After what might reasonably be described as a catastrophic 2015, the oil sector has managed to rally somewhat this year alongside the recovery in the crude oil price. However, markets remain sensitive to bad news, and most companies in the sector aren’t out of the woods yet.
This week, for example, Aim-listed, Africa-focused oil explorer Bowleven (LSE: BLVN) saw its share price take a nasty knock when it reported first-half results. As expected, the company – which has interests in Cameroon, Kenya and Zambia – took a $133m writedown on the value of its assets, as it downgraded its long-term oil price assumption to $65 a barrel.
However, what rattled the market was a warning that a joint venture to drill the Etinde prospect, which lies off the coast of Cameroon, has been delayed until early 2017. Last year, Bowleven sold a 40% stake in the discovery to Lukoil and New Age for $250m. Bowleven retains a 20% holding.
However, the project budget has been approved and should still proceed (particularly as rigs aren’t as tricky to come by today as during the boom times), and as oil analyst Malcolm Graham-Wood of HydroCarbon Capital says, the delay “should only be considered a nuisance and a putting off of riches to a later day”.
Obviously, this is the junior oil sector, so there are plenty of risks out there even at the best of times. Needless to say, a renewed slide in the oil price would batter sentiment and share prices across the sector.
However, if you’ve been tempted to look for potential bombed-out bargains in the oil market, then Bowleven might just offer the right balance of risk and reward for the more adventurous investor.
The company has just over $100m on the balance sheet and no debt, which should help to cushion it against any future disappointments – or to provide it with firepower should it spot any “value-creating transactions”, as the management team puts it. Says Graham-Wood, those “with a slightly longer perspective should consider investing at 20p – it is very attractive indeed”