial pilot programs. We should probably start to hear about the hydrofraccing tests they were planning on carrying out shortly I thought it may be possible we would get an early 2P Christmas present but perhaps not.
The comet program delivered some strong results from the coring program in August. BOW indicated that we should see results in early 2010. Going by their current trends, I think we could expect results in 4-6 weeks (previously thought Dec 09) and I will go ahead and tip 21 Jan for an announcement with a target of 400-700PJ. The wide range is reflective of the excellent coal intersects and high gas content, but low reported perm in both Rangal and Burngrove coals as well as their only being 3 core results in that permit. If they were better, perhaps we could see some better upside. Initial GIP for Comet was 3130PJ so upside (inclusive)may be around 900-1200PJ 3P range???
We can expect further pilots in 2010 to be announced for the Comet and Norwich fields to test the producability of those coals and get those 2P targets of 100PJ each.
The great results have completely overshadowed the delay to commencement of drilling at Norwich park which was targeting a seven well program to commence last month. It was recently announced that this was due to commence last week. We should start to see coring results from this either before Christmas or in the new year depending on how savage BOW is with the drillers hopefully they give them a rest ahead of a big year in 2010. They are going after the Vermont prospect first, which looks like a solid slice FCCM running down into a fault. This should also be our first crack at drilling the Moranbah coals. The Rangal look only present in the northern section of Vermont. I think we are looking at potential for around 40-60m net coals around Norwich. Drilling through this much net coal has caused a few stability issues in other drilling in the region, so would not be surprised if the same problems experienced with BW-3 to be repeated in a few instances.
Most of the Norwich prospect look fairly complex with several faults through the area that should add to the complexity of the planning and targeting coals that are optimal for CSG development. The Eastern and Western edges look good for this reason. Just for giggles, Norwich Park has a total estimated Intial Gas In Place of almost 11TCF. Wrap your chops around those number and compare them to what MEO/MOG are going through to try and drill Artemis on the NWS that has a mean GIP of 12TCF ( I think they are going for 60% recovery from that to 7.2TCF or around 7200PJ) only we know with a much greater certainty and with far lower capex what is down under the ground. The risk profiles are phenomenally different, but then again so are the field development options. Personally I think BOW are a much safer bet.
Please note this is all exclusive of both Don Juan ( which is still a very reasonable prospect), Canaway Ridge, and the fairly prospective Gunyah Block. It would be interesting to see where and how they start jamming Gunyah into the exploration and development program for 2010. Is there any room left?
So briefly in summary, my plucks for time frames are as follows:
Q1 10 - 3P from Comet. Q1 10 Initial 2P from Blackwater; Q2 10 Initial 3P from Norwich (Vermont). Q3 10 Further 3P from Norwich (Dysart/Norwich) Q3 10 - 2P fom Blackwater; Q3/4 10 Initial 2P from Comet; Q3/4 - 10 Initial 2P from Norwich
UNassessed potential in the CM Basin and Oil Production
Metagasco has recently been set on fire with a conventional discovery at Kingfisher. BOWS CM permits are immediately to the North ad surround MELs. This area has received little attention from BOW, and could also hold CSG potential as MEL also has two Corella pilots (1drilling1operating) in the area. I am unsure of what rights BOW has over this area conventional and CSG?
BOW has some oil production and also some prospects, however there is minimal attention given to these due to the heavy CSG focus. BOW CEO-Pet left this year as well. Production from Cuisinier is expected shortly I believe.
Staffing
BOW now adds a very respected Chief Operating Officer (COO) and a Chairman to the mix. Clearly we are on the way up guys. This is a company forming a very solid foundation.
A foundation might I add that has the solid support of Bizzell and Mather who cofounded Arrow Energy. JDS and RP are doing a great job of moving things along.
LNG Requirements
One other note on the LNG targets for 2P and 3P reserves needed. We should keep in mind that although BOW has promoted that there is a 59/52% underachieve on 2P/3P reserves thus far to support all the Gladdy LNG, the results put together by Wilsons HTM do not account for both the phasings of each of the plants (that is they do not need all the reserves for the first trains, they can be phased in over several years) or the risk of consolidation reducing the net requirement for reserves the current ~50mtpa could be reduced to somewhere around 30-40 on projects merging. Which equates to a reduction of reserve targets of 20-40%. You can see how this could squeeze BOW in the market as it may be unwanted. Hence my next comments:
Future Consolidation
I maintain that I am reticent to promote takeovers and mergers as this is not and should not be a successful companys business model. Their absolute focus must be on building a sustainable business, for the second they loose sight of this objective, they are weaker at the negotiating table and cannot deliver a result for their holders.
You only need to look at the results of SHG/QGC and SGL/AGK mergers to see how they succeeded and failed, respectively in delivering for their shareholders. I think the likelihood of an all scrip offer from Arrow has increased because of the following reasons:
-Arrow low cash position
-clear association with Arrow through Mather, Bizzell and Prefontaine (and also BOW being seeded from Arrow)
-adding an INDEPENDENT chairman
-consolidation widely expected coming in new year
-great project economics for BOWs North Bowen permits
-the strategic move to split CSG and Oil businesses early in the year
-Arrows clear interest in acquiring permits in this locality failed Pure bid
-30MW station being a possible strategic gas infrastructure for Arrow Bowen/Gladdy pipeline
-significant reserve position that would enhance Arrows ability to support both LNG Ltd and Shell LNG
Cashed up
With $19m in the bank at the last quarterly, BOW have since raised $12.5m through a cash/scrip ($8mcash) sale to VICPET of the ATP 574 asset as well as a the significant move to plug the market for a total of $76m. This leaves $103m cash. Recent ann is that there is $95m cash in the bank which indicates that the VICPET money has yet to be received (I think they were waiting on ministerial approval?).
Shares on Issue
Current Shares on Issue = 248m
Expected Post SPP = 248m+28.8m = ~277m
Pre CAP RAISING = 216m
NET Dillution = 28% Dillution
Valuation
The need for gas is alive and well - but how long will it last? There have been two major transactions later in the year with STO buying $500m for approximately half of ESG/GASTAR/HGOs associated assets in the Gunnedah basin, and just yesterday AJL announced that Japan has purchased the 15% holding they have in the SINGLE ATP 651 permit for $98.7m. Nice job AJL. We knew it was coming, just not sure when.
Based on the last known data for 651, if we assume the 212C resource was added to the 8053P then the net 3P in the permit was 1017PJ. Based off this, the AJL 15% sold for around 0.65/GJ. Based off the last certified 2P results, it is value around $2.50/GJ on a 2P basis. I would tend to think the 3P number would be a better metric at this point in time. It is interesting that BG did not buy it as they hold the remainder of the permit through QGC is BG now all gassed up, or did AJL just drive too hard a bargain.
As I mentioned above, we need to throw a little caution on how much upside space there is in the reserves department. We know that Arrow and QGC have been drilling like mad to firm up their positions prior to FIDs. Arrow announced last month that it was hitting around 18 core wells through Oct and Nov with around 16 more pilot wells ALL IN the BOWEN Basin. That announcement by the way is an excellent overview of the Coal Measures that BOW is about to target in the Norwich block which are all prospects that have direct extensions into Arrows blocks..or do you really believe the magical squiggly lines that delineate a prospect going around competitors blocks???
I think I previously indicated that I thought a similar metric used for PES was appropriate and is even more so at this time given BOWs strong established position and future upside reserve growth. Again the main difference with PES was that they also had the Cameron field. Looking at what BOW has now, across the board, I am starting to think that similar upside exists and it is perhaps fair that we evaluate them using the SAME metric as Pures final bid - I will use a low 30c/GJ and the Pure valuation of 40c/GJ to give a range.
My previous opinion placed BOW at 30c/GJ 3P for the current campaign which has a target of 1900 PJ. So my expectation is for the MC to be around 570m with a share price of $2.46 that assumed an additional 10% dillution towards the end of next year. We are now still in 2009 though and assuming we get the Contingent Balckwater resource to 3P, we have already a position of 1825PJ but with 30% dilution. This could place us around the $2.63/sh mark.
Less our current cash position of $95m from a MC of $360m; EV goes to $265, or around $0.14/GJ. If we assess the E/V at 0.30/GJ for 3P [E/V = 0.3x1825 (527m) + 95m], I think we should definitely be looking at a current value of around $2.30 per share.
So how do we account for future upside in the share price. Well, moving on from here I will make the following dangerous assumptions and do so on a whole 3P basis. Of course if the 2P program jacks off and doesnt produce the goods, then the valuation using 3P is nowhere near reliable. That said, based on the drilling results thus far, BOW is looking the goods for the 2P program to be a success. I havent seen a 1 Darcy number reported yet. Lets hope the coals stay in place to flow the gas LOL! Here we go:
Naturally it would be more prudent to use the company targets (for example they have 500-3P for Norwich while I have it pumped up to around 2900-3P), but just for giggles, we get an estimate of $1.6b-2.2b using 0.3-0.4/GJ. Or around $4.81 to $6.60 assuming a further 20% dilution (332m soi) during 2010.
Using the company targets of 2750 3P, we get the range of $825m-1.1b @ 0.3-0.4/GJ range or around $2.48 to $3.31 again assuming a 20% dilution.
We know PES was sitting around a contingent resource of 5000 and a 3P reserves of 2510PJ.
In my mind, I think the above targets are reasonable and very comparative to the upside that we saw in Pure Energy. The contingent upside of BOW and its increasing chance of success now that it is heavily cashed up and expected to be a producer and generator in <18 months means to me, in my humble opinion, that we are well and truly into multi-bagger territory at the current price of $1.30.
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So in summary, a 12 month potential high side value of $6.60 and a low side of $2.48. Based on everything being equal, I would have a pluck and reckon that BOW should be aiming for around the $3.50 mark at 2010 EOY.
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If anyone has anything to add to this or point out where my opinion may be off target, please feel free to correct me or add to the discussion in particular any details on the Bowen/Glad pipeline.
If you like this post and find it valuable in forming an opinion on BOWs direction, please thumb it up so we can get the message out across HC what is going on at BOW.
I still think we are in multi-bagger territory on BOW. This one is going to be a screamer!
and of course as always, this is clearly just me opinion interpreted from industry analogies and market releases by BOW;
Cheers and Merry Christmas,
SeamFiend
Last word: What was the God Apollos fave weapon?
GO BOW!
BOW Price at posting:
$1.55 Sentiment: Buy Disclosure: Held
