Bowleven PLC (LON:BLVN) and Victoria Oil & Gas plc (LON:VOG) have agreed a farm-out deal for the former’s Bomono gas asset that gives it access to the local market of Douala in Cameroon.
A complex tie-up will see VOG subsidiary take an 80% stake in the Bomono production sharing contract (PSC), with Bowleven keeping the remainder and continuing as operator.
Gas from Bomono will be sold to VOG minus a tolling fee for use of the pipeline.
VOG will also complete the estimated US$6mln of work required to connect Bomono to the main network. However, Bowleven may have to pick up part of the tab if gas sales don’t cover the capital investment.
WATCH: Farm-out deal a good strategic move, says Victoria chief
As part of the deal a Bowleven local subsidiary will receive a 3.5% royalty on gas sales from the PSC capped at US$20mln; BowLeven itself gets £100,000-worth of VOG shares.
"We are delighted to be working together with VOG to unlock the potential of Bomono by accelerating the monetisation of the existing resources, whilst gaining access to VOG's extensive infrastructure and gas marketing experience,” said BowLeven chief executive Kevin Hart.
“This deal offers shareholders the opportunity to access VOG's robust commodity pricing framework, which offers attractive returns relative to a gas to power option, and requires minimal further investment by Bowleven to reach first production.”
The shares, which have doubled in value in the year to date, advanced a further 12% in early afternoon trade to 68p each, valuing the business at £83.5mln. Broker Shore Capital thinks the stock is worth is 170p.
“The transaction will provide VOG with additional sources of gas for supply to end users via its pipeline network, whilst providing exposure to exciting un-risked potential,” Shore said.
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